-----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, GUnzukeTqi1pyrGVUcT0DSJG041Yvd/wTtk/es/jLh4TZ4qQtq00Etk0x12v4ML8 kFUtXoKR6YP3exZLsGDj5A== 0000898430-96-004210.txt : 19960906 0000898430-96-004210.hdr.sgml : 19960906 ACCESSION NUMBER: 0000898430-96-004210 CONFORMED SUBMISSION TYPE: DEFS14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960927 FILED AS OF DATE: 19960905 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESSEX PROPERTY TRUST INC CENTRAL INDEX KEY: 0000920522 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 770369576 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEFS14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13106 FILM NUMBER: 96626116 BUSINESS ADDRESS: STREET 1: 7777 CALIFORNIA AVE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4154943700 MAIL ADDRESS: STREET 1: 755 PAGE MILL RD CITY: PALO ALTO STATE: CA ZIP: 94304 DEFS14A 1 DEFINITIVE SPECIAL PROXY SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_]CONFIDENTIAL,FOR USE OF THE [_]Preliminary Proxy Statement COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2)) [X]Definitive Proxy Statement [_]Definitive Additional Materials [_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12 ESSEX PROPERTY TRUST, INC. (Name of Registrant as Specified In Its Charter) Payment of Filing Fee (Check the appropriate box): [_]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [_]$500 per each party to the controversy pursuant to Exchange Act Rule 14a- 6(i)(3). [_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [X]Fee paid previously with preliminary materials. [_]Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: Notes: ESSEX PROPERTY TRUST, INC. 777 CALIFORNIA AVENUE PALO ALTO, CALIFORNIA 94304 Dear Stockholder: September 5, 1996 You are cordially invited to attend a Special Meeting of the stockholders (the "Special Meeting") of Essex Property Trust, Inc., a Maryland corporation (the "Company"), to be held on Friday, September 27, 1996 at 10:00 a.m. local time, at the offices of the Company at 777 California Avenue, Palo Alto, California 94304. As described in the accompanying Proxy Statement, the Company has entered into an agreement pursuant to which Tiger/Westbrook Real Estate Fund, L.P., and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P. (collectively, "TREP Investor") will invest up to $40 million in the Company (the "Transaction") through the purchase of the Company's 8.75% Convertible Preferred Stock, Series 1996A (the "Preferred Stock") for a purchase price of $25.00 per share. In the first phase of the Transaction, on July 1, 1996 TREP Investor purchased 340,000 shares of Preferred Stock for an aggregate purchase price of $8.5 million and, through an affiliate, loaned the Company an additional $11.5 million. Under the second phase of the Transaction, the Company expects to complete the entire Transaction by TREP Investor's exchanging the $11.5 million loan for shares of Preferred Stock and purchasing for cash up to an additional $20 million in shares of Preferred Stock. Completion of the entire second phase of the Transaction will depend on you, the stockholders, to vote in favor of the Transaction at the Special Meeting. The first phase of the Transaction has been completed and does not require the approval of the stockholders. Stockholder approval is, however, required to complete the entire $40 million investment, and at the Special Meeting you will be asked for such approval. The $40 million investment, through the sale of Preferred Stock, will help the Company to grow in the near term. At the Special Meeting, you will also be asked to approve certain proposed amendments to the Company's Charter that are necessary or desirable in connection with the Transaction, as described in the attached Proxy Statement. As you may know, in early August 1996, the Company completed a follow-on, underwritten public offering of 2,530,000 shares of its Common Stock at a per share price of $22.75. The Company believes that the announcement of the Transaction with TREP Investor was an important factor in the successful completion of this offering. Your management and Board of Directors unanimously recommend that you vote FOR approving the entire Transaction and FOR the other proposals being submitted. Details of the Transaction (including the potential material beneficial and material adverse effects of the Transaction) and the other proposals are set forth in the accompanying Proxy Statement, which I urge you to read carefully. Your vote is important. I hope that you will be able to attend the meeting in person. However, whether or not you plan to attend the meeting, please indicate your vote, sign, date and return the enclosed proxy card promptly. I look forward to seeing you at the Friday, September 27, 1996 Special Meeting. Sincerely, Keith R. Guericke Chief Executive Officer and President ESSEX PROPERTY TRUST, INC. 777 CALIFORNIA AVENUE PALO ALTO, CALIFORNIA 94304 --------------------- NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 27, 1996 --------------------- NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (the "Special Meeting") of Essex Property Trust, Inc., a Maryland corporation (the "Company"), will be held on September 27, 1996 at 10:00 a.m. local time, at the offices of the Company at 777 California Avenue, Palo Alto, California 94304, for the following purposes: 1. To consider and vote upon the terms of a Stock Purchase Agreement, as amended, among the Company, Tiger/Westbrook Real Estate Fund, L.P., a Delaware limited partnership, and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P., a Delaware limited partnership (collectively, "TREP Investor") and the transactions contemplated thereby (collectively, the "Transaction"), including the investment by TREP Investor of up to $40 million in the Company through the purchase by TREP Investor of up to 1,600,000 shares of the Company's 8.75% Convertible Preferred Stock, Series 1996A (the "Preferred Stock"), which Preferred Stock is convertible into shares of the Company's common stock under terms and conditions more particularly described in the attached Proxy Statement, for a purchase price of $25.000 per share, which investment will be consummated in two phases: (a) the purchase by TREP Investor of 340,000 shares of Preferred Stock, for an aggregate purchase price of $8.5 million, paid in cash, which purchase was completed on July 1, 1996; and (b) the purchase by TREP Investor of up to 1,260,000 additional shares of Preferred Stock, the purchase price for which will be comprised of (A) exchanging $11.5 million, constituting the outstanding principal balance of a loan (the "TREP Loan"), in the maximum principal amount of $31.5 million (the "Maximum Loan Principal Amount"), made to the Company on July 1, 1996 by T/W Essex Funding, L.L.C., a Delaware limited liability company, an affiliate of TREP Investor, for shares of Preferred Stock, and (B) utilizing funds otherwise comprising the remainder of the Maximum Loan Principal Amount to acquire the remaining shares of Preferred Stock, as more fully described in the attached Proxy Statement. Completion of the purchase of up to 1,260,000 additional shares of Preferred Stock is scheduled to occur on or prior to June 20, 1997. The Transaction also involves a number of additional terms, as more fully described in the attached Proxy Statement, including, without limitation, the following: (i) the right of the holders of Preferred Stock to nominate and elect, voting as a separate class, one director to the Board and, if at the Special Meeting the stockholders do not approve the proposed amendment to the charter of the Company (the "Charter") to provide for certain changes in the composition of the Board in the event of the breach of certain protective provisions relating to the Preferred Stock (as more fully discussed in the attached Proxy Statement), to nominate and elect, voting as a separate class, up to four additional directors to the Board, in the event of a sustained failure to pay dividends with respect to the Preferred Stock or a breach of certain protective provisions, as more particularly described in the attached Proxy Statement, for an aggregate of five directors, representing approximately 33% of the directors on the Board; (ii) the grant to TREP Investor of certain rights to information regarding the Company; (iii) limitations on the Company's ability to engage in certain transactions and certain corporate actions without the consent of the holders of Preferred Stock; (iv) provisions that restrict the holders of Preferred Stock from transferring the shares of Preferred Stock except in accordance with applicable securities laws and subject to the ownership limits in the Charter; (v) the grant to TREP Investor of certain additional rights to purchase, under certain circumstances, shares of the Company's stock in connection with future stock issuances by the Company; (vi) limitations on the rights of certain holders of Common Stock and of limited partnership interests in Essex Portfolio, L.P., a California limited partnership (the "Operating Partnership") to transfer their shares of Common Stock or limited partnership interests in the Operating Partnership; and (vii) the grant to the holders of Preferred Stock of certain registration rights to enable such holders to resell outstanding shares of Preferred Stock (and/or shares of Common Stock issued upon conversion of the shares of Preferred Stock) to the public under certain conditions (Proposal 1). 2. To consider and vote upon certain proposed amendments to the Charter, as more particularly described in the attached Proxy Statement, that are necessary or desirable in connection with the Transaction to amend the limitations on ownership of the Company's stock to facilitate the acquisition of the Company's stock by TREP Investor and to provide the Board of Directors with increased flexibility to waive the Charter ownership limitations in certain circumstances. (Proposal 2). 3. To consider and vote upon certain proposed amendments to the Charter, as more particularly described in the attached Proxy Statement, to provide for certain changes in the composition of the Board of Directors in the event of the breach of certain protective provisions of the Charter relating to the Preferred Stock. (Proposal 3). Approval of each of the Transaction and Proposal 2 is conditioned upon approval of the other (but is not conditioned on approval of Proposal 3). Failure by the stockholders to approve the Transaction or Proposal 2 at the Special Meeting will result in neither the Transaction nor Proposal 2 being approved (except for certain portions of the Transaction with respect to which stockholder approval is not required, as more particularly described in the attached Proxy Statement) and may require the Company to pay a yield maintenance fee in connection with the TREP Loan. Failure by the stockholders to approve Proposal 3 will not affect the approval of the Transaction or Proposal 2. Pursuant to the Company's By-laws, the Company's Board of Directors has fixed the close of business on September 5, 1996 as the record date for the determination of stockholders of the Company entitled to notice of and to vote at the Special Meeting. Therefore, only record holders of Common Stock at the close of business on that date are entitled to notice of and to vote at the Special Meeting. We urge you to review carefully the enclosed materials. Your vote is important. All stockholders are urged to attend the meeting in person or by proxy. If you receive more than one proxy card because your shares are registered in different names or at different addresses, please indicate your vote, sign, date and return each proxy card so that all of your shares will be represented at the Special Meeting. By Order of the Board of Directors Keith R. Guericke Chief Executive Officer and President Palo Alto, California September 5, 1996 IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY, THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE INDICATE YOUR VOTE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED, INCLUDING BY VOTING AT THE MEETING. ESSEX PROPERTY TRUST, INC. 777 CALIFORNIA AVENUE PALO ALTO, CALIFORNIA 94304 ---------------- PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS SEPTEMBER 27, 1996 ---------------- This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of Directors (the "Board of Directors" or the "Board") of Essex Property Trust, Inc., a Maryland corporation (the "Company"). The proxies will be exercised at a Special Meeting of the stockholders of the Company (as the same may be postponed or adjourned, the "Special Meeting") to be held on Friday, September 27, 1996, at 10:00 a.m. local time, at the offices of the Company at 777 California Avenue, Palo Alto, California 94304. This Proxy Statement and the accompanying form of proxy are being first mailed to the stockholders of the Company on or about September 5, 1996. Any proxy given pursuant to this solicitation may be revoked at any time before it is voted by (i) filing prior to the Special Meeting a written notice of revocation bearing a later date with the Company (to the attention of Mr. Jordan E. Ritter); (ii) delivering to the Company a duly executed proxy bearing a later date; or (iii) attending the Special Meeting and voting in person. At the Special Meeting, holders of the common stock, par value $0.0001 per share (the "Common Stock"), of the Company will be asked to consider and vote upon the terms of a Stock Purchase Agreement (as amended, the "Stock Purchase Agreement") among the Company, Tiger/Westbrook Real Estate Fund, L.P., a Delaware limited partnership, and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P., a Delaware limited partnership (Tiger/Westbrook Real Estate Fund, L.P., and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P., being collectively or individually, as the context requires, referred to herein as "TREP Investor"), and the transactions contemplated thereby (collectively, the "Transaction"), including the investment by TREP Investor of up to $40 million in the Company through the purchase by TREP Investor of up to 1,600,000 shares of the Company's 8.75% Convertible Preferred Stock, Series 1996A (the "Preferred Stock"), for a purchase price of $25.000 per share, as more fully described in this Proxy Statement. The investment will be consummated in two phases: (i) the purchase by TREP Investor of 340,000 shares of Preferred Stock, for an aggregate purchase price of $8.5 million, paid in cash, which purchase was completed on July 1, 1996; and (ii) the purchase by TREP Investor of up to 1,260,000 additional shares of Preferred Stock, the purchase price for which will be comprised of (A) exchanging $11.5 million, constituting the outstanding principal balance of a loan (the "TREP Loan"), in the maximum principal amount of $31.5 million (the "Maximum Loan Principal Amount"), made to the Company on July 1, 1996 by T/W Essex Funding, L.L.C., a Delaware limited liability company ("TREP Funding"), an affiliate of TREP Investor, for shares of Preferred Stock, and (B) utilizing funds otherwise comprising the remainder of the Maximum Loan Principal Amount to acquire the remaining shares of Preferred Stock, as more fully described in this Proxy Statement. Completion of the purchase of up to 1,260,000 additional shares of Preferred Stock is scheduled to occur on or prior to June 20, 1997. As of the date of this Proxy Statement, there are 340,000 outstanding shares of Preferred Stock. TREP Investor owns 100% of the 340,000 outstanding shares of Preferred Stock, which are equivalent to 388,571 shares of Common Stock or approximately 3.52% of the outstanding shares of Common Stock as of the Record Date (as hereinafter defined) assuming the exchange of all limited partnership interests in Essex Portfolio, L.P., a California limited partnership (the "Operating Partnership"), into shares of Common Stock, and the conversion of all outstanding shares of Preferred Stock into shares of Common Stock at a conversion price of $21.875 per 1 share ("fully-diluted basis"). If TREP Investor acquires all 1,600,000 shares of Preferred Stock directly from the Company, as contemplated by the Transaction, and assuming no other change in the number of outstanding shares of Common Stock or shares of Preferred Stock and further assuming TREP Investor does not dispose of all or any portion of its shares of Preferred Stock, TREP Investor will own 100% of the 1,600,000 outstanding shares of Preferred Stock, which are equivalent to 1,828,571 shares of Common Stock or approximately 14.64% of the outstanding shares of Common Stock on a fully- diluted basis. From and after June 20, 1997, 400,000 shares of Preferred Stock shall become convertible into Common Stock. Thereafter, at the beginning of each of the next three three-month periods, an additional 400,000 shares of Preferred Stock shall become convertible into Common Stock, provided that, in the case of the voluntary or involuntary liquidation, dissolution or winding up of the Company, all outstanding shares of Preferred Stock shall, at the option of the holder thereof, become immediately convertible into Common Stock at the Conversion Price (as hereinafter defined). The Transaction also involves a number of additional terms (the "Additional Terms"), as more fully described in this Proxy Statement, including, without limitation, the following: (i) the right of the holders of Preferred Stock to nominate and elect, voting as a separate class, one director to the Board and, if at the Special Meeting the stockholders do not approve the proposed amendment to the charter of the Company (the "Charter") to provide for certain changes in the composition of the Board in the event of the breach of certain protective provisions relating to the Preferred Stock (as more fully discussed in this Proxy Statement), to nominate and elect, voting as a separate class, up to four additional directors to the Board, in the event of a sustained failure to pay dividends with respect to the Preferred Stock or a breach of certain protective provisions, as more particularly described in this Proxy Statement, for an aggregate of five directors, representing approximately 33% of the directors on the Board; (ii) the grant to TREP Investor of certain rights to information regarding the Company; (iii) limitations on the Company's ability to engage in certain transactions and certain corporate actions without the consent of the holders of the Preferred Stock; (iv) provisions that restrict the holders of Preferred Stock from transferring the shares of Preferred Stock except in accordance with applicable securities laws and subject to the ownership limits in the Charter; (v) the grant to TREP Investor of certain additional rights to purchase, under certain circumstances, shares of the Company's stock in connection with future stock issuances by the Company; (vi) limitations on the rights of certain holders of Common Stock and of limited partnership interests in the Operating Partnership to transfer their shares of Common Stock or limited partnership interests in the Operating Partnership; and (vii) the grant to the holders of Preferred Stock of certain registration rights to enable such holders to resell outstanding shares of Preferred Stock (and/or shares of Common Stock issuable upon conversion of shares of Preferred Stock) to the public under certain conditions. The first phase of the Transaction (including, without limitation, the purchase by TREP Investor of 340,000 shares of Preferred Stock and the making by TREP Funding of the TREP Loan to the Company) was completed and all of the Additional Terms were effective as of July 1, 1996, and neither the first phase of the Transaction nor any of the Additional Terms (including, without limitation, all of the approval rights, preferences, privileges and other rights and terms of the Preferred Stock) requires the approval of the stockholders of the Company. Stockholder approval is, however, required to complete the entire $40 million investment, in the manner contemplated by the Company, and, consequently, the Company is relying on such approval for the Company to maximize the potential benefits that the Company believes the Transaction can provide if the Transaction is fully consummated, as more particularly discussed in this Proxy Statement. A vote in favor of the Transaction also will constitute a vote in favor of the transactions contemplated by the Stock Purchase Agreement, all of the other documents referenced therein or executed in connection therewith (as more fully described in this Proxy Statement), and the terms thereof, including each of the additional matters set forth above. The Company does not expect the Transaction to have a material effect on the current management of the Company. The Company is seeking stockholder approval of the Transaction pursuant to certain requirements of the New York Stock Exchange, Inc. regarding the continued listing of the Common Stock on the New York Stock 2 Exchange ("NYSE"). Approval of the Transaction is not required by Maryland law, the Charter or the Company's Bylaws, as amended (the "Bylaws"). If the Company were to consummate the entire Transaction without stockholder approval, the Common Stock could not remain listed on the NYSE. At the Special Meeting, the stockholders also will be asked to approve proposed amendments to the Charter that are necessary or desirable in connection with the Transaction (i) to amend the limitations on ownership of the Company's stock to facilitate the acquisition of the Company's stock by TREP Investor and to provide the Board with increased flexibility to waive the Charter ownership limitations in certain circumstances, and (ii) to provide for certain changes in the composition of the Board of Directors in the event of the breach of certain protective provisions of the Charter relating to the Preferred Stock. Approval of each of the Transaction and Proposal 2 (as hereinafter defined) is conditioned upon approval of the other (but is not conditioned on approval of Proposal 3 (as hereinafter defined)). Failure by the stockholders to approve the Transaction or Proposal 2 at the Special Meeting will result in neither the Transaction nor Proposal 2 being approved (except for certain portions of the Transaction with respect to which stockholder approval is not required, as more particularly described in this Proxy Statement) and may require the Company to pay a yield maintenance fee in connection with the TREP Loan. Failure by the stockholders to approve Proposal 3 will not affect the approval of the Transaction or Proposal 2. For a discussion of the potential material beneficial and adverse effects of the Transaction, see "Potential Material Beneficial Effects of the Transaction" and "Potential Material Adverse Effects of the Transaction". ---------------- IN DETERMINING WHETHER TO APPROVE THE TRANSACTION AND THE AMENDMENTS TO THE CHARTER, STOCKHOLDERS SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT. ---------------- The date of this Proxy Statement is September 5, 1996. 3 TABLE OF CONTENTS
PAGE ---- SUMMARY................................................................... 4 The Special Meeting...................................................... 4 General................................................................. 4 Vote by Proxy........................................................... 6 Voting of Shares........................................................ 6 Quorum.................................................................. 6 Reasons for Seeking Stockholder Approval................................ 7 Vote Required........................................................... 7 Approval of the Investment in the Company by TREP Investor (Proposal 1).. 8 Terms of the Transaction................................................ 8 Potential Material Beneficial Effects of the Transaction................ 13 Potential Material Adverse Effects of the Transaction................... 14 Conflicts of Interest; Interests of Certain Persons..................... 15 Potential Effects of Stockholder Approval or Disapproval of the Transaction............................................................ 16 Recommendation of the Board; Factors and Conclusions of the Board Involved in Its Determination.......................................... 17 Proposed Amendments to the Charter....................................... 19 Amending the Ownership Restrictions (Proposal 2)........................ 19 Changing the Composition of the Board in Certain Circumstances (Proposal 3)..................................................................... 19 THE SPECIAL MEETING....................................................... 20 Outstanding Shares and Voting Rights..................................... 20 Record Date............................................................. 20 Quorum.................................................................. 20 Voting Rights........................................................... 20 No Appraisal Rights..................................................... 20 Reason for Seeking Stockholder Approval................................. 20 Presence of Accountants................................................. 20 Vote Required............................................................ 20 Vote Required to Approve the Transaction................................ 20 Vote Required to Approve the Amendment to Article EIGHTH of the Charter. 21 Vote Required to Approve the Amendment to Article SIXTH of the Charter.. 21 Proxies.................................................................. 21 APPROVAL OF THE INVESTMENT IN THE COMPANY BY TREP INVESTOR (PROPOSAL 1)... 23 Information About the Company............................................ 23 Information About TREP Investor.......................................... 23 Background of the Transaction............................................ 24 Terms of the Transaction................................................. 25 Purchase of Preferred Stock............................................. 25 Option A and Option B................................................... 25 Option D................................................................ 25 Option C................................................................ 26 Listing of the Preferred Stock and the Common Stock Upon Conversion of the Preferred Stock.................................................... 26 Preferred Stockholders' Stock Ownership................................. 26 Conversion of Preferred Stock to Common Stock........................... 27 Representation on the Board............................................. 27
i
PAGE ---- Information Rights....................................................... 27 Participation Rights..................................................... 28 Limitations on Transactions and Corporate Actions........................ 28 Resale Restrictions...................................................... 28 Modifications to Structure for Tax and ERISA Purposes.................... 29 Registration Rights...................................................... 29 Limitations on Certain Stockholders...................................... 29 Solicitation Restrictions................................................ 29 Negotiation of Management Agreement...................................... 29 Use of Proceeds.......................................................... 29 Conditions to Closing.................................................... 30 Yield Maintenance Fee.................................................... 30 Amendment or Termination of the Stock Purchase Agreement................. 30 TREP Loan Terms........................................................... 30 Principal Amount......................................................... 30 Maturity................................................................. 30 Interest................................................................. 31 Yield Maintenance Fee.................................................... 31 Guaranty................................................................. 31 Registration Rights Agreement............................................. 31 Registration of Stock.................................................... 31 Shelf Registration....................................................... 31 Company Registration..................................................... 32 Terms of the Preferred Stock.............................................. 32 Source of Preferred Stock................................................ 32 Dividends................................................................ 32 Voting Rights of Holders of Preferred Stock.............................. 33 Prohibited Actions....................................................... 33 Liquidation Preferences.................................................. 35 Conversion of Preferred Stock Into Common Stock.......................... 35 Redemption Rights Upon Company Required Mandatory Conversion............. 37 Ranking of Preferred Stock............................................... 37 Description of Participation Rights....................................... 37 Participation Rights..................................................... 37 Potential Material Beneficial Effects of the Transaction.................. 39 Increased Capital........................................................ 39 Indirect Affiliation with TREP Investor and Its Affiliates............... 39 Potential Return to Stockholders......................................... 39 Access to Future Capital................................................. 40 Reduction of Company Debt................................................ 40 Potential Material Adverse Effects of the Transaction..................... 40 Substantial Ownership of Common Stock.................................... 40 Limitations on Transactions and Corporate Actions........................ 40 Ownership and Voting Dilution............................................ 40 Effect on Market Price of Common Stock................................... 40 Risk to Dividends........................................................ 41 Chilling Effect.......................................................... 41
ii
PAGE ---- Registration Rights..................................................... 41 Rights of Preferred Stock............................................... 41 Conflicts of Interest; Interests of Certain Persons...................... 41 Preferred Stock Directors............................................... 41 Effect on Restricted Stockholders....................................... 41 Potential Effects of Stockholder Approval or Disapproval of the Transac- tion.................................................................... 41 Effects of Stockholder Approval......................................... 41 Effects of Failure to Approve the Transaction........................... 42 Recommendation of the Board; Factors and Conclusions of the Board In- volved in Its Determination............................................. 42 Beneficial Ownership of Common Stock..................................... 44 Director Elected by the Holders of the Preferred Stock................... 46 Required Vote............................................................ 47 PROPOSAL TO AMEND THE OWNERSHIP RESTRICTIONS (PROPOSAL 2)................. 48 Summary of Relevant Portions of the Current Article EIGHTH............... 48 Reasons for and Possible Effects of the Amendment........................ 48 Text of Amendment........................................................ 49 Required Vote............................................................ 50 PROPOSAL TO CHANGE THE COMPOSITION OF THE BOARD IN CERTAIN CIRCUMSTANCES (PROPOSAL 3)............................................................. 51 Summary of Relevant Portions of the Current Article SIXTH, as Modified by the Articles Supplementary.............................................. 51 Reasons for and Possible Effects of the Amendment........................ 51 Text of Amendment........................................................ 52 Required Vote............................................................ 53 POSSIBLE ANTI-TAKEOVER EFFECT OF THE PROPOSALS............................ 54 Possible Anti-Takeover Effect of the Transaction (Proposal 1)............ 54 Possible Anti-Takeover Effect of the Proposal to Amend the Ownership Re- strictions (Proposal 2)................................................. 54 Possible Anti-Takeover Effect of the Proposal to Modify the Composition of the Board in Certain Circumstances (Proposal 3)...................... 54 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 55 OTHER MATTERS............................................................. 55 APPENDICES Appendix A Stock Purchase Agreement and Amendment Number One Thereto..... A-1 Appendix B Loan Facility Agreement and Amendment Number One Thereto...... B-1 Appendix C Registration Rights Agreement................................. C-1 Appendix D Articles Supplementary........................................ D-1
iii GLOSSARY OF DEFINED TERMS
PAGE ---- Additional Terms...................................................... 2 Articles Supplementary................................................ 11 Authorized GP Distributions........................................... 33 Board of Directors.................................................... 1 Board................................................................. 1 Bylaws................................................................ 3 Capital Stock......................................................... 37 Change of Control..................................................... 34 Charter Breach........................................................ 33 Charter............................................................... 2 Code.................................................................. 11 Commercial Properties................................................. 23 Commission............................................................ 31 Common Stock.......................................................... 1 Company Notice........................................................ 38 Company............................................................... 1 Continuing Directors.................................................. 35 Conversion Options.................................................... 38 Conversion Price...................................................... 35 Convertible Securities................................................ 36 Current Market Price.................................................. 36 Defining Event........................................................ 38 Dividend Payment Date................................................. 32 Dividend Record Date.................................................. 32 Dividend Default...................................................... 33 ERISA................................................................. 12 EPMC.................................................................. 45 Essex 401(k) Plan..................................................... 46 Exception Section..................................................... 48 Exchange Act.......................................................... 34 Executive Committee................................................... 24 Executive Officers.................................................... 44 Exercise Restriction.................................................. 38 Financial Occupancy................................................... 23 Five or Fewer Requirement............................................. 48 fully--diluted basis.................................................. 2
iv GLOSSARY OF DEFINED TERMS (CONT.) GMMS.................................................................. 45 Herakles.............................................................. 45 IRS Approval.......................................................... 8 IRS Ruling............................................................ 48 Issuance Date......................................................... 39 Junior Shares......................................................... 33 M & M................................................................. 45 M & M 401(k) Plan..................................................... 45 Material Adverse Effect............................................... 12 Maximum Loan Principal Amount......................................... 1 Morgan Stanley Realty................................................. 24 Mr. Hartman........................................................... 15 MSREF................................................................. 24 NYSE.................................................................. 3 Operating Partnership................................................. 1 Option................................................................ 8 Options............................................................... 8 Ownership Limit....................................................... 48 Phase 2............................................................... 8 Preferred Stock....................................................... 1 Properties............................................................ 23 Property.............................................................. 23 Record Date........................................................... 6 Redemption Percentage................................................. 37 REIT.................................................................. 11 Restricted Stockholders............................................... 12 SDAT.................................................................. 24 Securities Act........................................................ 11 Securities............................................................ 38 Shelf Registration.................................................... 31 Special Meeting....................................................... 1 Stated Value.......................................................... 32
v GLOSSARY OF DEFINED TERMS (CONT.) Stock Purchase Agreement............................................... 1 Supplemental Offering.................................................. 13 Transaction............................................................ 1 Tiger.................................................................. 23 TREP Loan.............................................................. 1 TREP Investor.......................................................... 1 TREP Funding........................................................... 1 Westbrook.............................................................. 23
vi SUMMARY The following is a summary of certain information contained in this Proxy Statement. This Summary is not intended to be complete and is subject to and qualified in its entirety by reference to the more detailed information set forth elsewhere in this Proxy Statement and the appendices attached hereto. Stockholders are urged to read this Proxy Statement in its entirety. As used herein, the term the "Company" means Essex Property Trust, Inc., a Maryland corporation. Certain terms used in this Summary may be defined elsewhere in this Proxy Statement. THE SPECIAL MEETING GENERAL This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of the Company (the "Board of Directors" or the "Board"). The proxies will be exercised at the Special Meeting of the stockholders of the Company (as the same may be postponed or adjourned, the "Special Meeting") to be held on Friday, September 27, 1996, at 10:00 a.m. local time, at the offices of the Company at 777 California Avenue, Palo Alto, California 94304. At the Special Meeting, holders of the Common Stock will be asked to consider and vote upon the terms of the Stock Purchase Agreement and the Transaction, including the investment by TREP Investor of up to $40 million in the Company through the purchase by TREP Investor of up to 1,600,000 shares of Preferred Stock, for a purchase price of $25.000 per share, as more fully described in this Proxy Statement. The investment will be consummated in two phases: (i) the purchase by TREP Investor of 340,000 shares of Preferred Stock, for an aggregate purchase price of $8.5 million, paid in cash, which purchase was completed on July 1, 1996; and (ii) the purchase by TREP Investor of up to 1,260,000 additional shares of Preferred Stock, the purchase price for which will be comprised of (A) exchanging $11.5 million, constituting the outstanding principal balance of the TREP Loan for shares of Preferred Stock, and (B) utilizing funds otherwise comprising the remainder of the Maximum Loan Principal Amount to acquire the remaining shares of Preferred Stock, as more fully described in this Proxy Statement. Completion of the purchase of up to 1,260,000 additional shares of Preferred Stock is scheduled to occur on or prior to June 20, 1997. As of the date of this Proxy Statement, there are 340,000 outstanding shares of Preferred Stock. TREP Investor owns 100% of the 340,000 outstanding shares of Preferred Stock, which are equivalent to 388,571 shares of Common Stock or approximately 3.52% of the outstanding shares of Common Stock as of the Record Date on a fully-diluted basis. If TREP Investor acquires all 1,600,000 shares of Preferred Stock directly from the Company, as contemplated by the Transaction, and assuming no other change in the number of outstanding shares of Common Stock or shares of Preferred Stock and further assuming TREP Investor does not dispose of all or any portion of its shares of Preferred Stock, TREP Investor will own 100% of the 1,600,000 outstanding shares of Preferred Stock, which are equivalent to 1,828,571 shares of Common Stock or approximately 14.64% of the outstanding shares of Common Stock on a fully-diluted basis. From and after June 20, 1997, 400,000 shares of Preferred Stock shall become convertible into Common Stock. Thereafter, at the beginning of each of the next three three-month periods, an additional 400,000 shares of Preferred Stock shall become convertible into Common Stock, provided that, in the case of the voluntary or involuntary liquidation, dissolution or winding up of the Company, all outstanding shares of Preferred Stock shall, at the option of the holder thereof, become immediately convertible into Common Stock at the Conversion Price. See "Terms of the Preferred Stock--Conversion of Preferred Stock Into Common Stock." 4 The Transaction also involves the Additional Terms, as more fully described in this Proxy Statement, including, without limitation, the following: (i) the right of the holders of Preferred Stock to nominate and elect, voting as a separate class, one director to the Board and, if at the Special Meeting the stockholders do not approve Proposal 3, to nominate and elect, voting as a separate class, up to four additional directors to the Board, in the event of a sustained failure to pay dividends with respect to the Preferred Stock or a breach of certain protective provisions, as more particularly described in this Proxy Statement (see "Terms of the Preferred Stock--Voting Rights of Holders of Preferred Stock"), for an aggregate of five directors, representing approximately 33% of the directors on the Board; (ii) the grant to TREP Investor of certain rights to information regarding the Company (see "Terms of the Transaction--Information Rights"); (iii) limitations on the Company's ability to engage in certain transactions and certain corporate actions without the consent of the holders of Preferred Stock (see "Terms of the Preferred Stock--Prohibited Actions"); (iv) provisions that restrict the holders of Preferred Stock from transferring the shares of Preferred Stock except in accordance with applicable securities laws and subject to the ownership limits in the Charter (see "Terms of the Transaction--Resale Restrictions"); (v) the grant to TREP Investor of certain additional rights to purchase, under certain circumstances, shares of the Company's stock in connection with future stock issuances by the Company (see "Description of Participation Rights"); (vi) limitations on the rights of certain holders of Common Stock and of limited partnership interests in the Operating Partnership to transfer their shares of Common Stock or limited partnership interests in the Operating Partnership (see "Terms of the Transaction--Limitations on Certain Stockholders"); and (vii) the grant to the holders of Preferred Stock of certain registration rights to enable such holders to resell outstanding shares of Preferred Stock (and/or shares of Common Stock issuable upon conversion of shares of Preferred Stock) to the public under certain conditions (see "Registration Rights Agreement"). The first phase of the Transaction (including, without limitation, the purchase by TREP Investor of 340,000 shares of Preferred Stock and the making by TREP Funding of the TREP Loan to the Company) was completed and all of the Additional Terms were effective as of July 1, 1996, and neither the first phase of the Transaction nor any of the Additional Terms (including, without limitation, all of the approval rights, preferences, privileges and other rights and terms of the Preferred Stock) requires the approval of the stockholders of the Company. Stockholder approval is, however, required to complete the entire $40 million investment, in the manner contemplated by the Company, and, consequently, the Company is relying on such approval for the Company to maximize the potential benefits that the Company believes the Transaction can provide if the Transaction is fully consummated, as more particularly discussed in this Proxy Statement (see "Potential Material Beneficial Effects of the Transaction"). A vote in favor of the Transaction also will constitute a vote in favor of the transactions contemplated by the Stock Purchase Agreement, all of the other documents referenced therein or executed in connection therewith (as more fully described in this Proxy Statement), and the terms thereof, including each of the additional matters set forth above. The Company does not expect the Transaction to have a material effect on the current management of the Company. Copies of the following documents are attached hereto: Stock Purchase Agreement and Amendment No. 1 to Stock Purchase Agreement ("Appendix A"), Loan Facility Agreement and Amendment No. 1 to Loan Facility Agreement ("Appendix B"), Registration Rights Agreement ("Appendix C") and Articles Supplementary ("Appendix D"). At the Special Meeting, the stockholders also will be asked to approve proposed amendments to the Charter that are necessary or desirable in connection with the Transaction (i) to amend the limitations on ownership of the Company's stock to facilitate the acquisition of the Company's stock by TREP Investor and to provide the Board with increased flexibility to waive the Charter ownership limitations in certain circumstances (Proposal 2), and (ii) to provide for certain changes in the composition of the Board of Directors in the event of the breach of certain protective provisions of the Charter relating to the Preferred Stock (Proposal 3). 5 Approval of each of the Transaction and Proposal 2 is conditioned upon approval of the other (but is not conditioned upon approval of Proposal 3). Failure by the stockholders to approve the Transaction or Proposal 2 at the Special Meeting will result in neither the Transaction nor Proposal 2 being approved (except for certain portions of the Transaction with respect to which stockholder approval is not required, as more particularly described in this Proxy Statement (see "Potential Effects of Stockholder Approval or Disapproval of the Transaction--Effects of Failure to Approve the Transaction")) and may require the Company to pay a yield maintenance fee in connection with the TREP Loan (see "Terms of the Transaction--Yield Maintenance Fee"). Failure by the stockholders to approve Proposal 3 will not affect the approval of the Transaction or Proposal 2. THE BOARD HAS APPROVED THE TRANSACTION AND THE OTHER PROPOSALS SUBMITTED TO THE STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF EACH OF THE THREE PROPOSALS. VOTE BY PROXY A proxy card is enclosed for use in connection with the Special Meeting. The proxy may be revoked at any time before it is voted by (i) filing prior to the Special Meeting a written notice of revocation bearing a later date with the Company (to the attention of Mr. Jordan E. Ritter), (ii) delivering to the Company a duly executed proxy bearing a later date, or (iii) attending the Special Meeting and voting in person. The solicitation of proxies will be conducted by mail and the Company will bear all attendant costs. These costs will include the expense of preparing and mailing proxy materials for the Special Meeting and reimbursements paid to brokerage firms and others for their expenses incurred in forwarding solicitation material regarding the Special Meeting to beneficial owners of the Common Stock. The Company may use the services of Corporate Investor Communications, a third-party solicitor, to assist in soliciting proxies and, in such event, the Company expects to pay approximately $5,500 for such services. The Company may conduct further solicitation personally, telephonically or by facsimile through its officers, directors and regular employees, none of whom will receive additional compensation for assisting with the solicitation. VOTING OF SHARES Only stockholders of record on the close of business on September 5, 1996 (the "Record Date") are entitled to notice of and to vote at the Special Meeting. The only securities that can be voted at the Special Meeting consist of 8,805,000 issued and outstanding shares of Common Stock, with each share entitling its owner to one vote on all matters. Stockholders on the Record Date are eligible to vote at the Special Meeting in person or by proxy. Holders of shares of the issued and outstanding Preferred Stock are not entitled to vote at the Special Meeting. If proxies representing sufficient votes to approve all or any one of the Proposals have not been received by the scheduled date of the Special Meeting, the chairman of the Special Meeting shall adjourn the Special Meeting to a later date and time (but not later than 120 days after the Record Date), or the individuals named as proxies may vote to so adjourn the Special Meeting, for the purpose of soliciting additional proxies. Stockholders are not entitled under Maryland law to appraisal rights with respect to the Transaction. QUORUM Holders of a majority of the issued and outstanding shares of Common Stock, present in person or represented by proxy at the Special Meeting, shall constitute a quorum. Abstentions or "broker non-votes" (i.e., shares held by a broker or nominee which are represented at the Special Meeting but which such broker or nominee is not empowered to vote on a particular proposal) will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum. 6 Stockholder votes will be tabulated by the persons appointed by the Board to act as inspectors of election for the Special Meeting. Shares represented by a properly executed and delivered proxy will be voted at the Special Meeting and, when instructions have been given by the stockholder, will be voted in accordance with those instructions. If no instructions are given, the shares will be voted FOR each of the three Proposals. REASONS FOR SEEKING STOCKHOLDER APPROVAL The Company is seeking stockholder approval of the Transaction pursuant to certain requirements of the New York Stock Exchange, Inc. regarding the continued listing of the Common Stock on the NYSE. Approval of the Transaction is not required by Maryland law, the Charter or the Bylaws. If the Company were to consummate the entire Transaction without stockholder approval, the Common Stock could not remain listed on the NYSE. The Company is seeking stockholder approval of the proposed amendments to the Charter in the manner required by Maryland law and the Charter. VOTE REQUIRED The affirmative vote of a majority of all of the votes cast by stockholders at a meeting at which a quorum is present is required to approve the Transaction (Proposal 1). Only holders of shares of Common Stock issued and outstanding on the Record Date are entitled to vote on Proposal 1. APPROVAL OF THE TRANSACTION BY THE REQUISITE VOTE OF THE STOCKHOLDERS OF THE COMPANY IS A CONDITION TO CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE TRANSACTION. The affirmative vote of the holders of a majority of the shares of Common Stock issued and outstanding as of the Record Date is required to amend the limitations in the Charter on ownership of stock to facilitate the acquisition of the Company's stock by TREP Investor and to provide the Board with increased flexibility to waive the Charter ownership limitations in certain circumstances (Proposal 2). Only holders of shares of Common Stock issued and outstanding on the Record Date are entitled to vote on Proposal 2. APPROVAL OF THIS AMENDMENT TO THE CHARTER BY THE REQUISITE VOTE OF THE STOCKHOLDERS OF THE COMPANY IS A CONDITION TO CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE TRANSACTION. The affirmative vote of the holders of two-thirds of the shares of Common Stock issued and outstanding as of the Record Date is required to approve amendments to the Charter to provide for certain changes in the composition of the Board of Directors in the event of the breach of certain protective provisions relating to the Preferred Stock (Proposal 3). Only holders of shares of Common Stock issued and outstanding on the Record Date are entitled to vote on Proposal 3. However, holders of shares of Preferred Stock are entitled to notice of the proposed amendments pursuant to Maryland law. APPROVAL OF THESE AMENDMENTS TO THE CHARTER BY THE STOCKHOLDERS OF THE COMPANY IS NOT A CONDITION TO CONSUMMATION OF THE TRANSACTION. Approval of each of the Transaction (Proposal 1) and Proposal 2 is conditioned upon approval of the other (but is not conditioned upon approval of Proposal 3). Failure by the stockholders to approve the Transaction and Proposal 2 at the Special Meeting will result in neither the Transaction nor Proposal 2 being approved (except for certain portions of the Transaction with respect to which stockholder approval is not required, as more particularly described in this Proxy Statement (see "Potential Effects of Stockholder Approval or Disapproval of the Transaction--Effects of Failure to Approve the Transaction")) and may require the Company to pay a yield maintenance fee in connection with the TREP Loan (see "Terms of the Transaction--Yield Maintenance Fee"). Failure by the stockholders to approve Proposal 3 will not affect the approval of the Transaction or Proposal 2. At the close of business on the Record Date, the Company had outstanding 8,805,000 shares of Common Stock. 7 APPROVAL OF THE INVESTMENT IN THE COMPANY BY TREP INVESTOR (PROPOSAL 1) TERMS OF THE TRANSACTION Purchase of Preferred Stock. The terms of the Stock Purchase Agreement anticipate that TREP Investor will invest up to $40 million in the Company through the purchase of up to 1,600,000 shares of Preferred Stock, at a purchase price of $25.000 per share. The investment will be consummated in two phases: (i) the purchase by TREP Investor of 340,000 shares of Preferred Stock, for an aggregate purchase price of $8.5 million, paid in cash, which purchase was completed on July 1, 1996; and (ii) the purchase by TREP Investor of up to 1,260,000 additional shares of Preferred Stock, the purchase price for which will be comprised of (A) exchanging $11.5 million, constituting the outstanding principal balance of the TREP Loan, for shares of Preferred Stock, and (B) utilizing funds otherwise comprising the remainder of the Maximum Loan Principal Amount to acquire the remaining shares of Preferred Stock. Completion of the purchase of up to 1,260,000 additional shares of Preferred Stock is scheduled to occur on or prior to June 20, 1997. The purchase price per share for the shares of Preferred Stock and the Conversion Price were determined as the result of arm's-length negotiations between the Company and its advisors and TREP Investor and its advisors. See "TREP Loan Terms" for a summary of the principal terms of the TREP Loan. The second phase of the Transaction ("Phase 2") will be consummated in accordance with one of the following options (collectively, the "Options", and, individually, an "Option"): Option A and Option B. If the stockholders approve Proposal 1 and Proposal 2 at the Special Meeting, subject to the absence of certain legal prohibitions, (i) the $11.5 million principal outstanding under the TREP Loan will be immediately exchanged for shares of Preferred Stock, and (ii) TREP Funding shall, at the request of the Company, advance to the Company funds otherwise comprising the remainder of the Maximum Loan Principal Amount to acquire the remainder of the shares of Preferred Stock on or prior to June 20, 1997, with each such advance being immediately applied to purchase shares of Preferred Stock. The Company may solicit and, prior to the Special Meeting, may receive a ruling from the Internal Revenue Service, as required under Article EIGHTH(a)(9) of the Charter, enabling the Company to exempt TREP Investor from the Ownership Limits (as defined in the Charter) (the "IRS Approval"). In the event such IRS Approval is received prior to the stockholder approval of the Transaction at the Special Meeting, "Option B" is triggered under the Stock Purchase Agreement and the Loan Facility Agreement. The nature and timing of the transactions contemplated by Option B, however, are identical to that of Option A. For example, under Option B, even after the IRS Approval is obtained, the $11.5 million principal amount outstanding under the TREP Loan would not be exchanged for shares of Preferred Stock unless and until the stockholders approved the Transaction at the Special Meeting. Pursuant to the consummation of Option A or Option B, if applicable, TREP Investor will own an aggregate of 1,600,000 shares of Preferred Stock, for an aggregate purchase price of $40 million, unless TREP Investor disposes of all or portions of its shares of Preferred Stock. Upon the consummation of all of the transactions contemplated by Option A or Option B, the TREP Loan will be terminated. Option D. If the stockholders fail to approve Proposal 1 and Proposal 2 at the Special Meeting and the Company shall have received the IRS Approval on or before December 15, 1996, subject to the absence of certain legal prohibitions, (i) the $11.5 million principal outstanding under the TREP Loan will be immediately exchanged for shares of Preferred Stock (provided that, if the IRS Approval is obtained prior to the date of the Special Meeting, the exchange will occur on the date of the Special Meeting; otherwise, the exchange will occur on the date that the IRS Approval is obtained), and (ii) TREP Funding, at its option, may purchase up to a maximum of $7 million in value of shares of Preferred Stock, in which event (under both clause (i) and clause (ii)) the TREP Loan will terminate. Pursuant to the consummation of Option D, if applicable, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own an aggregate of either (a) 800,000 shares of Preferred Stock, for an aggregate purchase price of 8 $20 million, or (b) as provided in clause (ii) above, up to 1,080,000 shares of Preferred Stock, for an aggregate purchase price of up to $27 million. Option C. If the stockholders fail to approve Proposal 1 and Proposal 2 at the Special Meeting and the IRS Approval is not obtained by the Company on or before December 15, 1996, or if the Stock Purchase Agreement is terminated, for any reason, or any material provision thereof shall have ceased to be in full force and effect such that TREP Investor shall not be able to realize the material benefits thereof, TREP Investor shall not purchase any additional shares of Preferred Stock. Pursuant to the consummation of Option C, if applicable, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own an aggregate of 340,000 shares of Preferred Stock, for an aggregate purchase price of $8.5 million. Pursuant to Option C, the interest and outstanding $11.5 million principal balance under the TREP Loan will mature and be due and payable on December 31, 1996, provided that the Company may extend such maturity until April 30, 1997. Preferred Stockholders' Stock Ownership. As of the date of this Proxy Statement, there are 340,000 outstanding shares of Preferred Stock. TREP Investor owns 100% of the 340,000 outstanding shares of Preferred Stock, which are equivalent to 388,571 shares of Common Stock or approximately 3.52% of the outstanding shares of Common Stock as of the Record Date on a fully-diluted basis. If TREP Investor acquires all 1,600,000 shares of Preferred Stock directly from the Company, as contemplated by the Transaction, and assuming no other change in the number of outstanding shares of Common Stock or Preferred Stock, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own 100% of the 1,600,000 outstanding shares of Preferred Stock, which are equivalent to 1,828,571 shares of Common Stock or approximately 14.64% of the outstanding shares of Common Stock on a fully-diluted basis. If TREP Investor acquires an aggregate of 800,000 shares of the Preferred Stock, as contemplated by Option D (assuming TREP Funding does not exercise its option under Option D to acquire up to an additional $7 million of Preferred Stock), and assuming no other change in the number of outstanding shares of Common Stock or Preferred Stock, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own 100% of the 800,000 outstanding shares of Preferred Stock, which are equivalent to 914,285 shares of Common Stock or approximately 7.90% of the outstanding shares of Common Stock on a fully-diluted basis. If TREP Investor acquires an aggregate of 1,080,000 shares of the Preferred Stock, as contemplated by Option D (assuming TREP Funding exercises its option under Option D and utilizes the entire $7 million for the purchase of shares of Preferred Stock), and assuming no other change in the number of outstanding shares of Common Stock or Preferred Stock, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own 100% of the 1,080,000 outstanding shares of Preferred Stock, which are equivalent to 1,234,285 shares of Common Stock or approximately 10.38% of the outstanding shares of Common Stock on a fully-diluted basis. If TREP Investor does not acquire any further shares of the Preferred Stock, as contemplated by Option C, and assuming no other change in the number of outstanding shares of Common Stock or Preferred Stock, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own 100% of the 340,000 outstanding shares of Preferred Stock, which are equivalent to 388,571 shares of Common Stock or approximately 3.52% of the outstanding shares of Common Stock on a fully-diluted basis. Also, if Option A or Option B is consummated, TREP Investor may be the largest single stockholder of the Company (owning Preferred Stock equivalent to approximately 14.64% of the outstanding shares of Common Stock on a fully- diluted basis (based on the number of shares of Common Stock outstanding as of the Record Date, unless TREP Investor disposes of all or portions of its shares of Preferred Stock)), while, subject to certain exemption provisions set forth in the Charter, no other stockholder will be permitted to own more than 6% of the outstanding shares of Common Stock (other than George M. Marcus, who can currently own up to 25% of the outstanding shares of Common Stock, and qualified pension trusts (as defined in the Charter), which can currently own up to 9.9% of the outstanding shares of Common Stock), subject to certain exceptions set forth in the Charter or approved by the Board. George M. Marcus, the Company's Chairman, owns Common Stock and limited partnership interests in the Operating Partnership equivalent to 14.59% of the outstanding shares of 9 Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis (assuming the issuance and conversion of all 1,600,000 shares of Preferred Stock). Upon conversion of the shares of Preferred Stock to Common Stock, unless TREP Investor disposes of all or a portion of its shares of Preferred Stock (or Common Stock into which Preferred Stock has been converted), TREP Investor, by virtue of its ownership of approximately 14.64% the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully- diluted basis, will have a substantial influence over the composition of the Board and over Company policy. Conversion of Preferred Stock to Common Stock. From and after June 20, 1997, 400,000 shares of Preferred Stock shall become convertible into Common Stock. Thereafter, at the beginning of each of the next three three-month periods, an additional 400,000 shares of Preferred Stock shall become convertible into Common Stock, provided that, in the case of the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, all outstanding shares of Preferred Stock shall, at the option of the holder thereof, become immediately convertible into Common Stock. The Conversion Price per share of Preferred Stock will initially be $21.875, subject to adjustment as more fully described in this Proxy Statement. Based on the conversion ratio, the Conversion Price represents an approximately 5% premium over the average per share closing price of the Common Stock for the 30 trading days prior to June 20, 1996, the date on which definitive agreements with respect to the Transaction were executed. See "Terms of the Preferred Stock-- Conversion of Preferred Stock to Common Stock." Representation on the Board. TREP Investor and the other holders of Preferred Stock, if any, have the right to nominate and elect, voting as a separate class, one director to the Board and to nominate and elect, voting as a separate class, up to four additional directors to the Board, in the event of a sustained failure to pay dividends with respect to the Preferred Stock or a breach of certain protective provisions, for an aggregate of five directors, representing approximately 33% of the directors on the Board (see "Terms of the Preferred Stock--Voting Rights of Holders of Preferred Stock"). The number of directors elected by the holders of the Preferred Stock and the composition of the Board may be modified, in certain circumstances, if the stockholders approve Proposal 3 (see "PROPOSAL TO CHANGE THE COMPOSITION OF THE BOARD IN CERTAIN CIRCUMSTANCES"). Information Rights. Pursuant to the Stock Purchase Agreement, so long as TREP Investor holds 100,000 or more shares of Preferred Stock, the Company and its subsidiaries are required to (i) provide TREP Investor with access to the Company's and its subsidiaries' properties, books, contracts, commitments, records and personnel, and (ii) furnish to TREP Investor with (a) a copy of all reports, schedules and other documents required to be filed by the Company with or received by the Company from any state or federal securities regulating body, and (b) all other information concerning the Company's business, personnel and properties as TREP Investor may reasonably request. In addition, pursuant to the Loan Facility Agreement, the Company has agreed to provide TREP Funding and TREP Investor with (i) the right to consult with and advise Company management regarding significant business activities, (ii) the right to communicate directly with the Company's independent certified public accountants and tax advisors, and (iii) the right to receive quarterly unaudited and yearly audited financial reports and a monthly report displaying, by property, gross income, net operating income, cash flow and, on an aggregate basis, funds from operations and adjusted funds from operations per share. Also, under circumstances in which TREP Funding or TREP Investor reasonably believes that a Material Adverse Effect (as hereinafter defined) has occurred, TREP Funding and TREP Investor may conduct audits of Company income and expenses. Participation Rights. Pursuant to the Stock Purchase Agreement, so long as any Preferred Stock is outstanding, in the event that the Company issues or sells shares of stock, or the Operating Partnership issues or sells limited partnership interests, as the case may be, TREP Investor will be entitled (except in certain limited circumstances) to a participation right to purchase or subscribe for, either as part of such issuance or in a 10 concurrent issuance, a total number of shares or partnership interests, as the case may be, equal to TREP Investor's pro rata share of the total number of shares proposed to be issued by the Company. TREP Investor waived its participation rights in connection with the Supplemental Offering (as hereinafter defined). See "Description of Participation Rights." Limitations on Transactions and Corporate Actions. Pursuant to the Stock Purchase Agreement, the Company has agreed that all transactions between the Company and any affiliate of the Company shall be conducted on an arm's-length basis, and if any such transaction involves a cost to the Company or to such affiliate in excess of $500,000 in a single transaction, or in excess of an aggregate $1 million for a series of transactions with all affiliates in any twelve-month period, such transaction shall be on terms and conditions no less favorable (when all aspects of the transactions are considered) to the Company than could be obtained from non-related persons except for transactions disclosed to TREP Investor prior to June 20, 1996. Pursuant to the Articles Supplementary relating to the Preferred Stock (the "Articles Supplementary"), the Company has agreed that, while any Preferred Stock is outstanding, the Company will not, without the approval of holders of at least 66 2/3% of the outstanding shares of Preferred Stock, voting separately as a class, (i) increase the number of authorized shares of Preferred Stock or issue any shares of Preferred Stock other than to existing holders of Preferred Stock, (ii) increase the authorized number of shares of or create, reclassify or issue any class of stock ranking prior to or on a parity with the Preferred Stock either as to dividends or upon liquidation, (iii) amend, alter or repeal any of the provisions of the Charter so as to impair the rights and privileges of the Preferred Stock, (iv) amend, alter or repeal certain provisions of the Bylaws in a manner which would adversely affect the rights of the holders of the Preferred Stock, (v) authorize any reclassification of the Preferred Stock, (vi) except pursuant to a conversion of the Preferred Stock, require the exchange of Preferred Stock for other securities, or (vii) effect a voluntary liquidation, dissolution or winding up of the Company, the sale of substantially all of the assets of the Company, the merger or consolidation of the Company or the Operating Partnership or any recapitalization (except a merger of a wholly-owned subsidiary of the Company into the Company in which the Company's capitalization is unchanged as a result of such merger) of more than 40% of the Company's total market capitalization (market value of the Company's equity plus total indebtedness) in a single transaction or a series of related transactions, provided that successive offerings of the Company's equity or debt to the public shall not be considered related transactions. Also, pursuant to the Articles Supplementary, the Company has agreed that, while any Preferred Stock is outstanding, the Company and the Operating Partnership will not, directly or indirectly, without the approval of the holders of a majority of the outstanding shares of Preferred Stock, voting separately as a class, take or allow to occur any of the following actions: (i) substantial sales or other transfers of the assets of the Company or the Operating Partnership or any other entity owned, directly or indirectly, by the Company or the Operating Partnership; (ii) the termination of the Company as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"); (iii) any alteration in the Company's or the Operating Partnership's business; or (iv) any change in control of the Company or the Operating Partnership. See "Terms of Preferred Stock--Prohibited Actions." Resale Restrictions. Pursuant to the Stock Purchase Agreement, TREP Investor has acknowledged and agreed that the shares of Preferred Stock acquired or to be acquired by TREP Investor, together with any shares of Common Stock into which such shares of Preferred Stock may be converted, are not, and, subject to registration pursuant to the Registration Rights Agreement or otherwise, will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state, and that such Preferred Stock or Common Stock may be sold only in one or more transactions registered under the Securities Act and, where applicable, state securities laws or as to which an exemption from registration requirements of the Securities Act and, where applicable, state securities laws, is available. Modifications to Structure for Tax and ERISA Purposes. Pursuant to the Stock Purchase Agreement, the Company and TREP Investor have agreed to negotiate in good faith any modifications necessary to the structure 11 of the Operating Partnership and/or the Operating Partnership's investments in, and ownership of, the property of the Operating Partnership, (i) to minimize certain adverse tax consequences to TREP Investor, and (ii) to assist TREP Investor with its obligations under the Employee Retirement Income Security Act ("ERISA"). Registration Rights. Neither the shares of the Preferred Stock currently held by TREP Investor nor the shares of Preferred Stock issued to TREP Investor as contemplated by Phase 2 of the Transaction (nor any shares of Common Stock into which any such shares of Preferred Stock may be converted) are or will be registered under the Securities Act and will be issued by the Company in reliance upon an exemption from registration. Such shares will be deemed "restricted securities" within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available. Pursuant to the Registration Rights Agreement, the Company will grant certain registration and listing rights to the holders of the Preferred Stock that will enable the holders of the Preferred Stock to resell certain shares of Preferred Stock (and/or shares of Common Stock into which shares of Preferred Stock have been converted) to the public under certain conditions. See "Registration Rights Agreement." Limitations on Certain Stockholders. Subject to certain exceptions, George M. Marcus, the Company's Chairman, and Keith R. Guericke, the Company's Chief Executive Officer and President (collectively, the "Restricted Stockholders"), have each agreed that, prior to July 1, 1998, neither of the Restricted Stockholders shall transfer (provided that pledges and grants of security interests are not restricted) an aggregate of more than 30% of their respective ownership, as of July 1, 1996, of shares of Common Stock (including the pro rata portions of all Common Stock held by affiliates of such Restricted Stockholder based on the Restricted Stockholder's ownership interest in such affiliate and Common Stock issuable upon exchange of such Restricted Stockholder's respective limited partnership interest in the Operating Partnership). Solicitation Restrictions. The Company and the Operating Partnership have agreed that, until any Option has been exercised and all funds available thereunder have been requested by the Company, they will not solicit or receive from any third party (including, without limitation, by way of a public offering or private offering of securities) funds in exchange for interests in the Company or the Operating Partnership, other than (i) pursuant to a sale of Common Stock in connection with the Company's existing shelf registration statement that is commenced before funding is available pursuant to an Option, or (ii) transactions in which the Company or the Operating Partnership receives only non-cash consideration, e.g., real estate. Negotiation of Management Agreement. The Company and TREP Investor have agreed to negotiate (without being legally bound to enter into) a management agreement with respect to the management by the Company of approximately 800 multi-family rental units located in Ventura County, California, which TREP Investor owns through an affiliate. Use of Proceeds. The net proceeds of TREP Investor's investment will be contributed by the Company to the Operating Partnership. The Operating Partnership will use the net proceeds to reduce outstanding indebtedness and/or to purchase and develop properties and for other corporate purposes. Conditions to Closing. Each of the Company's and TREP Investor's obligations to effect Phase 2 of the Transaction are subject to various mutual and unilateral conditions, including, without limitation, the following: (i) the stockholders shall have approved the Transaction (Proposal 1); (ii) the stockholders shall have approved the proposed amendment to the Charter to amend the limitations on ownership of stock to permit TREP Investor to acquire the shares of Preferred Stock (Proposal 2); (iii) the Company shall continue to qualify as a REIT for federal income tax purposes; (iv) there shall have been no change or circumstance that has had or would reasonably be expected to have a material adverse effect on the financial condition, results of operations or business of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"); (v) there shall not be in effect any order, decree or injunction of any court or agency which prohibits the Transaction and there shall not be any legal proceedings which could reasonably be expected to have a Material Adverse Effect on the 12 ability of the Company to consummate the Transaction; (vi) the Company shall have performed all covenants required to be performed by the Company, except for failures to perform as would not in the aggregate reasonably be expected to have a Material Adverse Effect; (vii) TREP Investor shall have performed all covenants required to be performed by TREP Investor except for failures to perform as would not in the aggregate reasonably be expected to have a Material Adverse Effect on the Company's or TREP Investor's ability to consummate Phase 2 of the Transaction (other than, among other things, TREP Funding's obligations under the Loan Facility Agreement and TREP Investor's obligation to purchase the applicable number of shares of Preferred Stock pursuant to an Option, with respect to which the Material Adverse Effect limitation shall not apply); and (viii) various other customary conditions shall have been satisfied. Yield Maintenance Fee. If the Stockholders do not approve Proposal 1 and Proposal 2 at the Special Meeting, the Company is required to pay to TREP Funding a prepayment fee on the TREP Loan equal to the product of (i) the recent average market price of a share of Common Stock minus $21.875 times (ii) a fraction, the numerator of which is the then outstanding principal amount of the TREP Loan and the denominator of which is $21.875. Amendment or Termination of the Stock Purchase Agreement. Although the Board reserves the right to amend the provisions of the Stock Purchase Agreement without approval of the stockholders, the Company intends to solicit further approval of the stockholders in the event that any such amendment would change the Transaction in a way that would be materially adverse to stockholders. The Board also reserves the right to terminate the Stock Purchase Agreement, in accordance with its terms, without obtaining further approval of the stockholders. The Board does not, however, currently anticipate either the amendment of the terms of, or the termination of, the Stock Purchase Agreement, other than amendments for the purpose of extending any deadline set forth therein for obtaining stockholder approval of the Proposals. POTENTIAL MATERIAL BENEFICIAL EFFECTS OF THE TRANSACTION The Company believes that the Transaction will have a number of potential material beneficial effects on the Company and its stockholders, including the following: Increased Capital. The Company believes that the capital provided to the Company pursuant to the Transaction will enable the Company to (i) increase its equity market capitalization which may, in the future, enable the Company to raise additional equity capital, (ii) increase its asset base by using a portion of the proceeds of the sale of the Preferred Stock to finance real estate acquisitions and development by the Operating Partnership, and (iii) develop and improve existing Operating Partnership assets by using a portion of the proceeds of the sale of the Preferred Stock to fund development and improvement of the Operating Partnership's existing properties. Also, the Company currently anticipates that the Company will be able to use the name and valued reputation of TREP Investor and its affiliates and the nature of the Company's relationship with TREP Investor and such affiliates to further assist the Company to raise capital. Subsequent to the consummation of the first phase of the Transaction, on August 14, 1996, the Company completed an underwritten follow-on public offering (the "Supplemental Offering") of 2,530,000 shares of Common Stock at a price per share of $22.75. The net proceeds of the Supplemental Offering are anticipated to be used to fund the acquisition and development by the Operating Partnership of multi-family properties and for general corporate purposes. Indirect Affiliation with TREP Investor and Its Affiliates. TREP Investor and its affiliates have a history of investing in companies that are highly valued in the marketplace. The Board believes that the Company will benefit significantly from its association with TREP Investor and such affiliates and its access to their market knowledge and operating experience. In addition, the Company and TREP Investor and its affiliates may be in a synergistic position to combine their resources and expertise in portfolio purchases. For example, with respect to 13 the acquisition of a mixed multi-family and office-use portfolio of properties, the Company may consider purchasing the multi-family portion of the portfolio, consistent with its expertise, and TREP Investor or one of its affiliates may consider purchasing the office-use portion of the portfolio. Similar mutually beneficial synergies may be present with multi-purpose land development projects. An early result of the new affiliation has produced an agreement, pursuant to which the Company and TREP Investor have agreed to negotiate (without being legally bound to enter into) a management agreement with respect to the management by the Company of approximately 800 multi-family rental units located in Ventura County, California, which TREP Investor owns through an affiliate. In addition, the Company and TREP Investor are considering other management service arrangements with respect to other multi-family properties that TREP Investor (or its affiliates) may purchase on an individual property or portfolio basis. Potential Return to Stockholders. The Transaction will not result in any direct return to stockholders of cash or other consideration. The Company, however, believes that the Transaction offers stockholders an opportunity to realize long-term value through the potential appreciation in the value of the Common Stock primarily as a result of (i) debt reduction (if the Company elects to apply proceeds of the Transaction to reduce debt), which among other things, should increase the Company's access to capital, permitting increased growth, and (ii) the potential yields to stockholders from the properties that the Operating Partnership will be in a position to acquire or develop with portions of the net proceeds from the Transaction (provided that, there is no assurance as to the existence or extent of such yields), all of which may enable stockholders to sell their shares in the future at a price that is higher than the Common Stock price at the time that the Transaction was publicly announced. However, there can be no assurance that the price of the Common Stock will rise in the future. Access to Future Capital. The Company believes that, as a result of the Transaction, it will have greater access to the capital markets because the Transaction will (i) decrease the Company's debt-to-equity ratio, and (ii) increase its total capitalization and equity market capitalization. The Company believes that greater access to the capital markets should further enhance its ability to grow. However, there is no assurance that the Company will in fact have greater access to the capital markets as a result of the Transaction. Reduction of Company Debt. The Company may apply a portion of the net proceeds of the Transaction to reduce outstanding Company and/or Operating Partnership debt. The Company believes that, among other things, this reduction of debt (if undertaken) will increase the attractiveness of the Company to the capital markets, resulting in the Company's greater access to future financing, which will permit greater growth. POTENTIAL MATERIAL ADVERSE EFFECTS OF THE TRANSACTION The Company believes that the Transaction will have certain potential material adverse effects on the Company and its stockholders, including the following: Substantial Ownership of Common Stock. If Option A or Option B is consummated, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own Preferred Stock equivalent to up to approximately 14.64% of the outstanding shares of the Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis. However, subject to certain exemption provisions set forth in the Charter, no other stockholder will be permitted to own more than 6% of the outstanding shares of Common Stock (other than George M. Marcus, who can currently own up to 25% of the outstanding shares of Common Stock, and qualified pension trusts (as defined in the Charter), which can currently own up to 9.9% of the outstanding shares of Common Stock). Consequently, TREP Investor will have a substantial influence over the affairs of the Company as a result of the Transaction. This concentration of ownership in one stockholder could potentially be disadvantageous to other stockholders' interests. In addition, George M. Marcus, the Company's Chairman, owns Common Stock and limited partnership interests in the Operating Partnership equivalent to 14.59% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis (assuming the issuance and conversion of all 1,600,000 shares of Preferred Stock). 14 Limitations on Transactions and Corporate Actions. Pursuant to the various limitations on the Company's actions described in this Proxy Statement, the Company will be proscribed from or limited with respect to certain transactions and corporate actions which may otherwise be in the Company's interest. Although the Company does not believe that these limitations on the Company's activities will materially impair the Company's ability to conduct its business, there can be no assurance that these limitations will not adversely affect the Company's operations in the future. Ownership and Voting Dilution. The Transaction will dilute (i) the percentage ownership interests of the existing stockholders in the Company, and (ii) upon conversion of the Preferred Stock to Common Stock, the voting rights of the existing stockholders. Effect on Market Price of Common Stock. The conversion of TREP Investor's shares of Preferred Stock to shares of Common Stock could reduce the market price per share of the then outstanding shares of Common Stock to the extent that the market price of the Common Stock exceeds the Conversion Price at the time of conversion. Risk to Dividends. The cash dividends payable on the Preferred Stock will substantially increase the cash required to be available to the Company in order for the Company to continue to pay cash dividends on the Common Stock at current levels. The terms and conditions of the Preferred Stock provide that dividends may be paid on shares of Common Stock in any fiscal quarter only if full, cumulative cash dividends have been paid on all shares of Preferred Stock in the annual amount equal to the greater of (i) $2.1875 per share (8.75% of the $25.000 per share price), or (ii) the dividends (subject to adjustment) paid with respect to the Common Stock plus, in both cases, any accumulated but unpaid dividends on the Preferred Stock. Chilling Effect. The consummation of the Transaction may have the effect of delaying, deferring or preventing a change in control of the Company that could be beneficial to the stockholders. Registration Rights. The registration rights provided to the holders of Preferred Stock pursuant to the Registration Rights Agreement may adversely affect the price of the Common Stock. Rights of Preferred Stock. Pursuant to the Articles Supplementary, and as more fully described in this Proxy Statement, the holders of the Preferred Stock are afforded several rights and preferences which may be disadvantageous to the holders of Common Stock, including (i) cumulative preferential dividends such that no dividends are payable with respect to the Common Stock until all accrued and unpaid dividends on the Preferred Stock are paid in full, (ii) the right to elect at least one director to the Board, (iii) a liquidation preference senior to that of the Common Stock, and (iv) the right to convert to Common Stock under certain circumstances. See "Terms of the Preferred Stock." CONFLICTS OF INTEREST; INTERESTS OF CERTAIN PERSONS Preferred Stock Directors. Pursuant to the Articles Supplementary, the holders of Preferred Stock have the right to elect one director to the Board and, in July 1996, TREP Investor, the then sole holder of shares of Preferred Stock, selected Gregory J. Hartman ("Mr. Hartman") to be the Preferred Stock director. Directors elected by any single stockholder or group of stockholders may have interests that diverge from the interests of other stockholders. Accordingly, Mr. Hartman (or any replacement thereof or substitution therefor), as the director designated by TREP Investor pursuant to the Articles Supplementary, may be deemed to have interests which may not necessarily be consistent with the interests of the stockholders generally. Under certain circumstances, the holders of Preferred Stock may have the right to certain Board representation in addition to Mr. Hartman (or any replacement or substitution therefor) (see "Terms of the Preferred Stock--Voting Rights of Holders of Preferred Stock"). To the extent that any such director nominees are affiliated or associated with the holders of the Preferred Stock, such persons may thereby be deemed to have interests that are in addition to, 15 and potentially in conflict with, the interests of the stockholders generally. The Board was aware of these interests and considered them, among other factors, in approving the Transaction and making its recommendation to the stockholders. Effect on Restricted Stockholders. Subject to certain exceptions, the Restricted Stockholders have each agreed that, prior to July 1, 1998, neither of the Restricted Stockholders shall transfer an aggregate of more than 30% of their respective ownership, as of July 1, 1996, of outstanding shares of Common Stock (including the pro rata portions of all Common Stock held by affiliates of such Restricted Stockholder, based on the Restricted Stockholder's ownership interest in such affiliate and Common Stock issuable upon exchange of such Restricted Stockholder's respective limited partnership interests in the Operating Partnership), provided that pledges and grants of security interests are not restricted. POTENTIAL EFFECTS OF STOCKHOLDER APPROVAL OR DISAPPROVAL OF THE TRANSACTION Effects of Stockholder Approval. Approval of the Transaction by the stockholders will constitute approval of all of the various terms of the Transaction (including, without limitation, the initial purchase of 340,000 shares of Preferred Stock by TREP Investor and the consummation of either Option A or Option B) set forth in the Stock Purchase Agreement, the Loan Facility Agreement, the Articles Supplementary and the Registration Rights Agreement and the transactions contemplated thereby. Approval of the Transaction would also effectively ratify (although such ratification is not required by Maryland law, the Charter or the Bylaws) all prior actions of the Board in connection with the transactions contemplated by the Stock Purchase Agreement, including, without limitation, (i) the reclassification of 1,600,000 shares of Common Stock as 1,600,000 shares of Preferred Stock and the terms, rights and obligations of the Preferred Stock (including, without limitation, dividend, voting, liquidation, conversion, redemption and preemptive rights), (ii) the sale of 340,000 shares of Preferred Stock to TREP Investor, (iii) the obtaining of the TREP Loan by the Company and the terms and conditions thereof, (iv) the covenants, conditions and agreements agreed to by the Company in the Stock Purchase Agreement, the Loan Facility Agreement, the Registration Rights Agreement, the Articles Supplementary and all other agreements, documents and certificates executed by the Company in connection with the transactions described in the Stock Purchase Agreement. Such approval also may serve to extinguish potential claims, if any, regarding any conduct of members of the Board in connection with the Transaction and all of the other items described in the preceding paragraph. Effects of Failure to Approve the Transaction. If the Transaction is not approved, pursuant to the terms of the Stock Purchase Agreement, either (i) if the IRS Approval is obtained by the Company on or prior to December 15, 1996, then Option D will be consummated (see "Terms of the Transaction--Option D"), or (ii) if the IRS Approval is not obtained by the Company on or prior to December 15, 1996, then Option C will be consummated, which Option C results in, among other things, the maturity of the TREP Loan on December 15, 1996, subject to extension until April 30, 1997 (see "Terms of the Transaction-- Option C"), and payment of a yield maintenance fee by the Company (see "Terms of the Transaction--Yield Maintenance Fee"). In addition, failure to approve the Transaction will not disapprove, void or alter, in any manner, certain of the transactions contemplated by the Stock Purchase Agreement, including, without limitation, (a) the reclassification of 1,600,000 shares of Common Stock as 1,600,000 shares of Preferred Stock and the terms, rights and obligations of the Preferred Stock (including, without limitation, dividend, voting, liquidation, conversion, redemption and preemptive rights), (b) the initial sale of 340,000 shares of Preferred Stock to TREP Investor, (c) the obtaining of the TREP Loan (and the initial $11.5 million principal advance thereunder) by the Company and the terms and conditions thereof, (d) the information rights provided to TREP Investor, (e) the right of TREP Investor to participate in future Company equity offerings, (f) the limitations on Company transactions and corporate actions, (g) the registration rights of the holders of Preferred Stock, and (h) the limitation on sales by the Restricted Stockholders. 16 RECOMMENDATION OF THE BOARD; FACTORS AND CONCLUSIONS OF THE BOARD INVOLVED IN ITS DETERMINATION The Board has unanimously approved the Transaction and has determined that the Transaction is in the best interests of the Company and its stockholders. THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE TRANSACTION. The Board believes that the Transaction is in the best interests of the Company and its stockholders because it represents, in the Board's view, an attractive opportunity reasonably available to improve long-term stockholder value by reducing debt and improving the Company's short-term and long-term growth prospects. By providing up to $40 million of capital to the Company on favorable economic terms, the Transaction will enable the Company to exploit growth opportunities that are more favorable than are currently available to the Company. In reaching its determination that the Transaction is in the best interests of the Company and the stockholders, the Board considered, among other things, the following material factors: . Potential Return to Stockholders. The Board believes that the Transaction offers stockholders an opportunity to realize long-term value through the potential appreciation in the value of the Common Stock primarily as a result of (i) the Company's increased access to capital (for example, among other things, subsequent to June 20, 1996, the date on which definitive agreements with respect to the Transaction were executed, the Company completed the Supplemental Offering), permitting increased growth, and (ii) the potential yields to stockholders from the properties that the Company will be in a position to acquire or develop with portions of the net proceeds from the Transaction (provided that there is no assurance as to the existence or extent of such yields), all of which may enable stockholders to sell their shares in the future at a price that is higher than the Common Stock price on the date on which the Transaction was publicly announced. However, there can be no assurance that the price of the Common Stock will rise in the future. . Indirect Affiliation with TREP Investor and Its Affiliates. The Board believes that TREP Investor and its affiliates have a history of investing in companies that are highly valued in the marketplace. The Board believes that the Company will benefit significantly from its association with TREP Investor and such affiliates and its access to their market knowledge and operating experience. Therefore, due to such benefits and the potential to jointly pursue mutually beneficial investment opportunities (see "Potential Material Beneficial Effects of the Transaction--Indirect Affiliation with TREP Investor and Its Affiliates"), the Company considers the indirect affiliation with TREP Investors and its affiliates to be a positive factor in favor of the Transaction. . Impact on the Market Price of Common Stock. The Board considered the actual and potential adverse effects of the Transaction on the market price of the Common Stock, and, in particular, that, if, as of the date of conversion of the Preferred Stock into Common Stock, the market price of the Common Stock exceeded the Conversion Price, the market price of the Common Stock could decrease. However, the Board noted, at the time the Board approved the transaction, that the Conversion Price, which represents an approximately 5% premium over the average closing price of the Common Stock for the 30 trading days prior to June 20, 1996 (the date on which definitive agreements with respect to the Transaction were executed), represented, in the Board's estimation, the alternative with the least potential adverse impact on the market price of the Common Stock for increasing the Company's capital. Therefore, the Board believes that this potential negative factor is outweighed by the potentially higher stock price and other potential benefits of the Transaction described in this Proxy Statement. . Substantial Stockholder. The Board considered that, as a result of the Transaction, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor may be the largest single stockholder of the Company, owning Preferred Stock equivalent to as much as approximately 17 14.64% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully- diluted basis under certain circumstances, while, subject to certain exemption provisions set forth in the Charter, no other stockholder will be permitted to own more than 6% of the outstanding shares of Common Stock (other than George M. Marcus, who can currently own up to 25% of the outstanding shares of Common Stock, and qualified pension trusts (as defined in the Charter), which can currently own up to 9.9% of the outstanding shares of Common Stock). George M. Marcus, the Company's Chairman, owns Common Stock and limited partnership interests in the Operating Partnership equivalent to 14.59% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis (assuming the issuance and conversion of all 1,600,000 shares of Preferred Stock). The Board considered that TREP Investor also will have substantial information rights, the right to nominate Board members, and numerous other rights. Although the Board believes that this concentration of ownership in TREP Investor could potentially be disadvantageous to the other stockholders' interests, the Board believes that, on balance, the potentially negative aspects are outweighed by the benefits of obtaining a large amount of capital at a favorable price, and the other potential benefits of the Transaction (see "Potential Material Beneficial Effects of the Transaction"). . Access to Future Capital. The Board considered that, as a result of the Transaction, the Company expects to have greater access to the capital markets because the Transaction will (i) decrease the Company's debt-to- equity ratio, (ii) increase its total capitalization and equity market capitalization, and (iii) establish an affiliation with TREP Investor (and its affiliates), a well-known and highly regarded real estate investment fund. The Board believes that greater access to the capital markets should further enhance the Company's ability to fund future acquisitions and development by the Operating Partnership and therefore considers this to be a positive factor in favor of the Transaction. However, there can be no assurances that the Company will continue to grow in the future. . Preferred Stock Dividend Rate. In considering the dividend rate payable on the Preferred Stock, the Board reviewed the terms of several other preferred stock issuances by other REITs. Although these transactions were not directly comparable to the Transaction in that the particular terms varied from the terms of the Transaction, the Board believes that the dividend rate on the Preferred Stock is within the range of that paid in connection with such other transactions. 18 PROPOSED AMENDMENTS TO THE CHARTER AMENDING THE OWNERSHIP RESTRICTIONS (PROPOSAL 2) The Board has unanimously approved and recommends the approval by the stockholders of an amendment to Article EIGHTH of the Charter to amend the limitations in the Charter on ownership of stock to facilitate the acquisition of the Company's stock by TREP Investor and to provide the Board with increased flexibility to waive the Charter ownership limitations in certain circumstances. APPROVAL OF THIS AMENDMENT IS A CONDITION TO THE CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE TRANSACTION. CHANGING THE COMPOSITION OF THE BOARD IN CERTAIN CIRCUMSTANCES (PROPOSAL 3) The Board has unanimously approved and recommends the approval by the stockholders of an amendment to Article SIXTH of the Charter to provide for certain changes in the composition of the Board of Directors in the event of the breach of certain protective provisions relating to the Preferred Stock. APPROVAL OF THIS AMENDMENT IS NOT A CONDITION TO THE CONSUMMATION OF THE TRANSACTION. Because TREP Investor and the Company have determined that the protections provided in the Articles Supplementary are sufficient to preserve the interests of the holders of Preferred Stock in the event of the breach of certain protective provisions relating to the Preferred Stock, consummation of the Transaction is not conditioned upon approval of Proposal 3. However, as more particularly described in this Proxy Statement (see "PROPOSAL TO CHANGE THE COMPOSITION OF THE BOARD IN CERTAIN CIRCUMSTANCES"), the Board has determined that the protections provided by Proposal 3 are more desirable for the Company than those currently provided by the Articles Supplementary. 19 THE SPECIAL MEETING OUTSTANDING SHARES AND VOTING RIGHTS Record Date. The record date for stockholders entitled to notice of and to vote at the Special Meeting is the close of business on September 5, 1996. Quorum. Holders of a majority of the issued and outstanding shares of Common Stock, present in person or represented by proxy at the Special Meeting, shall constitute a quorum. Abstentions or "broker non-votes" (i.e., shares held by a broker or nominee which are represented at the Special Meeting but which such broker or nominee is not empowered to vote on a particular proposal) will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum. Voting Rights. Only holders of shares of Common Stock on the close of business on the Record Date are entitled to notice of the Special Meeting. The only securities that can be voted at the Special Meeting consist of 8,805,000 issued and outstanding shares of Common Stock, with each share entitling its owner to one vote on all matters. Holders of record of outstanding shares of Common Stock on the Record Date are eligible to vote at the Special Meeting, in person or by proxy. Stockholder votes will be tabulated by the persons appointed by the Board to act as inspectors of election for the Special Meeting. Shares represented by a properly executed and delivered proxy will be voted at the Special Meeting and, when instructions have been given by the stockholder, will be voted in accordance with those instructions. If no instructions are given, the shares will be voted FOR each of the three Proposals. Holders of shares of the issued and outstanding Preferred Stock are not entitled to vote at the Special Meeting. If proxies representing sufficient votes to approve all or any one of the Proposals have not been received by the scheduled date of the Special Meeting, the chairman of the Special Meeting shall adjourn the Special Meeting to a later date and time (but not later than 120 days after the Record Date), or the individuals named as proxies may vote to so adjourn the Special Meeting, for the purpose of soliciting additional proxies. No Appraisal Rights. Stockholders are not entitled under Maryland law to appraisal rights with respect to the Transaction. Reason for Seeking Stockholder Approval. The Company is seeking stockholder approval of the Transaction pursuant to the requirements of Paragraph 312.03 of the New York Stock Exchange Listed Company Manual, regarding the continued listing of the Common Stock on the NYSE. Approval of the Transaction is not required by Maryland law, the Charter or the Bylaws. If the Company were to consummate the entire Transaction without stockholder approval, the Common Stock could not remain listed on the NYSE. The Company is seeking stockholder approval of the proposed amendments to the Charter in the manner required by Maryland law and the Charter. Presence of Accountants. KMPG Peat Marwick LLP, the Company's principal accountants for the current year and for the most recently completed fiscal year, are expected to be present at the Special Meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions. VOTE REQUIRED Vote Required to Approve the Transaction. The affirmative vote of a majority of all of the votes cast by the stockholders at a meeting at which a quorum is present is required to approve the Transaction (Proposal 1). The receipt of such approval will be deemed to satisfy Paragraph 312.03 of the New York Stock Exchange Listed Company Manual with respect to the continued listing of the Common Stock on the NYSE. Only holders of shares of Common Stock issued and outstanding on the Record Date are entitled to vote on Proposal 1. Abstentions and broker non-votes will have no effect on the result of the vote to approve the Transaction, 20 although they will count toward the presence of a quorum. APPROVAL OF THE TRANSACTION BY THE REQUISITE VOTE OF THE STOCKHOLDERS OF THE COMPANY IS A CONDITION TO CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE TRANSACTION. Vote Required to Approve the Amendment to Article EIGHTH of the Charter. The affirmative vote of the holders of a majority of the shares of Common Stock issued and outstanding as of the Record Date is required to amend the limitations in the Charter on ownership of stock to facilitate the acquisition of the Company's stock by TREP Investor and to provide the Board with increased flexibility to waive the Charter ownership limitations in certain circumstances (Proposal 2). Only holders of shares of Common Stock issued and outstanding on the Record Date are entitled to vote on Proposal 2. Abstentions and broker non-votes will have the same effect as votes against Proposal 2. APPROVAL OF THE PROPOSED AMENDMENT TO ARTICLE EIGHTH BY THE REQUISITE VOTE OF STOCKHOLDERS OF THE COMPANY IS A CONDITION TO CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE TRANSACTION. Vote Required to Approve the Amendment to Article SIXTH of the Charter. The affirmative vote of the holders of two-thirds of the shares of Common Stock issued and outstanding as of the Record Date is required to approve amendments to the Charter to provide for certain changes in the composition of the Board of Directors in the event of the breach of certain protective provisions relating to the Preferred Stock (Proposal 3). Only holders of shares of Common Stock issued and outstanding on the Record Date are entitled to vote on Proposal 3. However, holders of shares of Preferred Stock are entitled to notice of the proposed amendments pursuant to Maryland law. Abstentions and broker non-votes will have the same effect as votes against Proposal 3. APPROVAL OF THE PROPOSED AMENDMENTS TO ARTICLE SIXTH BY THE REQUISITE VOTE OF STOCKHOLDERS OF THE COMPANY IS NOT A CONDITION TO CONSUMMATION OF THE TRANSACTION. Approval of each of the Transaction (Proposal 1) and Proposal 2 is conditioned upon approval of the other (but is not conditioned upon approval of Proposal 3). Failure by the stockholders to approve the Transaction and Proposal 2 at the Special Meeting will result in neither the Transaction nor Proposal 2 being approved (except for certain portions of the Transaction with respect to which stockholder approval is not required), as more particularly described in this Proxy Statement (see "Potential Effects of Stockholder Approval or Disapproval of the Transaction--Effects of Failure to Approve the Transaction") and may require the Company to pay a yield maintenance fee in connection with the TREP Loan (see "Terms of the Transaction--Yield Maintenance Fee"). Failure by the stockholders to approve Proposal 3 will not affect the approval of the Transaction or Proposal 2. The first phase of the Transaction (including, without limitation, the purchase by TREP Investor of 340,000 shares of Preferred Stock and the making by TREP Funding of the TREP Loan to the Company) was completed and all of the Additional Terms were effective as of July 1, 1996, and neither the first phase of the Transaction nor any of the Additional Terms (including, without limitation, all of the approval rights, preferences, privileges and other rights and terms of the Preferred Stock) requires the approval of the stockholders of the Company. Stockholder approval is, however, required to complete the entire $40 million investment, in the manner contemplated by the Company, and, consequently, the Company is relying on such approval for the Company to maximize the potential benefits that the Company believes the Transaction can provide if the Transaction is fully consummated, as more particularly discussed in this Proxy Statement (See "Potential Material Beneficial Effects of the Transaction"). PROXIES The shares represented by each properly executed proxy not subsequently revoked will be voted at the Special Meeting in accordance with the instructions contained therein. IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED (I) FOR PROPOSAL 1 TO APPROVE THE TRANSACTION, (II) FOR PROPOSAL 2 TO APPROVE AND ADOPT THE PROPOSED AMENDMENT TO THE CHARTER TO AMEND THE LIMITATIONS IN THE CHARTER ON OWNERSHIP OF THE COMPANY'S STOCK TO FACILITATE THE ACQUISITION OF THE COMPANY'S STOCK BY TREP INVESTOR AND TO PROVIDE THE BOARD WITH INCREASED FLEXIBILITY TO WAIVE THE CHARTER OWNERSHIP LIMITATIONS IN CERTAIN CIRCUMSTANCES, AND (III) FOR PROPOSAL 3 TO AMEND THE CHARTER TO PROVIDE FOR CERTAIN CHANGES IN THE COMPOSITION OF THE BOARD OF DIRECTORS IN THE EVENT OF THE BREACH OF CERTAIN PROTECTIVE PROVISIONS RELATING TO THE PREFERRED STOCK. 21 The presence of a stockholder at the Special Meeting will not automatically revoke such stockholder's proxy. However, a stockholder giving a proxy in the form accompanying this Proxy Statement has the power to revoke the proxy prior to its exercise by (i) filing prior to the Special Meeting a written notice of revocation bearing a later date with the Company (to the attention of Mr. Jordan E. Ritter), (ii) delivering to the Company a duly executed proxy bearing a later date, or (iii) attending the Special Meeting and voting in person. If proxies representing sufficient votes to approve all or any one of the Proposals have not been received by the scheduled date of the Special Meeting, the chairman of the Special Meeting shall adjourn the Special Meeting to a later date and time (but not later than 120 days after the Record Date), or the individuals named as proxies may vote to so adjourn the Special Meeting, for the purpose of soliciting additional proxies. If the Special Meeting is postponed or adjourned for any reason, at any subsequent reconvening of the Special Meeting all proxies will be voted in the same manner as such proxies would have been voted at the original convening of the Special Meeting (except for any proxies that have effectively been revoked or withdrawn prior to exercise). The solicitation of proxies will be conducted by mail and the Company will bear all attendant costs. These costs will include the expense of preparing and mailing proxy materials for the Special Meeting and reimbursements paid to brokerage firms and others for their expenses incurred in forwarding solicitation material regarding the Special Meeting to beneficial owners of the Common Stock. The Company may use the services of Corporate Investor Communications, a third-party solicitor, to assist in soliciting proxies and, in such event, the Company expects to pay approximately $5,500 for such services. The Company may conduct further solicitation personally, telephonically or by facsimile through its officers, directors and regular employees, none of whom will receive additional compensation for assisting with the solicitation. Arrangements also will be made with brokerage houses and other custodians, nominees and fiduciaries for forwarding solicitation materials to the beneficial owners of shares of Common Stock held of record by such persons, and the Company will reimburse such persons for their reasonable expenses incurred in that connection. STOCKHOLDERS ARE REQUESTED TO INDICATE THEIR VOTE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY TO THE COMPANY IN THE POSTAGE-PAID ENVELOPE THAT HAS BEEN PROVIDED. THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE TRANSACTION AND FOR EACH OF THE OTHER PROPOSALS SET FORTH IN THIS PROXY STATEMENT. 22 APPROVAL OF THE INVESTMENT IN THE COMPANY BY TREP INVESTOR (PROPOSAL 1) The following discussion summarizes the material aspects of the Transaction, as set forth in the Stock Purchase Agreement and the documents referred to therein, including, without limitation, the Loan Facility Agreement, the Registration Rights Agreement and the Articles Supplementary. This summary is not intended to be a complete description of the Stock Purchase Agreement or any of the other documents listed above and is subject to, and qualified in its entirety by, reference to the Stock Purchase Agreement, and such other documents, copies of which are attached hereto as appendices and incorporated herein by reference. INFORMATION ABOUT THE COMPANY The Company is a fully integrated self-administered REIT which was formed in 1994 to continue and expand the real estate investment and management operations conducted by its predecessor since 1971. The Company has been engaged in owning, managing, leasing, acquiring, developing and redeveloping multi-family residential properties located throughout the west coast of the United States for over 25 years through various cycles of the real estate market. The Company's Chairman of the Board of Directors and four most senior executives have worked at the Company (or its predecessor) for an average of 13 years and have an average of approximately 20 years of experience in the real estate industry. Since its inception in 1971, the Company has acquired, developed, managed and/or disposed of a combination of approximately 153 property and portfolio assets in seven major metropolitan markets with an emphasis on the west coast of the United States at an aggregate investment in excess of $780 million. Such properties have included various types of income- producing properties, with a focus on multi-family residential properties. As of June 30, 1996, the Company's multi-family residential portfolio consisted of 22 properties comprising 4,832 apartment units, eleven of which are located in the San Francisco Bay Area, nine of which are located in the Seattle Metropolitan Area and two of which are located in Southern California. The Company's multi-family residential properties had an average occupancy rate (based on "Financial Occupancy," which refers to the percentage resulting from dividing actual rents by total possible rents as determined by valuing occupied units at contractual rates and vacant units at market rates for the period in question) for the quarter ended June 30, 1996 of approximately 97%. The Company also owns six retail properties, which are located in the Portland Metropolitan Area and in Eugene, Oregon, and an office building located in Palo Alto, California that houses the Company's headquarters (collectively the "Commercial Properties," and together with the Company's 22 multi-family residential properties, the "Properties" and each a "Property"). As of June 30, 1996, the Commercial Properties had an average occupancy rate (based on leased and occupied square footage) of approximately 93%. The Company's multi- family residential Properties accounted for approximately 90% of the Company's rental revenues for the quarter ended June 30, 1996 and its Commercial Properties accounted for approximately 10% of its rental revenues for this same period. The Company conducts substantially all of its activities through the Operating Partnership. The Company owns an approximate 83% general partnership interest and senior members of the Company's management and certain outside investors own an approximate 17% limited partnership interest in the Operating Partnership. As the sole general partner of the Operating Partnership, the Company has control over the management of the Operating Partnership and over each of the Properties. The Company's principal executive offices are located at 777 California Avenue, Palo Alto, California 94304, and its telephone number is (415) 494- 3700. INFORMATION ABOUT TREP INVESTOR TREP Investor is a $784 million real estate investment vehicle sponsored by Westbrook Partners, L.L.C. ("Westbrook") and Tiger Management Corporation ("Tiger"). The investors of TREP Investor are mainly public and private pension funds, endowments and foundations. TREP Investor targets investments in a broad 23 range of real estate related assets, portfolios and companies. Westbrook is a real estate investment management company founded in April 1994 by Paul D. Kazilionis and William H. Walton, who were formerly senior executives at Morgan Stanley Realty Incorporated ("Morgan Stanley Realty"). Tiger is a global investment manager that currently manages approximately $7 billion through two offshore investment funds, three private limited partnerships and a registered investment company for more than 700 investors, including pension funds, endowments, foundations and individual investors. Prior to forming Westbrook, Mr. Kazilionis and Mr. Walton worked together for 12 years at Morgan Stanley Realty where they were responsible for major real estate businesses. Mr. Kazilionis was President of the general partner of The Morgan Stanley Real Estate Fund, L.P. (together with its affiliates, ("MSREF"), Morgan Stanley Realty's sole vehicle for principal investing in real estate. On behalf of MSREF, Mr. Kazilionis oversaw the acquisition and ongoing management of over a dozen investments, comprising 1,500 individual properties located throughout much of the United States, with an aggregate purchase price of approximately $2 billion. While at Morgan Stanley Realty, Mr. Walton was instrumental in originating or executing a substantial portion of its real estate advisory business, including discrete sale and financing assignments, company and portfolio liquidations and financings, and public and private placement of debt and equity. As of July 1, 1996, TREP Investor had completed or committed to several dozen investments, with an aggregate capitalization approaching $2.0 billion. TREP Investor's investments range in size from $10 million to over $300 million and encompass multi-family residential, office and industrial properties, residential lot developments, lodging and leisure assets, and debt investments including commercial mortgage-backed securities. Virtually all of TREP Investor's investments have been made in existing operating companies or with a local operating partner who has invested alongside TREP Investor. BACKGROUND OF THE TRANSACTION In May 1996, the Company received a written proposal describing the general outlines of the Transaction (including the investment by an affiliate of TREP Investor of up to $40 million in the Company by the purchase by an affiliate of TREP Investor of up to 1,600,000 shares of Preferred Stock) from an affiliate of TREP Investor. On May 21, 1996, the Board discussed the proposal, at which time the Board (i) authorized the officers of the Company to negotiate the final terms of the Transaction with TREP Investor and such affiliates, and (ii) delegated to the Executive Committee of the Board (the "Executive Committee") the task of approving the final terms of the Transaction. On May 28, 1996, the Company and an affiliate of TREP Investor entered into a letter of intent setting forth the terms and conditions under which TREP Investor would agree to invest the up to $40 million in the Company and the Company would agree to sell the Preferred Stock to TREP Investor. On June 19, 1996, at a meeting of the Executive Committee, the Executive Committee, among other things, (i) approved the form and terms of the Stock Purchase Agreement, the Registration Rights Agreement and the Loan Facility Agreement, (ii) recommended to the Board that the Board recommend that the stockholders of the Company vote in favor of and approve the Transaction, (iii) reclassified 1,600,000 authorized but unissued shares of Common Stock as Preferred Stock with such designation, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption as set forth in the then current draft of the Articles Supplementary, and (iv) directed the officers to execute and file the Articles Supplementary with the State Department of Assessments and Taxation of Maryland (the "SDAT"). The Stock Purchase Agreement, the Loan Facility Agreement, the Registration Rights Agreement, and ancillary agreements were executed on June 20, 1996 by the Company, TREP Investor and TREP Funding, as applicable. On June 26, 1996, the Board, among other things, (i) ratified the actions of the Executive Committee in connection with the approval of the Transaction, (ii) as provided in the Articles Supplementary, elected Mr. Hartman, TREP Investor's nominee for director, to the Board (and appointed him to all Board committees), 24 (iii) approved an amendment to the Charter with respect to the designation and composition of the Board, which amendment is set forth in Proposal 3, and (iv) agreed to recommend to the stockholders that the stockholders approve the Transaction and the other Proposals at the Special Meeting. An amendment to each of the Stock Purchase Agreement and the Loan Facility Agreement, the approval of which amendments were within the authority delegated by the Board to the officers of the Company, was executed on July 1, 1996 by the Company, TREP Investor and TREP Funding, as applicable. Also on July 1, 1996, among other things, (i) the Articles Supplementary were executed and filed for record with, and accepted by, the SDAT, (ii) 340,000 shares of Preferred Stock were sold to TREP Investor in consideration of $8.5 million, in cash, paid by TREP Investor to the Company, and (iii) pursuant to the Loan Facility Agreement, TREP Funding made the TREP Loan to the Company, with the purpose of exchanging all principal outstanding under the TREP Loan for shares of Preferred Stock upon stockholder approval of the Transaction. TERMS OF THE TRANSACTION Purchase of Preferred Stock. The terms of the Stock Purchase Agreement anticipate that TREP Investor will invest up to $40 million in the Company through the purchase of up to 1,600,000 shares of Preferred Stock, at a purchase price of $25.000 per share. The investment will be consummated in two phases: (i) the purchase by TREP Investor of 340,000 shares of Preferred Stock, for an aggregate purchase price of $8.5 million, paid in cash, which purchase was completed on July 1, 1996; and (ii) the purchase by TREP Investor of up to 1,260,000 additional shares of Preferred Stock, the purchase price for which will be comprised of (A) exchanging $11.5 million, constituting the outstanding principal balance of the TREP Loan, for shares of Preferred Stock, and (B) utilizing funds otherwise comprising the remainder of the Maximum Loan Principal Amount to acquire the remaining shares of Preferred Stock. Completion of the purchase of up to 1,260,000 additional shares of Preferred Stock is scheduled to occur on or prior to June 20, 1997. The purchase price per share for the shares of Preferred Stock and the Conversion Price were determined as the result of arm's-length negotiations between the Company and its advisors and TREP Investor and its advisors. See "TREP Loan Terms" for a summary of the principal terms of the TREP Loan. Phase 2 of the Transaction will be consummated in accordance with one of the Options, as follows: Option A and Option B. If the stockholders approve Proposal 1 and Proposal 2 at the Special Meeting, subject to the absence of certain legal prohibitions, (i) the $11.5 million principal outstanding under the TREP Loan will be immediately exchanged for shares of Preferred Stock, and (ii) TREP Funding shall, at the request of the Company, advance to the Company funds otherwise comprising the remainder of the Maximum Loan Principal Amount to acquire the remainder of the shares of Preferred Stock on or prior to June 20, 1997, with each such advance being immediately applied to purchase shares of Preferred Stock. The Company may solicit and, prior to the Special Meeting, may receive the IRS Approval. In the event such IRS Approval is received prior to the stockholder approval of the Transaction at the Special Meeting, "Option B" is triggered under the Stock Purchase Agreement and the Loan Facility Agreement. The nature and timing of the transactions contemplated by Option B, however, are identical to that of Option A. For example, under Option B, even after the IRS Approval is obtained, the $11.5 million principal amount outstanding under the TREP Loan would not be exchanged for shares of Preferred Stock unless and until the stockholders approved the Transaction at the Special Meeting. Pursuant to the consummation of Option A or Option B, if applicable, TREP Investor will own an aggregate of 1,600,000 shares of Preferred Stock, for an aggregate purchase price of $40 million, unless TREP Investor disposes of all or a portion of its shares of Preferred Stock. Upon the consummation of all of the transactions contemplated by Option A or Option B, the TREP Loan will be terminated. Option D. If the stockholders fail to approve Proposal 1 and Proposal 2 at the Special Meeting and the Company shall have received the IRS Approval on or before December 15, 1996, subject to the absence of certain legal prohibitions, (i) the $11.5 million principal outstanding under the TREP Loan will be immediately exchanged for shares of Preferred Stock (provided that, if the IRS Approval is obtained prior to the date of the 25 Special Meeting, the exchange will occur on the date of the Special Meeting; otherwise, the exchange will occur on the date that the IRS Approval is obtained), and (ii) TREP Funding, at its option, may purchase up to a maximum of $7 million in value of shares of Preferred Stock, in which event (under both clause (i) and clause (ii)) the TREP Loan will terminate. Pursuant to the consummation of Option D, if applicable, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own an aggregate of either (a) 800,000 shares of Preferred Stock, for an aggregate purchase price of $20 million, or (b) as provided in clause (ii) above, up to 1,080,000 shares of Preferred Stock, for an aggregate purchase price of up to $27 million. Option C. If the stockholders fail to approve Proposal 1 and Proposal 2 at the Special Meeting and the IRS Approval is not obtained by the Company on or before December 15, 1996, or if the Stock Purchase Agreement is terminated, for any reason, or any material provision thereof shall have ceased to be in full force and effect such that TREP Investor shall not be able to realize the material benefits thereof, TREP Investor shall not purchase any additional shares of Preferred Stock. Pursuant to the consummation of Option C, if applicable, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own an aggregate of 340,000 shares of Preferred Stock, for an aggregate purchase price of $8.5 million. Pursuant to Option C, the interest and outstanding $11.5 million principal balance under the TREP Loan will mature and be due and payable on December 31, 1996, provided that the Company may extend such maturity until April 30, 1997. Listing of the Preferred Stock and the Common Stock Upon Conversion of the Preferred Stock. The Company has no plans to list, on the NYSE or any other exchange, either the shares of Preferred Stock or the Common Stock with respect to which the shares of Preferred Stock may be converted (other than as required pursuant to the registration rights of the holders of Preferred Stock (see "Registration Rights Agreement")). Any listing on the NYSE of the Preferred Stock or any as yet unissued Common Stock is subject to the approval of the NYSE in accordance with the rules set forth in the New York Stock Exchange Listed Company Manual. Preferred Stockholders' Stock Ownership. As of the date of this Proxy Statement, there are 340,000 outstanding shares of Preferred Stock. TREP Investor owns 100% of the 340,000 outstanding shares of Preferred Stock, which are equivalent to 388,571 shares of Common Stock or approximately 3.52% of the outstanding shares of Common Stock as of the Record Date on a fully-diluted basis. If TREP Investor acquires all 1,600,000 shares of Preferred Stock directly from the Company, as contemplated by the Transaction, and assuming no other change in the number of outstanding shares of Common Stock or Preferred Stock, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own 100% of the 1,600,000 outstanding shares of Preferred Stock, which are equivalent to 1,828,571 shares of Common Stock or approximately 14.64% of the outstanding shares of Common Stock on a fully-diluted basis. If TREP Investor acquires an aggregate of 800,000 shares of the Preferred Stock, as contemplated by Option D (assuming TREP Funding does not exercise its option under Option D to acquire up to an additional $7 million of Preferred Stock), and assuming no other change in the number of outstanding shares of Common Stock or Preferred Stock, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own 100% of the 800,000 outstanding shares of Preferred Stock, which are equivalent to 914,285 shares of Common Stock or approximately 7.90% of the outstanding shares of Common Stock on a fully-diluted basis. If TREP Investor acquires an aggregate of 1,080,000 shares of the Preferred Stock, as contemplated by Option D (assuming TREP Funding exercises its option under Option D and utilizes the entire $7 million for the purchase of shares of Preferred Stock), and assuming no other change in the number of outstanding shares of Common Stock or Preferred Stock, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own 100% of the 1,080,000 outstanding shares of Preferred Stock, which are equivalent to 1,234,285 shares of Common Stock or approximately 10.38% of the outstanding shares of Common Stock on a fully-diluted basis. If TREP Investor does not acquire any further shares of the Preferred Stock, as contemplated by Option C, and assuming no other change in the number of outstanding shares of Common Stock or Preferred Stock, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor will own 100% of the 340,000 outstanding shares of Preferred Stock, which are equivalent to 388,571 shares of Common Stock or approximately 3.52% of the outstanding shares of Common Stock on a fully-diluted basis. 26 Also, if Option A or Option B is consummated, TREP Investor may be the largest single stockholder of the Company (owning Preferred Stock equivalent to approximately 14.64% of the outstanding shares of Common Stock on a fully- diluted basis (based on the number of shares of Common Stock outstanding as of the Record Date, unless TREP Investor disposes of all or portions of its shares of Preferred Stock)) while, subject to certain exemption provisions set forth in the Charter, no other stockholder will be permitted to own more than 6% of the outstanding shares of Common Stock (other than George M. Marcus, who can currently own up to 25% of the outstanding shares of Common Stock, and qualified pension trusts (as defined in the Charter), which can currently own up to 9.9% of the outstanding shares of Common Stock), subject to certain exceptions set forth in the Charter or approved by the Board. George M. Marcus, the Company's Chairman, owns Common Stock and limited partnership interests in the Operating Partnership equivalent to 14.59% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis (assuming the issuance and conversion of all 1,600,000 shares of Preferred Stock). Upon conversion of the shares of Preferred Stock to Common Stock, unless TREP Investor disposes of all or a portion of its shares of Preferred Stock (or Common Stock into which Preferred Stock has been converted), TREP Investor, by virtue of its ownership of approximately 14.64% the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis, will have a substantial influence over the composition of the Board and over Company policy. Conversion of Preferred Stock to Common Stock. From and after June 20, 1997, 400,000 shares of Preferred Stock shall become convertible into Common Stock. Thereafter, at the beginning of each of the next three three-month periods, an additional 400,000 shares of Preferred Stock shall become convertible into Common Stock, provided that, in the case of the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, all outstanding shares of Preferred Stock shall, at the option of the holder thereof, become immediately convertible into Common Stock. The Conversion Price per share of Preferred Stock will initially be $21.875, subject to adjustment as more fully described in this Proxy Statement. Based on the conversion ratio, the Conversion Price represents an approximately 5% premium over the average per share closing price of the Common Stock for the 30 trading days prior to June 20, 1996, the date on which definitive agreements with respect to the Transaction were executed. See "Terms of the Preferred Stock--Conversion of Preferred Stock to Common Stock." Representation on the Board. TREP Investor and the other holders of Preferred Stock, if any, have the right to nominate and elect, voting as a separate class, one director to the Board and to nominate and elect, voting as a separate class, up to four additional directors to the Board, in the event of a sustained failure to pay dividends with respect to the Preferred Stock or a breach of certain protective provisions, for an aggregate of five directors, representing approximately 33% of the directors on the Board (see Terms of the Preferred Stock--Voting Rights of Holders of Preferred Stock). The number of directors elected by the holders of the Preferred Stock and the composition of the Board may be modified, in certain circumstances, if the stockholders approve Proposal 3 (see "PROPOSAL TO CHANGE THE COMPOSITION OF THE BOARD IN CERTAIN CIRCUMSTANCES"). Information Rights. Pursuant to the Stock Purchase Agreement, so long as TREP Investor holds 100,000 or more shares of Preferred Stock, the Company and its subsidiaries are required to (i) provide TREP Investor with access to the Company's and its subsidiaries' properties, books, contracts, commitments, records and personnel, and (ii) furnish to TREP Investor with (a) a copy of all reports, schedules and other documents required to be filed by the Company with or received by the Company from any state or federal securities regulating body, and (b) all other information concerning the Company's business, personnel and properties as TREP Investor may reasonably request. In addition, pursuant to the Loan Facility Agreement, the Company has agreed to provide TREP Funding and TREP Investor with (i) the right to consult with and advise Company management regarding significant business activities, (ii) the right to communicate directly with the Company's independent certified public accountants and tax advisors, and (iii) the right to receive quarterly unaudited and yearly audited financial reports and a monthly report displaying, by property, gross income, net operating income, cash flow and, on an aggregate basis, funds from operations and adjusted funds from operations per share. Also, under circumstances in which 27 TREP Funding or TREP Investor reasonably believes that a Material Adverse Effect has occurred, TREP Funding and TREP Investor may conduct audits of Company income and expenses. Participation Rights. Pursuant to the Stock Purchase Agreement, so long as any Preferred Stock is outstanding, in the event that the Company issues or sells shares of stock, or the Operating Partnership issues or sells limited partnership interests, as the case may be, TREP Investor will be entitled (except in certain limited circumstances) to a participation right to purchase or subscribe for, either as part of such issuance or in a concurrent issuance, a total number of shares or partnership interests, as the case may be, equal to TREP Investor's pro rata share of the total number of shares proposed to be issued by the Company. TREP Investor waived its participation rights in connection with the Supplemental Offering. See "Description of Participation Rights." Limitations on Transactions and Corporate Actions. Pursuant to the Stock Purchase Agreement, the Company has agreed that all transactions between the Company and any affiliate of the Company shall be conducted on an arm's-length basis, and if any such transaction involves a cost to the Company or to such affiliate in excess of $500,000 in a single transaction, or in excess of an aggregate $1 million for a series of transactions with all affiliates in any twelve-month period, such transaction shall be on terms and conditions no less favorable (when all aspects of the transactions are considered) to the Company than could be obtained from non-related persons except for transactions disclosed to TREP Investor prior to June 20, 1996. Pursuant to the Articles Supplementary, the Company has agreed that, while any Preferred Stock is outstanding, the Company will not, without the approval of holders of at least 66 2/3% of the outstanding shares of Preferred Stock, voting separately as a class, (i) increase the number of authorized shares of Preferred Stock or issue any shares of Preferred Stock other than to existing holders of Preferred Stock, (ii) increase the authorized number of shares of or create, reclassify or issue any class of stock ranking prior to or on a parity with the Preferred Stock either as to dividends or upon liquidation, (iii) amend, alter or repeal any of the provisions of the Charter so as to impair the rights and privileges of the Preferred Stock, (iv) amend, alter or repeal certain provisions of the Bylaws in a manner which would adversely affect the rights of the holders of the Preferred Stock, (v) authorize any reclassification of the Preferred Stock, (vi) except pursuant to a conversion of the Preferred Stock, require the exchange of Preferred Stock for other securities, or (vii) effect a voluntary liquidation, dissolution or winding up of the Company, the sale of substantially all of the assets of the Company, the merger or consolidation of the Company or the Operating Partnership or any recapitalization (except a merger of a wholly-owned subsidiary of the Company into the Company in which the Company's capitalization is unchanged as a result of such merger) of more than 40% of the Company's total market capitalization (market value of the Company's equity plus total indebtedness) in a single transaction or a series of related transactions, provided that successive offerings of the Company's equity or debt to the public shall not be considered related transactions. Also, pursuant to the Articles Supplementary, the Company has agreed that, while any Preferred Stock is outstanding, the Company and the Operating Partnership will not, directly or indirectly, without the approval of the holders of a majority of the outstanding shares of Preferred Stock, voting separately as a class, take or allow to occur any of the following actions: (i) substantial sales or other transfers of the assets of the Company or the Operating Partnership or any other entity owned, directly or indirectly, by the Company or the Operating Partnership; (ii) the termination of the Company as a REIT under the Code; (iii) any alteration in the Company's or the Operating Partnership's business; or (iv) any change in control of the Company or the Operating Partnership. See "Terms of Preferred Stock--Prohibited Actions." Resale Restrictions. Pursuant to the Stock Purchase Agreement, TREP Investor has acknowledged and agreed that the shares of Preferred Stock acquired or to be acquired by TREP Investor, together with any shares of Common Stock into which such shares of Preferred Stock may be converted, are not, and, subject to registration pursuant to the Registration Rights Agreement or otherwise, will not be, registered under the Securities Act or the securities laws of any state, and that such Preferred Stock or Common Stock may be sold only in one or more transactions registered under the Securities Act and, where applicable, state securities laws 28 or as to which an exemption from registration requirements of the Securities Act and, where applicable, state securities laws, is available. Modifications to Structure for Tax and ERISA Purposes. Pursuant to the Stock Purchase Agreement, the Company and TREP Investor have agreed to negotiate in good faith any modifications necessary to the structure of the Operating Partnership and/or the Operating Partnership's investments in, and ownership of, the property of the Operating Partnership, (i) to minimize certain adverse tax consequences to TREP Investor, and (ii) to assist TREP Investor with its obligations under ERISA. Unless and until such date as TREP Investor has distributed to its investors aggregate funds exceeding 50% of the net acquisition cost of all assets it has purchased to such date, the Company and the Operating Partnership, considered as a single entity, or any entity in which the partners and/or the Company and the Operating Partnership, considered as a single entity, owns an interest and which owns any portion of the Company's property, shall qualify as and/or remain an "operating company" under the plan asset rules of ERISA at 29 C.F.R. Section 2510.3-101, provided that such action shall not have a material adverse effect on Operating Partnership limited partners, considered as a whole. Registration Rights. Neither the shares of the Preferred Stock currently held by TREP Investor nor the shares of Preferred Stock issued to TREP Investor as contemplated by Phase 2 of the Transaction (nor any shares of Common Stock into which any such shares of Preferred Stock may be converted) are or will be registered under the Securities Act and will be issued by the Company in reliance upon an exemption from registration. Such shares will be deemed "restricted securities" within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available. Pursuant to the Registration Rights Agreement, the Company will grant certain registration and listing rights to the holders of the Preferred Stock that will enable the holders of the Preferred Stock to resell certain shares of Preferred Stock (and/or shares of Common Stock into which shares of Preferred Stock have been converted) to the public under certain conditions. See "Registration Rights Agreement." Limitations on Certain Stockholders. Subject to certain exceptions, the Restricted Stockholders have each agreed that, prior to July 1, 1998, neither of the Restricted Stockholders shall transfer (provided that pledges and grants of security interests are not restricted) an aggregate of more than 30% of their respective ownership, as of July 1, 1996, of the shares of Common Stock (including the pro rata portions of all Common Stock held by affiliates of such Restricted Stockholder, based on the Restricted Stockholder's ownership interest in such affiliate and Common Stock issuable upon exchange of such Restricted Stockholder's respective limited partnership interests in the Operating Partnership). Solicitation Restrictions. The Company and the Operating Partnership have agreed that, until any Option has been exercised and all funds available thereunder have been requested by the Company, they will not solicit or receive from any third party (including, without limitation, by way of a public offering or private offering of securities) funds in exchange for interests in the Company or the Operating Partnership, other than (i) pursuant to a sale of Common Stock pursuant to the Company's existing shelf registration statement that is commenced before funding is available pursuant to the consummation of an Option, or (ii) transactions in which the Company or the Operating Partnership receives only non-cash consideration, e.g., real estate. Negotiation of Management Agreement. The Company and TREP Investor have agreed to negotiate (without being legally bound to enter into) a management agreement with respect to the management by the Company of approximately 800 multi-family rental units located in Ventura County, California, which TREP Investor owns through an affiliate. Use of Proceeds. The Company expects that the net proceeds of the investment will be contributed by the Company to the Operating Partnership. The Operating Partnership will use the net proceeds (i) to repay outstanding borrowings under the Operating Partnership's current credit facility and other loans, (ii) to finance the acquisition and/or development of additional (or already owned) multi-family properties, and/or (iii) for general corporate purposes, including working capital. As part of the transaction expenses payable, the Company will pay to Merrill Lynch & Co. a fee of approximately $1 million. 29 Conditions to Closing. Each of the Company's and TREP Investor's obligations to effect Phase 2 of the Transaction are subject to various mutual and unilateral conditions, including, without limitation, the following: (i) the stockholders shall have approved the Transaction (Proposal 1); (ii) the stockholders shall have approved the proposed amendment to the Charter to amend the limitations on ownership of stock to permit TREP Investor to acquire the shares of Preferred Stock (Proposal 2); (iii) the Company shall continue to qualify as a REIT for federal income tax purposes; (iv) there shall have been no Material Adverse Effect; (v) there shall not be in effect any order, decree or injunction of any court or agency which prohibits the Transaction and there shall not be any legal proceedings which could reasonably be expected to have a Material Adverse Effect on the ability of the Company to consummate the Transaction; (vi) the Company shall have performed all covenants required to be performed by the Company, except for failures to perform as would not in the aggregate reasonably be expected to have a Material Adverse Effect; (vii) TREP Investor shall have performed all covenants required to be performed by TREP Investor except for failures to perform as would not in the aggregate reasonably be expected to have a Material Adverse Effect on the Company's or TREP Investor's ability to consummate Phase 2 of the Transaction (other than, among other things, TREP Funding's obligations under the Loan Facility Agreement and TREP Investor's obligation to purchase the applicable number of shares of Preferred Stock pursuant to an Option, with respect to which the Material Adverse Effect limitation shall not apply); and (viii) various other customary conditions shall have been satisfied. Yield Maintenance Fee. If the stockholders do not approve Proposal 1 and Proposal 2 at the Special Meeting, the Company is required to pay to TREP Funding a prepayment fee on the TREP Loan equal to the product of (i) the recent average market price of a share of Common Stock minus $21.875 times (ii) a fraction, the numerator of which is the then outstanding principal amount of the TREP Loan and the denominator of which is $21.875. Amendment or Termination of the Stock Purchase Agreement. Although the Board reserves the right to amend the provisions of the Stock Purchase Agreement without approval of the stockholders, the Company intends to solicit further approval of the stockholders in the event that any such amendment would change the Transaction in a way that would be materially adverse to stockholders. The Board also reserves the right to terminate the Stock Purchase Agreement, in accordance with its terms, without obtaining further approval of the stockholders. The Board does not, however, currently anticipate either the amendment of the terms of, or the termination of, the Stock Purchase Agreement, other than amendments for the purpose of extending any deadline set forth therein for obtaining stockholder approval of the Proposals. TREP LOAN TERMS The following discussion summarizes the material terms of the TREP Loan, as set forth in the Loan Facility Agreement, to the extent not otherwise described in other portions of this Proxy Statement. This summary is not intended to be a complete description of the terms of the TREP Loan or of the Loan Facility Agreement or any of the other documents evidencing the TREP Loan and is subject to, and qualified in its entirety by, reference to the Loan Facility Agreement, a copy of which is attached hereto as Appendix B and incorporated herein by reference. Principal Amount. The maximum principal amount of the TREP Loan is $31.5 million. However, the outstanding principal amount of the TREP Loan shall not exceed $11.5 million except solely to fund purchases of additional shares of Preferred Stock by TREP Investor pursuant to the consummation of Option A or Option B. Also, all subsequent advances of principal under the TREP Loan (in the amounts required pursuant to the applicable of Option A, Option B or Option D, if applicable), if any, will be immediately applied to purchase shares of Preferred Stock in accordance with the applicable Option. It is anticipated that the initial $11.5 million of principal currently outstanding will itself be applied to purchase Preferred Stock under all circumstances other than pursuant to the consummation of Option C. Maturity. Except pursuant to the consummation of Option C, if applicable, the principal amount of the TREP Loan is repayable in full in exchange for shares of Preferred Stock in accordance with the consummation 30 of the Options, other than Option C. Upon the consummation of Option C, if applicable, the entire principal balance of the TREP Loan shall be due and payable in full on December 31, 1996, which date may be extended by the Company until April 30, 1997. Interest. Interest will accrue on all portions of the principal amount of the TREP Loan from time to time outstanding at the greater of (i) 8.75% per annum, and (ii) the rate that is equal to the quarterly dividend on the Common Stock, annualized, divided by $21.875, provided that upon the Company's default under the terms of the TREP Loan, the interest rate will be the sum of the rate provided above and 4% per annum. All interest is payable quarterly in arrears on the last day of each calendar quarter and on the date on which the applicable Option is consummated. Yield Maintenance Fee. If the stockholders do not approve Proposal 1 and Proposal 2 at the Special Meeting, the Company will be required to pay to TREP Funding a prepayment fee equal to the product of (i) the recent average market price of a share of Common Stock minus $21.875 times (ii) a fraction, the numerator of which is the then outstanding principal amount of the TREP Loan and the denominator of which is $21.875. Guaranty. Repayment of the TREP Loan is guaranteed by the Operating Partnership. REGISTRATION RIGHTS AGREEMENT The following discussion summarizes the material terms of the Registration Rights Agreement to the extent not otherwise described in other portions of this Proxy Statement. This summary is not intended to be a complete description of the terms of TREP Investor's Registration rights or of the Registration Rights Agreement and is subject to, and qualified in its entirety by, reference to the Registration Rights Agreement, a copy of which is attached hereto as Appendix C and incorporated herein by reference. Registration of Stock. As to all but not less than all of the Preferred Stock purchased by TREP Investor, at any time after the consummation of the Transaction, and with respect to shares of Common Stock, only after February 20, 1997, and from time to time thereafter, at TREP Investor's request, the Company will use its best efforts to cause all Preferred Stock or such Common Stock to be registered (or otherwise qualified) in accordance with the rules and regulations of the Securities and Exchange Commission (the "Commission"), subject to certain limitations, including, without limitation, as to the value of the shares included in the registration (generally, a minimum of $7 million), size of the registration (the registration must be for all of the outstanding Preferred Stock or at least 25% of the Preferred Stock holders' shares of Common Stock), and timing (the Company is not required to make more than one registration per year). Shelf Registration. As to all but not less than all of the Preferred Stock purchased by TREP Investor, at any time after the consummation of the Transaction, and, with respect to any shares of the Common Stock, only at any time after February 20, 1997, and from time to time thereafter, at the request of TREP Investor, the Company will use its best efforts to file with the Commission a registration statement or statements under the Securities Act for the offering on a continuous or delayed basis in the future of such Preferred Stock or Common Stock in such amount and type as aforesaid (collectively, the "Shelf Registration"). The Company shall use its best efforts to keep the Shelf Registration continuously effective for up to two years. The Company shall not be required to comply with a request by TREP Investor for a shelf registration, except to the extent that the securities to be included in any such registration statement aggregate at least $7 million in expected offering price to the public or are such lesser amount of securities as shall constitute all of the securities then outstanding. The obligations of the Company to file shelf registrations shall terminate if TREP Investor and its assignees hereunder do not hold at least the lesser of (i) 200,000 shares of Preferred Stock (or such number of shares of Common Stock as shall have resulted from a conversion thereof) (subject to adjustment to give effect to stock splits, stock dividends and other similar transactions), or (ii) 12.5% of the total amount of shares of Preferred Stock that TREP Investor purchases pursuant to the Stock Purchase Agreement. 31 Company Registration. Subject to certain limitations, if, on or after June 20, 1997, the Company registers (or decides to issue under its current shelf registration) any Common Stock (or any other security junior to the Preferred Stock), at the request of TREP Investor, the Company will include in such registration, all (or any portion) of the shares of Common Stock (but not Preferred Stock) owned by holders of Preferred Stock, if any, as specified by TREP Investor. The rights of the holders of Preferred Stock to participate in a Company registration shall not apply to any registration (i) relating to employee stock option or purchase plans, (ii) relating to a transaction pursuant to Rule 145 under the Securities Act, (iii) pursuant to a registration form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of Common Stock, or (iv) of primary shares of Common Stock by the Company on a form that does not permit both primary and secondary shares to be included in the same registration statement. TERMS OF THE PREFERRED STOCK The following discussion summarizes the material terms of the Preferred Stock, as set forth in the Articles Supplementary, to the extent not otherwise described in other portions of this Proxy Statement. This summary is not intended to be a complete description of the terms of the Preferred Stock or of the Articles Supplementary and is subject to, and qualified in its entirety by, reference to the Articles Supplementary, a copy of which is attached hereto as Appendix D and incorporated herein by reference. Source of Preferred Stock. Pursuant to authority conferred on the Board of Directors under Article FIFTH of the Charter, in accordance with Section 2-105 of the Maryland General Corporation Law, the Board of Directors, at a meeting held on June 26, 1996, duly adopted a resolution reclassifying 1,600,000 authorized but unissued shares of Common Stock as Preferred Stock (par value $0.0001 per share), designating such newly classified Preferred Stock as 8.75% Convertible Preferred Stock, Series 1996A, and setting forth the preferences, conversion and other rights, voting powers, limitations as to dividends and other distributions, qualifications and terms or conditions of redemption thereof. Dividends. Holders of shares of Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the payment of dividends, cumulative cash dividends equal to the greater of (i) 8.75% of $25.000 per share (such $25.000, the "Stated Value") per annum (rounded up to the nearest whole cent), payable quarterly, in arrears, on the 15th day of January, April, July and October of each year, commencing October 15, 1996 (each a "Dividend Payment Date"), or (ii) the dividend (determined as of the most recent dividend payment date for the Common Stock) paid with respect to each share of Common Stock multiplied by a fraction of which the numerator is the Conversion Price in effect as of such Dividend Payment Date and the denominator of which is the initial Conversion Price. The dividend will accrue daily on the basis of a 360-day year of twelve 30-day months, whether or not the Company has earnings or surplus, and the dividend payable to the holder of a share of Preferred Stock on the first Dividend Payment Date after the share is issued will be the accrued dividend calculated from the day the share is issued to the Dividend Payment Date. Each dividend will be payable to holders of record of the Preferred Stock on a date (a "Dividend Record Date") selected by the Board of Directors which is not less than ten nor more than forty-five days before the Dividend Payment Date on which the dividend is to be paid. Unless and until all accrued dividends on the Preferred Stock through the last preceding Dividend Payment Date have been paid, the Company may not (i) declare or pay any dividend, make any distribution (other than a distribution payable solely in shares of Common Stock), or set aside any funds or assets for payment or distribution with regard to any Junior Shares (as herein defined), (ii) redeem or purchase (directly or through subsidiaries), or set aside any funds or other assets for the redemption or purchase of, any Junior Shares, or (iii) authorize, take or cause to be taken any action as general partner of the Operating Partnership that will result in (A) the declaration or payment by the Operating Partnership of any distribution to its partners (other than distributions payable to the Company as general partner of the Operating Partnership that will be used by the Company to fund the payment of dividends on the Preferred Stock (such distributions to the Company being 32 referred to as "Authorized GP Distributions")), or set aside any funds or assets for payment of any distributions (other than Authorized GP Distributions) or (B) the redemption or purchase (directly or through subsidiaries), or the setting aside of any funds or other assets for the redemption or purchase of, any partnership interests in the Operating Partnership. As used with regard to the Preferred Stock, the term "Junior Shares" means all shares of Common Stock and all shares of any other class or series of stock of the Company to which the shares of Preferred Stock are prior in rank with regard to payment of dividends. Voting Rights of Holders of Preferred Stock. The voting rights of the holders of shares of Preferred Stock are as follows: (i) The holders of the Preferred Stock, voting as a separate class, have the right to elect one director of the Company, in addition to the other directors elected by the holders of Common Stock; and (ii) the holders of the Preferred Stock, voting as a separate class, have the right, as specified below, to elect additional directors of the Company, in addition to the director specified in clause (i) above, and in addition to the other directors elected by the holders of Common Stock, provided that, if the stockholders approve Proposal 3, then, pursuant to the proposed amendment to the Charter discussed in Proposal 3, the right of the holders provided in this clause (ii) shall be modified, as more fully discussed in the description of Proposal 3. In the event of the breach of certain corporate action restrictions described below (a "Charter Breach"), the number of directors shall be increased by three directors, who shall be elected as soon as practicable pursuant to the Charter by the holders of the Preferred Stock, voting as a separate class, to serve until the next annual meeting of stockholders and until such directors' successors are elected and qualify. In the event of a Dividend Default (as hereinafter defined) or in the event of both a Dividend Default and a Charter Breach, the number of directors shall be increased by four directors, who shall be elected as soon as practicable pursuant to the Charter by the holders of the Preferred Stock, voting as a separate class, to serve until the next annual meeting of stockholders and until such directors' successors are elected and qualified. A "Dividend Default" shall occur if, at any time, dividends are not paid in full with respect to all shares of Preferred Stock on any four Dividend Payment Dates such that dividends due on such four dates have not been fully paid and are outstanding in whole or in part at the same time. In the event of a Dividend Default and/or a Charter Breach, the number of directors elected by the holders of the Preferred Stock at each subsequent annual meeting of stockholders shall be increased as provided in the two preceding paragraphs, e.g., if a Charter Breach has occurred, the holders of Preferred Stock shall elect, voting as a separate class, four directors at each subsequent annual meeting and, if a Dividend Default has occurred, or if both a Dividend Default and a Charter Breach have occurred, the holders of Preferred Stock shall elect, voting as a separate class, five directors at each subsequent annual meeting, subject to the classification required by Section 2.3 of the Bylaws. A director elected by the holders of the Preferred Stock will serve until the next annual meeting of stockholders of the Company and until his or her successor is elected and qualified by the holders of the Preferred Stock, except as otherwise provided in the Charter or Bylaws. Prohibited Actions. While any shares of Preferred Stock are outstanding, the Company will not, directly or indirectly, including through a merger or consolidation with any other entity or otherwise, without approval of holders of at least 66 2/3% of the outstanding shares of Preferred Stock, voting separately as a class, (i) increase the number of authorized shares of Preferred Stock or authorize the issuance or issue of any shares of Preferred Stock other than to existing holders of Preferred Stock, (ii) increase the authorized number of shares of or create, reclassify or issue any class or series of stock ranking prior to or on a parity with the Preferred Stock either as to dividends or upon liquidation, (iii) amend, alter or repeal any of the provisions of the Charter so as to affect adversely the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the Preferred Stock, (iv) amend, alter or repeal (a) the final paragraph of Section 1.11, the final paragraph of Section 1.12, Section 2.2, Section 3.1, Section 6.7 or Section 8.6 of the Bylaws of the Company, (b) any other provision of the Bylaws relating to nomination, election, classification, qualification or removal of directors elected by the holders of 33 Preferred Stock or size of the Board, or (c) any other provision of the Bylaws of the Company in a manner which would adversely affect the rights of the holders of the Preferred Stock, (v) authorize any reclassification of the Preferred Stock, (vi) except as otherwise provided herein, require the exchange of Preferred Stock for other securities, or (vii) effect a voluntary liquidation, dissolution or winding up of the Company, the sale of substantially all of the assets of the Company, the merger or consolidation of the Company or the Operating Partnership or recapitalization (except a merger of a wholly-owned subsidiary of the Company into the Company in which the Company's capitalization is unchanged as a result of such merger) of more than 40% of the Company's total market capitalization (market value of the Company's equity plus total indebtedness) in a single transaction or a series of related transactions, provided that successive offerings of the Company's equity or debt to the public shall not be considered related transactions. While any shares of the Preferred Stock are outstanding, the Company and the Operating Partnership will not, directly or indirectly, including through a merger or consolidation with any other entity or otherwise, without the approval of the holders of a majority of the outstanding shares of Preferred Stock, voting separately as a class, propose, authorize, take, or cause to be taken or allow to occur any of the following actions: (i) the sale, transfer or assignment, in a single transaction or series of transactions, of beneficial interests in or voting rights with respect to assets of the Company or the Operating Partnership or any other person (except that with respect to any such other person in which the Company or Operating Partnership has a minority interest such that a sale, transfer or assignment is not within the Company's or Operating Partnership's control, this prohibition shall not apply) owned directly or indirectly by the Company to the extent of the Company's attributed interest in such other person, having a fair market value (based on the value of the total consideration of each such transaction, including, without limitation, any debt assumed by any purchaser in connection therewith) in excess of $45 million within any 90-day period or $125 million within any 360-day period; (ii) the Company's termination of the election, or the taking of any action by the Company which would cause termination other than by election, of the Company as a REIT under the Code; (iii) any alteration in the Company's or the Operating Partnership's business such that (A) less than 65% of the Company's or the Operating Partnership's assets (in terms of book value plus accumulated depreciation) are located in the States of California, Oregon and Washington, (B) less than 80% of the Company's or the Operating Partnership's assets (in terms of book value plus accumulated depreciation) are located west of the Mississippi River, or (C) less than 80% of the Company's or the Operating Partnership's assets (in terms of book value plus accumulated depreciation) are classified as multi-family residential properties; or (iv) any Change in Control (as hereinafter defined) of the Company or the Operating Partnership. As used herein, the Company shall be deemed to have allowed a "Change of Control" of the Company or the Operating Partnership to have occurred if any of the following occur: (i) the Company takes or fails to take any action such that it ceases to be required to file reports under Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor to that Section; (ii) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act) is permitted by the Board or the Company to become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of either (a) 30% or more of the outstanding shares of Common Stock, or (b) 30% (by right to vote or grant or withhold any approval) of the outstanding securities of any other class or classes which individually or together have the power to elect a majority of the members of the Board; (iii) the Board determines to recommend the acceptance of any proposal set forth in a tender offer statement or proxy statement filed by any person with the Commission which indicates the intention on the part of that person to acquire, or acceptance of which would otherwise have the effect of that person acquiring, control of the Company; (iv) other than as a result of the death or disability of one or more of the directors within a three-month period, a majority of the members of the Board for any period of three consecutive months are not persons who (a) had been directors of the Company for at least the preceding 24 consecutive months or were elected by the holders of the Preferred Stock, voting separately as a class, or (b) when they initially were elected to the Board, (x) were nominated (if they were elected by the stockholders) or elected (if they were elected by the directors) with the affirmative concurrence of 66 2/3% of the directors who were Continuing Directors at the time of the nomination or election by the Board, and (y) were not elected as a result of an actual or threatened solicitation of proxies or consents by a person other than the Board or an 34 agreement intended to avoid or settle such a proxy solicitation (the directors described in clauses (a) and (b) of this clause (iv) being "Continuing Directors"); (v) the Company ceases to be the sole general partner of the Operating Partnership or grants or sells to any third party the power to control or direct the actions of the Operating Partnership as if such third party were a general partner of the Operating Partnership; or (vi) the Operating Partnership is a party to any entity conversion or any merger or consolidation in which the Operating Partnership is not the surviving entity in such merger or consolidation. Liquidation Preferences. Upon the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of the Preferred Stock will be entitled to receive out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, before any distribution is made to holders of any Junior Shares, an amount per share equal to 105% of the sum of (i) Stated Value plus (ii) all accrued dividends with regard to the Preferred Stock to the date of final distribution (whether or not declared). Conversion of Preferred Stock Into Common Stock. Optional Conversion. Each holder of shares of Preferred Stock will have the option to convert all or any of the shares of Preferred Stock held by the holder into (i) a number of fully paid and non-assessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) equal to Stated Value plus the amount, if any, of accrued dividends as of the effective date of the conversion, divided by the Conversion Price then in effect, or (ii) such other securities or assets as the holder is entitled to receive (as described below). Notwithstanding the foregoing, the shares of Preferred Stock shall not be convertible into Common Stock until June 20, 1997, and, beginning on such date, 400,000 of the 1,600,000 authorized shares of Preferred Stock, and then at the beginning of each of the next three three-month periods thereafter, 400,000 of such authorized shares, shall become convertible into Common Stock as provided herein; provided, further, however, that, in the case of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, shares of Preferred Stock shall, at the option of the holder thereof, immediately become convertible into Common Stock as provided herein. Mandatory Conversion. If after June 20, 2001, the closing price of the Common Stock on each of at least 20 trading days (including the trading day immediately before the notice of mandatory conversion is delivered by the Company) out of the preceding period of 30 consecutive trading days immediately prior to the Company's notice of mandatory conversion shall be greater than the Conversion Price in effect on each of such 20 trading days, the Company shall, subject to the holders' redemption rights, have the right, to convert all, but not less than all, of the outstanding shares of Preferred Stock into a number of fully paid and non-assessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) equal to Stated Value plus the amount, if any, of accrued dividends as of the effective date of the conversion, divided by the Conversion Price then in effect. Fractional Shares. No fractional shares of Common Stock will be issued upon conversion of shares of Preferred Stock. Any fractional interest in a share of Common Stock resulting from conversion of shares of Preferred Stock will be paid in cash (computed to the nearest cent) based on the current market price of the Common Stock on the trading day next preceding the day of conversion. Conversion Price. The "Conversion Price" per share of Preferred Stock will initially be $21.875, and will be adjusted as follows from time to time if any of the events described below occurs: If the Company (i) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock, (ii) subdivides its outstanding Common Stock into a greater number of shares, or (iii) combines its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to that event will be reduced so that the holder of a share of Preferred Stock surrendered for conversion after that event will receive the number of shares of Common Stock which the holder would have received if the share of 35 Preferred Stock had been converted immediately before the happening of the event (or, if there is more than one such event, if the share of Preferred Stock had been converted immediately before the first of those events and the holder had retained all the Common Stock or other securities or assets received after the conversion). If the Company issues rights or warrants to the holders of its Common Stock as a class entitling them to subscribe for or purchase Common Stock at a price per share less than the Conversion Price at the record date for the determination of stockholders entitled to receive the rights or warrants, the Conversion Price in effect immediately before the issuance of the rights or warrants will be reduced as provided in the Articles Supplementary. The adjustment will be made successively whenever any rights or warrants are issued, and will become effective immediately after each record date. If the Company distributes to the holders of its Common Stock as a class any shares of stock of the Company (other than Common Stock) or evidences of indebtedness or assets (other than cash dividends or distributions) or rights or warrants (other than those referred to in the previous paragraph) to subscribe for or purchase any of its securities, then, in each such case, the Conversion Price will be reduced so that it will equal the price determined by multiplying the Conversion Price in effect immediately prior to the record date for the distribution by a fraction, of which the numerator is the Current Market Price (as hereinafter defined) of the Common Stock on the record date for the distribution less the then fair market value (as determined by the Board of Directors) of the stock, evidences of indebtedness, assets, rights or warrants which are distributed with respect to one share of Common Stock, and of which the denominator is the Current Market Price of the Common Stock on that record date. Each adjustment will become effective immediately after the record date for the determination of the stockholders entitled to receive the distribution. If the Company issues or sells (or the Operating Partnership issues or sells) any equity or debt securities which are convertible, directly or indirectly, into or exchangeable for shares of Common Stock ("Convertible Securities") or any rights, options (other than the issuance or exercise after the date hereof of stock options covering no more than 715,400 shares of Common Stock, subject to appropriate adjustment to the extent that the Company (i) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock, (ii) subdivides its outstanding Common Stock into a greater number of shares, or (iii) combines its outstanding Common Stock into a smaller number of shares, issued to employees or directors of the Company or its subsidiaries under the Company's existing employee stock incentive plans) or warrants to purchase Common Stock at a conversion, exchange or exercise price per share which is less than the Conversion Price, the Company will generally be deemed to have issued or sold the maximum number of shares of Common Stock into or for which the Convertible Securities may then be converted or exchanged or which are then issuable upon the exercise of the rights, options or warrants, and the Conversion Price shall be adjusted downward as if it were an event covered by the next paragraph. However, no further adjustment of the Conversion Price will be made as a result of the actual issuance of shares of Common Stock upon conversion, exchange or exercise of the Convertible Securities, rights, options or warrants. The price of shares of Common Stock issued or sold upon conversion or exchange of Convertible Securities or upon exercise of rights, options or warrants will be (A) the consideration paid to the Company for the Convertible Securities, rights, options or warrants, plus (B) the consideration paid to the Company upon conversion, exchange or exercise of the Convertible Securities, rights, options or warrants, with the value of the consideration, if other than cash, to be determined by the Board of Directors. If the Company issues or sells any Common Stock (other than on conversion or exchange of Convertible Securities or exercise of rights, options or warrants to which any of the three preceding paragraphs applies) for a consideration per share less than the Conversion Price on the date of the issuance or sale (or on exercise of options or warrants, for less than the Conversion Price on the day the options or warrants are issued), upon consummation of the issuance or sale, the Conversion Price in effect immediately prior to the issuance or sale will be reduced as provided in the Articles Supplementary. For the purpose of any computation, the "Current Market Price" of the Common Stock on any date will be the average of the last reported sale prices per share of the Common Stock on each of the 20 consecutive trading days preceding the date of the computation. 36 The Company will seek to list the shares of Common Stock required to be delivered upon conversion of the Preferred Stock, prior to the delivery, upon each national securities exchange, if any, upon which the outstanding shares of Common Stock are listed at the time of delivery. The Company will pay any documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversion of Preferred Stock. Status of Converted Preferred Stock. Upon any conversion, exchange or redemption of shares of Preferred Stock, the shares of Preferred Stock which are converted, exchanged or redeemed will be reclassified as authorized and unissued shares of Common Stock, and the number of shares of Preferred Stock which the Company will have authority to issue will be decreased by the conversion, exchange or redemption of shares of Preferred Stock, so that the shares of Preferred Stock which were converted, exchanged or redeemed may not be re-issued. Redemption Rights Upon Company Required Mandatory Conversion. In the event that the Company exercises its right to require a mandatory conversion of Preferred Stock into Common Stock (but in no other circumstances), each holder of Preferred Stock will have the right to require the Company to redeem in cash any or all the shares of Preferred Stock owned of record by the holder, at a redemption price per share equal to the Redemption Percentage (as hereinafter defined), multiplied by the sum of (i) Stated Value plus (ii) the sum of all accrued dividends with regard to the Preferred Stock through the date of redemption. As used herein, the "Redemption Percentage" shall mean the percentage specified in the following table:
REDEMPTION REDEMPTION DATE PERCENTAGE --------------- ---------- June 20, 2001 to June 19, 2002................................ 105% June 20, 2002 to June 19, 2003................................ 104 June 20, 2003 to June 19, 2004................................ 103 June 20, 2004 to June 19, 2005................................ 102 June 20, 2005 to June 19, 2006................................ 101 June 20, 2006 and thereafter.................................. 100
At such time as there ceases to be in excess of 40,000 shares of Preferred Stock outstanding, the Company may at its option purchase all of the outstanding shares of the Preferred Stock from the holders thereof at a price equal to the greater of (a) 110% of the sum of the Stated Value of such shares (together with all accrued dividends thereon), and (b) the fair market value of such shares, which shall be equal to the fair market value of the Common Stock, as of such date, issuable upon conversion of such shares, together with all accrued dividends thereon. Ranking of Preferred Stock. The shares of Preferred Stock will, with respect to the payment of dividends and the distribution of assets on the liquidation, dissolution or winding-up of the Company, generally rank prior to any other class or series of preferred stock or Common Stock issued by the Company. DESCRIPTION OF PARTICIPATION RIGHTS The following discussion summarizes the material terms of TREP Investor's participation rights, as set forth in the Stock Purchase Agreement, to the extent not otherwise described in other portions of this Proxy Statement. This summary is not intended to be a complete description of the terms of TREP Investor's participation rights and is subject to, and qualified in its entirety by, reference to the Stock Purchase Agreement, a copy of which is attached hereto as Appendix A and incorporated herein by reference Participation Rights. For so long as any shares of Preferred Stock are outstanding, TREP Investor (but no other holder of Preferred Stock) has the preemptive right to purchase, in the case of the proposed issuance by the Company of, or the proposed granting by the Company of shares of, any class of the Company's stock ("Capital Stock"), or any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any 37 Convertible Securities (including, without limitation, interests in the Operating Partnership) (such rights or options being hereinafter referred to as "Conversion Options") . Upon exercise of such right, TREP Investor shall receive its pro rata share of the applicable shares or other securities represented by Capital Stock, Conversion Options or Convertible Securities, or any of the foregoing, in accordance herewith, for the price and upon the terms specified by the Company in its notice to TREP Investor (the "Company Notice") of a Company issuance of Capital Stock, Conversion Options or Convertible Securities, such pro rata share to be that number of Capital Stock, Conversion Options or Convertible Securities, or any of the foregoing, as shall bear the same proportion to the aggregate number of such Capital Stock, Conversion Options or Convertible Securities, or any of the foregoing, to be issued or sold as (i) the number of shares of Common Stock as are issuable upon conversion of the Preferred Stock issued and outstanding on the date of the Company Notice bears to (ii) the sum of (A) the total number of shares of Common Stock issued and outstanding on the date of the Company Notice and (B) the number of shares of Common Stock issuable upon conversion or exercise of the Preferred Stock and any Convertible Securities or Conversion Options, or both, issued and outstanding at the time of the new issuance, and at a price or prices no less favorable to TREP Investor than the price or prices at which such Capital Stock, Convertible Securities or Conversion Options are proposed to be offered for sale to others. If, in connection with any proposed issue of Capital Stock, Convertible Securities or Conversion Options, TREP Investor fails to timely exercise in full its preemptive rights, then the Company may sell the unsold Capital Stock, Convertible Securities or Conversion Options at any time within 180 days (60 days in the case of a public offering) thereafter at a price and upon terms no more favorable to the purchasers thereof than specified to TREP Investor; provided, that the Company shall not sell or grant, or permit conversion under, any Capital Stock, Convertible Securities or Conversion Options, or any of the foregoing, after such 180-day period (or 60-day period in the case of a public offering) without again subjecting the same to TREP Investor's preemptive rights. TREP Investor's preemptive rights do not apply to any shares of any class of the Company's Capital Stock or Options or Convertible Securities, or both, among other things, (i) issuable in connection with stock splits, stock dividends or recapitalizations as to the effects of which other adjustments are provided for; or (ii) issuable to employees and prospective employees pursuant to any plan or pattern of employee equity participation or issuable in connection with the Company's dividend reinvestment plan. Notwithstanding the foregoing, in the event the Company delivers the Company Notice to TREP Investor on a date prior to the earliest to occur of (A) December 15, 1996, (B) the date of the Special Meeting, if the stockholders approve the Transaction, and (C) the later of (x) the date of the Special Meeting, if the stockholders disapprove the Transaction, and (y) the date on which IRS Approval is obtained (the earliest to occur of (A), (B) and (C), above, shall hereinafter be referred to as the "Defining Event"), the following applies: Subject to clauses (i) and (ii), below, TREP Investor shall have the preemptive right to purchase all or part of its pro rata share of Capital Stock, Options or Convertible Securities (collectively, "Securities"), which pro rata share shall equal such number of Securities which bears the same proportion to the aggregate number of Securities to be issued or sold as (a) the number of shares issuable upon conversion of 800,000 shares of Preferred Stock bears to (b) the sum of (I) the total number of shares of Common Stock issued and outstanding on the date of the Company Notice and (II) the number of shares of Common Stock issuable upon conversion of 800,000 shares of Preferred Stock and any Convertible Securities or Options issued and outstanding on the date of the Company Notice, provided that, (i) if and to the extent that on the date of or following the Defining Event, TREP Investor is prevented or prohibited from the exercise in full or in part of its preemptive right to purchase any Securities due to restrictions on the ownership by TREP Investor (or any group of holders with which TREP Investor may be affiliated or may be deemed to be affiliated) of any of such Securities, whether under applicable Maryland law, provisions of the Charter or Bylaws, or by reason of restrictions applicable for purposes of the Company's continued qualification as a real estate investment trust for purposes of the Code (the "Exercise Restriction"), such number of 38 Securities required to be purchased pursuant to such preemptive right shall automatically be reduced to such amount as to not exceed the Exercise Restriction; and (ii) provided further, in the event that, after the date of the Defining Event, the Company issues Securities (the date of such issuance, the "Issuance Date") specified in the Company Notice applicable to such securities and such Company Notice was dated a date before the date of the Defining Event, TREP Investor shall have the preemptive right to purchase all or part of its pro rata share of Securities, which pro rata share shall equal such number of Securities which bears the same proportion to the aggregate number of Securities sold on the Issuance Date as (a) the number of shares issuable upon conversion of the issued and outstanding Preferred Stock on the Issuance Date bears to (b) the sum of (I) the total number of shares of Common Stock issued and outstanding on the Issuance Date and (II) the number of shares of Common Stock issuable upon conversion of the issued and outstanding Preferred Stock on the Issuance Date and any other Securities issued and outstanding on the Issuance Date. POTENTIAL MATERIAL BENEFICIAL EFFECTS OF THE TRANSACTION The Company believes that the Transaction will have a number of potential material beneficial effects on the Company and its stockholders, including the following: Increased Capital. The Company believes that the capital provided to the Company pursuant to the Transaction will enable the Company to (i) increase its equity market capitalization which may, in the future, enable the Company to raise additional equity capital, (ii) increase its asset base by using a portion of the proceeds of the sale of the Preferred Stock to finance real estate acquisitions and development by the Operating Partnership, and (iii) develop and improve existing Operating Partnership assets by using a portion of the proceeds of the sale of the Preferred Stock to fund development and improvement of the Operating Partnership's existing properties. Also, the Company currently anticipates that the Company will be able to use the name and valued reputation of TREP Investor and its affiliates and the nature of the Company's relationship with TREP Investor and such affiliates to further assist the Company to raise capital. Subsequent to the consummation of the first phase of the Transaction, the Company completed the Supplemental Offering. The net proceeds of the Supplemental Offering are anticipated to be used to fund the acquisition and development by the Operating Partnership of multi-family properties and for general corporate purposes. Indirect Affiliation with TREP Investor and Its Affiliates. TREP Investor and its affiliates have a history of investing in companies that are highly valued in the marketplace. The Board believes that the Company will benefit significantly from its association with TREP Investor and such affiliates and its access to their market knowledge and operating experience. In addition, the Company and TREP Investor and its affiliates may be in a synergistic position to combine their resources and expertise in portfolio purchases. For example, with respect to the acquisition of a mixed multi-family and office- use portfolio of properties, the Company may consider purchasing the multi- family portion of the portfolio, consistent with its expertise, and TREP Investor or one of its affiliates may consider purchasing the office-use portion of the portfolio. Similar mutually beneficial synergies may be present with multi-purpose land development projects. An early result of the new affiliation has produced an agreement, pursuant to which the Company and TREP Investor have agreed to negotiate (without being legally bound to enter into) a management agreement with respect to the management by the Company of approximately 800 multi-family rental units located in Ventura County, California, which TREP Investor owns through an affiliate. In addition, the Company and TREP Investor are considering other management service arrangements with respect to other multi-family properties that TREP Investor (or its affiliates) may purchase on an individual property or portfolio basis. Potential Return to Stockholders. The Board believes that the Transaction offers stockholders an opportunity to realize long-term value through the potential appreciation in the value of the Common Stock primarily as a result of (i) the Company's increased access to capital (for example, among other things, 39 subsequent to June 20, 1996, when definitive agreements with respect to the transaction were executed, the Company completed the Supplemental Offering), permitting increased growth, and (ii) the potential yields to stockholders from the properties that the Operating Partnership will be in a position to acquire or develop with portions of the net proceeds from the Transaction (provided that, there is no assurance as to the existence or extent of such yields), all of which may enable stockholders to sell their shares in the future at a price that is higher than the Common Stock price on the date on which the Transaction was publicly announced. However, there can be no assurance that the price of the Common Stock will rise in the future. Access to Future Capital. The Company believes that, as a result of the Transaction, it will have greater access to the capital markets because the Transaction will (i) decrease the Company's debt-to-equity ratio, and (ii) increase its total capitalization and equity market capitalization. The Company believes that greater access to the capital markets should further enhance its ability to grow. However, there is no assurance that the Company will in fact have greater access to the capital markets as a result of the Transaction. Reduction of Company Debt. The Company may apply a portion of the net proceeds of the Transaction to reduce outstanding Company and/or Operating Partnership debt. The Company believes that, among other things, this reduction of debt (if undertaken) will increase the attractiveness of the Company to the capital markets, resulting in the Company's greater access to future financing, which will permit greater growth. POTENTIAL MATERIAL ADVERSE EFFECTS OF THE TRANSACTION The Company believes that the Transaction will have certain potential material adverse effects on the Company and its stockholders, including the following: Substantial Ownership of Common Stock. If Option A or Option B is consummated, unless TREP Investor disposes all or portions of its shares of Preferred Stock, TREP Investor will own Preferred Stock equivalent to up to approximately 14.64% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis. However, subject to certain exemption provisions set forth in the Charter, no other stockholder will be permitted to own more than 6% of the outstanding shares of Common Stock (other than George M. Marcus, who can currently own up to 25% of the outstanding shares of Common Stock, and qualified pension trusts (as defined in the Charter), which can currently own up to 9.9% of the outstanding shares of Common Stock). Consequently, TREP Investor will have a substantial influence over the affairs of the Company as a result of the Transaction. This concentration of ownership in one stockholder could potentially be disadvantageous to other stockholders' interests. In addition, George M. Marcus, the Company's Chairman, owns Common Stock and limited partnership interests in the Operating Partnership equivalent to 14.59% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis (assuming the issuance and conversion of all 1,600,000 shares of Preferred Stock). Limitations on Transactions and Corporate Actions. Pursuant to the various limitations on the Company's actions described in this Proxy Statement, the Company will be proscribed from or limited with respect to certain transactions and corporate actions which may otherwise be in the Company's interest. Although the Company does not believe that these limitations on the Company's activities will materially impair the Company's ability to conduct its business, there can be no assurance that these limitations will not adversely affect the Company's operations in the future. Ownership and Voting Dilution. The Transaction will dilute (i) the percentage ownership interests of the existing stockholders in the Company, and (ii) upon conversion of the Preferred Stock to Common Stock, the voting rights of the existing stockholders. Effect on Market Price of Common Stock. The conversion of TREP Investor's shares of Preferred Stock to shares of Common Stock could reduce the market price per share of the then outstanding shares of Common Stock to the extent that the market price of the Common Stock exceeds the Conversion Price at the time of conversion. 40 Risk to Dividends. The cash dividends payable on the Preferred Stock will substantially increase the cash required to be available to the Company in order for the Company to continue to pay cash dividends on the Common Stock at current levels. The terms and conditions of the Preferred Stock provide that dividends may be paid on shares of Common Stock in any fiscal quarter only if full, cumulative cash dividends have been paid on all shares of Preferred Stock in the annual amount equal to the greater of (i) $2.1875 per share (8.75% of the $25.000 per share price), or (ii) the dividends (subject to adjustment) paid with respect to the Common Stock plus, in both cases, any accumulated but unpaid dividends on the Preferred Stock. Chilling Effect. The consummation of the Transaction may have the effect of delaying, deferring or preventing a change in control of the Company that could be beneficial to the stockholders. Registration Rights. The registration rights provided to the holders of Preferred Stock pursuant to the Registration Rights Agreement may adversely affect the price of the Common Stock. Rights of Preferred Stock. Pursuant to the Articles Supplementary, and as more fully described in this Proxy Statement, the holders of the Preferred Stock are afforded several rights and preferences which may be disadvantageous to the holders of Common Stock, including (i) cumulative preferential dividends, which means that no dividends are payable with respect to the Common Stock until all accrued and unpaid dividends on the Preferred Stock are paid in full, (ii) the right to elect at least one director to the Board, (iii) a liquidation preference senior to that of the Common Stock, and (iv) the right to convert to Common Stock under certain circumstances. See "Terms of the Preferred Stock." CONFLICTS OF INTEREST; INTERESTS OF CERTAIN PERSONS Preferred Stock Directors. Pursuant to the Articles Supplementary, the holders of Preferred Stock have the right to elect one director to the Board and, in July 1996, TREP Investor, the then sole holder of shares of Preferred Stock, selected Mr. Hartman to be the Preferred Stock director. Directors elected by any single stockholder or group of stockholders may have interests that diverge from the interests of other stockholders. Accordingly, Mr. Hartman (or any replacement thereof or substitution therefor), as the director designated by TREP Investor pursuant to the Articles Supplementary, may be deemed to have interests which may not necessarily be consistent with the interests of the stockholders generally. Under certain circumstances, the holders of Preferred Stock may have the right to certain Board representation in addition to Mr. Hartman (or any replacement or substitution therefor) (see "Terms of the Preferred Stock Voting Rights of Holders of Preferred Stock"). To the extent that any such director nominees are affiliated or associated with the holders of the Preferred Stock, such persons may thereby be deemed to have interests that are in addition to, and potentially in conflict with, the interests of the stockholders generally. The Board was aware of these interests and considered them, among other factors, in approving the Transaction and making its recommendation to the stockholders. Effect on Restricted Stockholders. Subject to certain exceptions, the Restricted Stockholders have each agreed that, prior to July 1, 1998, neither of the Restricted Stockholders shall transfer an aggregate of more than 30% of their respective ownership, as of July 1, 1996, of outstanding shares of Common Stock (including the pro rata portions of all Common Stock held by affiliates of such Restricted Stockholder, based on the Restricted Stockholder's ownership interest in such affiliate and Common Stock issuable upon exchange of such Restricted Stockholder's respective limited partnership interests in the Operating Partnership), provided that pledges and grants of security interests are not restricted. POTENTIAL EFFECTS OF STOCKHOLDER APPROVAL OR DISAPPROVAL OF THE TRANSACTION Effects of Stockholder Approval. Approval of the Transaction by the stockholders will constitute approval of all of the various terms of the Transaction (including, without limitation, the initial purchase of 340,000 shares of Preferred Stock by TREP Investor and the consummation of either Option A or Option B) set forth in the Stock Purchase Agreement, the Loan Facility Agreement, the Articles Supplementary and the Registration Rights Agreement and the transactions contemplated thereby. Approval of the Transaction would also effectively ratify 41 (although such ratification is not required by Maryland Law, the Charter or the Bylaws) all prior actions of the Board in connection with the transactions contemplated by the Stock Purchase Agreement, including, without limitation, (i) the reclassification of 1,600,000 shares of Common Stock as 1,600,000 shares of Preferred Stock and the terms, rights and obligations of the Preferred Stock (including, without limitation, dividend, voting, liquidation, conversion, redemption and preemptive rights), (ii) the sale of 340,000 shares of Preferred Stock to TREP Investor, (iii) the obtaining of the TREP Loan by the Company and the terms and conditions thereof, (iv) the covenants, conditions and agreements agreed to by the Company in the Stock Purchase Agreement, the Loan Facility Agreement, the Registration Rights Agreement, the Articles Supplementary and all other agreements, documents and certificates executed by the Company in connection with the transactions described in the Stock Purchase Agreement. Such approval also may serve to extinguish potential claims, if any, regarding any conduct of members of the Board in connection with the Transaction and all of the other items described in the preceding paragraph. As described in "Terms of the Transaction--Conditions to Closing," approval of the Transaction is a condition to consummation of the Transaction, but there also are numerous other conditions that must be satisfied in order for the Transaction to be consummated. There can be no assurance that all of these conditions will be satisfied, or that the consummation of the Transaction will occur. Effects of Failure to Approve the Transaction. If the Transaction is not approved, pursuant to the terms of the Stock Purchase Agreement, either (i) if the IRS Approval is obtained by the Company on or prior to December 15, 1996, then Option D will be consummated (see "Terms of the Transaction--Option D"), or (ii) if the IRS Approval is not obtained by the Company on or prior to December 15, 1996, then Option C will be consummated, which Option C results in, among other things, the maturity of the TREP Loan on December 15, 1996, subject to extension until April 30, 1997 (see "Terms of the Transaction-- Option C"), and payment of a yield maintenance fee by the Company (see "Terms of the Transaction--Yield Maintenance Fee"). In addition, failure to approve the Transaction will not disapprove, void or alter, in any manner, certain of the transactions contemplated by the Stock Purchase Agreement, including, without limitation, (a) the reclassification of 1,600,000 shares of Common Stock as 1,600,000 shares of Preferred Stock and the terms, rights and obligations of the Preferred Stock (including, without limitation, dividend, voting, liquidation, conversion, redemption and preemptive rights), (b) the initial sale of 340,000 shares of Preferred Stock to TREP Investor, (c) the obtaining of the initial TREP Loan (and the initial $11.5 million principal advance thereunder) by the Company and the terms and conditions thereof, (d) the information rights provided to TREP Investor, (e) the right of TREP Investor to participate in future Company equity offerings, (f) the limitations on Company transactions and corporate actions, (g) the registration rights of the holders of Preferred Stock, and (h) the limitation on sales by the Restricted Stockholders. RECOMMENDATION OF THE BOARD; FACTORS AND CONCLUSIONS OF THE BOARD INVOLVED IN ITS DETERMINATION The Board has unanimously approved the Transaction and has determined that the Transaction is in the best interests of the Company and its stockholders. THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE TRANSACTION. The Board believes that the Transaction is in the best interests of the Company and its stockholders because it represents, in the Board's view, an attractive opportunity reasonably available to improve long-term stockholder value by reducing debt and improving the Company's short-term and long-term growth prospects. By providing up to $40 million of capital to the Company on favorable economic terms, the Transaction will enable the Company to exploit growth opportunities that are more favorable than are currently available to the Company. 42 In reaching its determination that the Transaction is in the best interests of the Company and the stockholders, the Board considered, among other things, the following material factors: . Potential Return to Stockholders. The Board considered that the Transaction, unlike certain other transactions the Company could have pursued, would not result in any direct return to stockholders of cash or other consideration. The Board, however, believes that the Transaction offers stockholders an opportunity to realize long-term value through the potential appreciation in the value of the Common Stock primarily as a result of (i) debt reduction, which among other things, should increase the Company's access to capital (among other things, subsequent to June 20, 1996, the date on which definitive agreements with respect to the Transaction were executed, the Company completed the Supplemental Offering), permitting increased growth, and (ii) the potential yields to stockholders from the properties that the Company will be in a position to acquire with portions of the net proceeds from the Transaction (provided that there is no assurance as to the existence or extent of such yields), all of which may enable stockholders to sell their shares in the future at a price that is higher than the Common Stock price at the time that the Transaction was publicly announced. However, there can be no assurance that the price of the Common Stock will rise in the future. . Indirect Affiliation with TREP Investor and Its Affiliates. The Board believes that TREP Investor and its affiliates have a history of investing in companies that are highly valued in the marketplace. The Board believes that the Company will benefit significantly from its association with TREP Investor and such affiliates and its access to their market knowledge and operating experience. Therefore, due to such benefits and the potential to jointly pursue mutually beneficial investment opportunities (see "Potential Material Beneficial Effects of the Transaction--Indirect Affiliation with TREP Investor and Its Affiliates"), the Company considers the indirect affiliation with TREP Investors and its affiliates to be a positive factor in favor of the Transaction. . Impact on the Market Price of Common Stock. The Board considered the actual and potential adverse effects of the Transaction on the market price of the Common Stock, and, in particular, that, if, as of the date of conversion of the Preferred Stock into Common Stock, the market price of the Common Stock exceeded the Conversion Price, the market price of the Common Stock could decrease. However, the Board noted, at the time the Board approved the transaction, that the Conversion Price, which represents an approximately 5% premium over the average closing price of the Common Stock for the 30 trading days prior to June 20, 1996 (the date on which definitive agreements with respect to the Transaction were executed), represented, in the Board's estimation, the alternative with the least potential adverse impact on the market price of the Common Stock for increasing the Company's capital. Therefore, the Board believes that this potential negative factor is outweighed by the potentially higher stock price and other potential benefits of the Transaction described in this Proxy Statement. . Substantial Stockholder. The Board considered that, as a result of the Transaction, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, TREP Investor may be the largest single stockholder of the Company, owning Preferred Stock equivalent to as much as approximately 14.64% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis under certain circumstances, while, subject to certain exemption provisions set forth in the Charter, no other stockholder will be permitted to own more than 6% of the outstanding shares of Common Stock (other than George M. Marcus, who can currently own up to 25% of the outstanding shares of Common Stock, and qualified pension trusts (as defined in the Charter), which can currently own up to 9.9% of the outstanding shares of Common Stock). George M. Marcus, the Company's Chairman, owns Common Stock and limited partnership interests in the Operating Partnership equivalent to 14.59% of the outstanding shares of Common Stock (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis (assuming the issuance and conversion of all 1,600,000 shares of Preferred Stock). The Board considered that TREP Investor also will have substantial information rights, the right to nominate Board members, and numerous other rights. Although the Board believes that this concentration of ownership in TREP Investor could potentially be disadvantageous to the other stockholders' interests, 43 the Board believes that, on balance, the potentially negative aspects are outweighed by the benefits of obtaining a large amount of capital at a favorable price, and the other potential benefits of the Transaction (see "Potential Material Beneficial Effects of the Transaction"). . Access to Future Capital. The Board considered that, as a result of the Transaction, the Company expects to have greater access to the capital markets because the Transaction will (i) decrease the Company's debt-to- equity ratio, (ii) increase its total capitalization and equity market capitalization, and (iii) establish an affiliation with TREP Investor (and its affiliates), a well-known and highly regarded real estate investment fund. The Board believes that greater access to the capital markets should further enhance the Company's ability to fund future acquisitions and development by the Operating Partnership and therefore considers this to be a positive factor in favor of the Transaction. However, there can be no assurances that the Company will continue to grow in the future. . Preferred Stock Dividend Rate. In considering the dividend rate payable on the Preferred Stock, the Board reviewed the terms of several other preferred stock issuances by other REITs. Although these transactions were not directly comparable to the Transaction in that the particular terms varied from the terms of the Transaction, the Board believes that the dividend rate on the Preferred Stock is within the range of that paid in connection with those other transactions. BENEFICIAL OWNERSHIP OF COMMON STOCK The following table sets forth the beneficial ownership of shares of Common Stock as of the Record Date and the projected percentage ownership of the Common Stock assuming completion of the Transaction (the sale of 1,600,000 shares of Preferred Stock to TREP Investor) for (i) TREP Investor, (ii) each person known by the Company to hold more than 5% of the outstanding shares of Common Stock, (iii) the Chief Executive Officer and the other executive officer who was named in the Summary Compensation Table in the Company's Proxy Statement for its 1996 Annual Meeting, dated April 1, 1996 (the "Executive Officers") and (iv) all directors and Executive Officers of the Company as a group.
PERCENTAGE OF SHARES PERCENTAGE OF OUTSTANDING AMOUNT AND NATURE SHARES AND OPERATING OF BENEFICIAL OUTSTANDING PARTNERSHIP OWNERSHIP OF AND OPERATING INTERESTS ASSUMING NAME AND BUSINESS ADDRESS OF COMMON PARTNERSHIP CONSUMMATION OF BENEFICIAL OWNER STOCK(1)(2)(3) INTERESTS(3) THE TRANSACTION(4) - ---------------------------- ----------------- ------------- -------------------- George M. Marcus(5)(6).... 1,834,563 16.47% 14.59% William A. Millichap(5)(7).......... 695,296 6.24 5.53 Keith R. Guericke(5)(8)... 120,392 1.09 * Michael J. Schall(5)(9)... 95,985 * * All directors and Execu- tive Officers as a group (11 persons)(10)......... 2,071,192 18.51 16.40 TREP Investor(11)......... 388,571 3.52 14.64 The Equitable Companies Incorporated(12)......... 710,800 6.43 5.69
- -------- * Less than 1%. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options held by that person that are currently exercisable or exercisable within 60 days of the Record Date are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of each other person. With respect to TREP Investor, beneficial ownership is determined as if all of the shares of Preferred Stock held by TREP Investor were immediately convertible into shares of Common Stock at a Conversion Price of $21.875 per share. To the Company's knowledge, 44 except as set forth in the footnotes to this table and subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person's name. (2) In consideration of the contributions of their interests in the Company's original properties as part of the formation of the Company, certain officers and directors of the Company and certain other entities and investors retained beneficial ownership, in aggregate, of an approximately 17% limited partnership interest in the Operating Partnership in which the Company has an approximately 83% general partnership interest. The limited partners of the Operating Partnership share with the Company, as general partner, in the net income or loss and any distributions of the Operating Partnership. Pursuant to the partnership agreement of the Operating Partnership, limited partnership interests are convertible into shares of Common Stock. (3) Assumes exchange of all outstanding limited partnership interests in the Operating Partnership into shares of Common Stock and the conversion of all 340,000 shares of Preferred Stock currently owned by TREP Investor into shares of Common Stock at a Conversion Price of $21.875 per share. (4) Assumes exchange of all outstanding limited partnership interests into shares of Common Stock and the issuance of all 1,600,000 authorized shares of Preferred Stock, the ownership by TREP Investor of all such shares and the conversion of all such shares into shares of Common Stock at a Conversion Price of $21.875 per share. (5) The business address of such person is 777 California Avenue, Palo Alto, California 94304. (6) Includes 1,131,393 shares of Common Stock that may be issued upon the conversion of all of Mr. Marcus' limited partnership interests in the Operating Partnership and 301,494, 4,834, 15,941, and 43,413 shares of Common Stock that may be issued upon the conversion of all the limited partnership interests in the Operating Partnership held by The Marcus & Millichap Company ("M&M"), Herakles Corporation ("Herakles"), Essex Portfolio Management Company ("EPMC") and GMMS Partners ("GMMS"), respectively. Also includes 155,000 shares of Common Stock held by M&M, 2,900 shares of Common Stock held by GMMS, 88,000 shares of Common Stock subject to an option granted to M&M and exercisable within 60 days of the Record Date, 11,988 shares of Common Stock held in the Marcus & Millichap Company 401(k) Plan (the "M&M 401(k) Plan") and 8,000 shares of Common Stock held by Mr. Marcus' children. Mr. Marcus is a principal stockholder of each of M&M, Herakles and EPMC and a partner in GMMS and may be deemed to own beneficially, and to share the voting and dispositive power of, 565,682 shares of Common Stock. Mr. Marcus disclaims beneficial ownership of (i) all shares, options and limited partnership interests held by M&M, (ii) 6,376 shares of the 15,941 shares of Common Stock that may be issued upon conversion of limited partnership interest held by EPMC and (iii) all limited partnership interests and shares held by GMMS. (7) Includes 73,100 shares of Common Stock that may be issued upon the conversion of all of Mr. Millichap's limited partnership interests in the Operating Partnership and 301,494, 15,941, and 43,413 shares of Common Stock that may be issued upon the conversion of all of the limited partnership interests in the Operating Partnership held by M&M, EPMC and GMMS, respectively. Also includes 155,000 shares of Common Stock held by M&M, 2,900 shares of Common Stock held by GMMS, 88,000 shares of Common Stock subject to an option granted to M&M and exercisable within 60 days of the Record Date and 8,049 shares of Common Stock held in the M&M 401(k) Plan. Mr. Millichap is a principal stockholder of M&M and EPMC and a partner in GMMS and may be deemed to own beneficially, and to share the voting and dispositive power of, 560,848 shares of Common Stock. Mr. Millichap disclaims beneficial ownership of (i) all shares, options and limited partnership interest held by M&M, (ii) 9,565 shares of the 15,941 shares of Common Stock that may be issued upon conversion of limited partnership interests held by EPMC and (iii) all limited partnership interests and shares held by GMMS. (8) Includes 48,115 shares of Common Stock that may be issued upon the conversion of all of Mr. Guericke's limited partnership interests in the Operating Partnership, 43,413 shares of Common 45 Stock that may be issued upon conversion of all of the limited partnership interests in the Operating Partnership held by GMMS and 2,900 shares of Common Stock held by GMMS. Also includes 22,000 shares of Common Stock subject to options that are exercisable within 60 days of the Record Date and 2,924 shares of Common Stock held in the Essex Property Trust, Inc. 401(k) Plan (the "Essex 401(k) Plan"). Mr. Guericke is a partner in GMMS and may be deemed to own beneficially, and to share the voting and dispositive power of, 46,313 shares of Common Stock. Mr. Guericke disclaims beneficial ownership of 9,726 of such 46,313 shares. (9) Includes 26,388 shares of Common Stock that may be issued upon the conversion of all of Mr. Schall's limited partnership interests in the Operating Partnership, 43,413 shares of Common Stock that may be issued upon conversion of all of the limited partnership interests in the Operating Partnership held by GMMS and 2,900 shares of Common Stock held by GMMS. Also includes 16,000 shares of Common Stock subject to options that are exercisable within 60 days of the Record Date and 2,384 shares of Common Stock held in the Essex 401(k) Plan. Mr. Schall is a partner in GMMS and may be deemed to own beneficially, and to share the voting and dispositive power of 46,313 shares of Common Stock. Mr. Schall disclaims beneficial ownership of 36,587 of such 46,313 shares. Further includes 600 shares of Common Stock held by Mr. Schall's three minor children. (10) Includes 1,644,678 shares of Common Stock that may be issued upon the conversion of all of the Executive Officers' and directors' limited partnership interests in the Operating Partnership and 140,330 shares of Common Stock subject to options that are exercisable within 60 days of the Record Date. (11) The business address of such person is c/o Westbrook Partners, L.L.C., 101 Park Avenue, 47th Floor, New York, New York 10178. (12) As reported on Schedule 13G filed with the Securities and Exchange Commission on February 14, 1996. The business address of such person is 787 Seventh Avenue, New York, New York 10019. Includes 70,000 shares owned by The Equitable Life Assurance Society of the United States, a majority owned subsidiary of Equitable Companies Incorporated, and which is deemed to have shared voting power and sole dispositive power of such shares. Also includes 640,800 shares owned by Alliance Capital Management L.P., a subsidiary of The Equitable Companies Incorporated, and which holds such shares for investment advisory clients and is deemed to have sole voting power and sole dispositive power of all such 640,800 shares. Five French mutual insurance companies, AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle and Uni Europe Assurances Mutuelle, as a group, and AXA, a French corporation, may each be deemed to be a parent holding company of The Equitable Companies Incorporated, and may also be deemed to beneficially own such shares. DIRECTOR ELECTED BY THE HOLDERS OF THE PREFERRED STOCK In July 1996, TREP Investor, in its capacity as holder of all of the outstanding shares of Preferred Stock, designated Gregory J. Hartman to serve as a director on the Company's Board. Biographical information concerning Mr. Hartman is set forth below. Gregory J. Hartman, Director, is a principal of Westbrook Partners, L.L.C., a real estate investment management company founded in April 1994 by Paul D. Kazilionis and William H. Walton. Prior to joining Westbrook Partners, L.L.C., Mr. Hartman was a co-founder of Milestone Partners, Ltd. and spent seven years with Morgan Stanley Realty, completing over $3 billion in commercial, residential and resort transactions throughout the western United States. During Mr. Hartman's last two years at Morgan Stanley Realty, he was in charge of that firm's Western United States Real Estate Sales and Financing activities. Mr. Hartman is a member of the Urban Land Institute and the University of California at Berkeley's Center for Real Estate and Urban Economics. Mr. Hartman received his A.B. from Dartmouth College in 1980 and an M.B.A. from the Stanford Graduate School of Business in 1984. 46 REQUIRED VOTE The affirmative vote of a majority of all of the votes cast by the stockholders at a meeting at which a quorum is present is required to approve the Transaction (Proposal 1). The receipt of such approval will be deemed to satisfy Paragraph 312.03 of the New York Stock Exchange Listed Company Manual with respect to the continued listing of the Common Stock on the NYSE. Only holders of shares of Common Stock issued and outstanding on the Record Date are entitled to vote on Proposal 1. Abstentions and broker non-votes will have no effect on the result of the vote to approve the Transaction, although they will count toward the presence of a quorum. APPROVAL OF THE TRANSACTION BY THE REQUISITE VOTE OF THE STOCKHOLDERS OF THE COMPANY IS A CONDITION TO CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE TRANSACTION. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1. 47 PROPOSAL TO AMEND THE OWNERSHIP RESTRICTIONS (PROPOSAL 2) In order to permit TREP Investor to acquire all 1,600,000 shares of Preferred Stock and to provide the Board with increased flexibility to waive the Charter ownership limitations in certain circumstances, the Board has approved and recommends the approval by the stockholders of an amendment to Article EIGHTH of the Charter to amend the limitations on ownership of the Company's stock, by providing that the Board may exempt an entity from the ownership limits set forth in the Charter based solely upon an opinion of counsel (and suitable representations and agreements from the proposed purchaser) that such waiver will not violate the applicable tax law requirements to preserve the Company's status as a REIT. Article EIGHTH currently requires a written ruling from the Internal Revenue Service to grant such a waiver. As discussed below, such a ruling is not required by the Code. The proposed amendment is necessary to permit TREP Investor to acquire all 1,600,000 shares of Preferred Stock (without approval of the proposed amendment TREP Investor could purchase at most an aggregate of 1,080,000 shares of Preferred Stock and may not be able to purchase more than the 340,000 shares of Preferred Stock it currently owns (see "Terms of the Transaction--Option D" and "Terms of the Transaction--Option C")). In addition, the proposed amendment would also provide the Board with increased flexibility in the future to waive the ownership limits set forth in the Charter with respect to investments by other entities, without jeopardizing the Company's status as a REIT under the Code. SUMMARY OF RELEVANT PORTIONS OF THE CURRENT ARTICLE EIGHTH For the Company to qualify as a REIT under the Code, no more than 50% in value of its outstanding shares of stock may be owned, directly or constructively under the applicable attribution rules of the Code, by five or fewer "individuals" (as defined in the Code to include certain entities) during the last half of a taxable year (the "Five or Fewer Requirement"). In order to assist the Company in meeting the Five or Fewer Requirement, Article EIGHTH of the Charter, as presently in effect, provides, in part, that, subject to certain exceptions specified in the Charter, no holder may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 6% (the "Ownership Limit") of the issued and outstanding shares of Common Stock (other than George M. Marcus, who can currently own up to 25% of the Common Stock, and qualified pension trusts (as defined in the Charter), which can own up to 9.9% of the Common Stock). The present exception provision in the Charter (the "Exception Section") provides, in part, that, upon receipt of a ruling (an "IRS Ruling") from the Internal Revenue Service to the effect that the Five or Fewer Requirement will not be violated, the Board may exempt a holder (other than an individual for purposes of Section 542(a)(2) of the Code) of the Common Stock from the Ownership Limit, provided that, among other things, such holder demonstrates to the Board that none of the ultimate beneficial ownership of the purchased Common Stock will violate the Five or Fewer Requirement. Specifically, the present Exception Section provides as follows: (9) Exception. The Board of Directors, upon receipt of a ruling from the Internal Revenue Service to the effect that the restrictions contained in subparagraph (a)(2)(A), (a)(2)(B), (a)(2)(C), (a)(2)(D) and/or subparagraph (a)(2)(E) will not be violated, may exempt a Person from the Ownership Limit or Existing Holder Limit if such Person is not an individual for purposes of Section 542(a)(2) of the Code or is an underwriter which participates in a public offering of the Equity Stock for a period of 90 days following the purchase by such underwriter of the Equity Stock and the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no individual's Beneficial Ownership of Equity Stock will violate the Ownership Limit or Existing Holder Limit, and such Person agrees that any violation or attempted violation will result in such Equity Stock being exchanged for Excess Stock in accordance with subparagraph (a)(3) of this Article EIGHTH. REASONS FOR AND POSSIBLE EFFECTS OF THE AMENDMENT Under the present Exception Section, TREP Investor cannot purchase all 1,600,000 shares of Preferred Stock contemplated by the Transaction unless an IRS Ruling is obtained and the Board waives the Ownership Limit based upon such IRS Ruling. Although the Company is seeking such an IRS Ruling, there can be no 48 assurance that the IRS Ruling will be obtained on a timely basis or at all. Consequently, the Company is proposing to amend the Exception Section to provide the Board with flexibility to waive the Ownership Limit based solely on an opinion of counsel that the Five or Fewer Requirement will not be violated and on certain representations and agreements from the holder. Pursuant to this amendment, upon receipt of such opinion of counsel and such representations and agreements from the holder, the Board could exempt TREP Investor from the Ownership Limit with respect to its Preferred Stock purchases and, thus, this amendment would enable this sale to proceed. In addition, apart from facilitating the consummation of the Preferred Stock purchases by TREP Investor, the Board believes that this amendment is beneficial to the Company because compliance with the present Exception Section, with its IRS Ruling requirement, is cumbersome and costly and may be a deterrent to investment (such as the investment made by TREP Investor) in the Company. The Board also believes that, by providing the Board with increased flexibility to grant exemptions from the Ownership Limit, the proposed amendment will improve stockholder value by attracting more capital to the Company. Therefore, the Board believes that it is in the best interest of the Company to amend the Charter to allow the Board, without the necessity of a prior IRS Ruling, upon receipt of an opinion of counsel for the applicable stockholder, to exempt holders (other than individuals--generally, entities who own stock for their beneficiaries (such as TREP Investor) and not for their own account) from the Ownership Limit for purposes of applying the Five or Fewer Requirement, provided, however, that for any such holder to own more than 25% of the value of the outstanding shares of stock of the Company, both a prior IRS Ruling and counsel opinion will be required. Accordingly, the Board is asking the stockholders to approve the amendment to Article EIGHTH of the Charter set forth below. TEXT OF AMENDMENT Article EIGHTH (a)(1) is amended as follows: The definition of "Ownership Limit" is amended to delete the word "stock", wherever such word appears, and add the term "Equity Stock" in its place. The definition of "Person" is amended to delete the phrase "and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended" at the end of such definition. The following definition is added to Article EIGHTH (a)(1): "Exempt Person" shall mean any Person exempt from the Ownership Limit or the Existing Holder Limit pursuant to Article EIGHTH (a)(9) from time to time." Article Eighth (a)(2)(A) and (B) are amended to add "with respect to the exemption of a Person from the Ownership Limit or otherwise" after "Article EIGHTH" and before", from the date", and to add "or an Exempt Person" before the close of the parenthetical that begins "(other than an Existing Holder". Article Eighth (a)(3)(A) is amended to add "or an Exempt Person" before the close of the parenthetical that begins "(other than an Existing Holder". Article EIGHTH (a)(9), is replaced in its entirety with the following: (9) "Exception." The Board of Directors may exempt a Person from the Ownership Limit or Existing Holder Limit, thereby permitting such Person's Beneficial or Constructive Ownership of Equity Stock to exceed the Ownership Limit or Existing Holder Limit, if (i) such Person is not an individual for purposes of Section 542(a)(2) of the Code (provided that, for such purposes, the rules of Code Section 856(h)(3)(A) shall apply) or (ii) is an underwriter that participates in a public offering of the Equity Stock for a period of 90 days following the purchase by such underwriter of the Equity Stock, conditioned upon (i) the Corporation's prior receipt of an opinion of counsel or a ruling from the Internal Revenue Service, in each case to the effect that such Person's exemption from the Ownership Limit or Existing Holder Limit will not cause the Corporation (A) to be closely held within the meaning of Section 856(a)(6) 49 of the Code, (B) to be Beneficially Owned by fewer than 100 persons within the meaning of Section 856(a)(5) of the Code, and (C) to receive any amounts excluded from "rent from real property" for purposes of Section 856(c) of the Code by application of Section 856(d)(2)(B) of the Code, (ii) the Board of Directors obtaining such representations from such Person as are reasonably necessary to ascertain that no individual's Beneficial Ownership will violate the Ownership Limit or the Existing Holder Limit as a result of such Person's Beneficial Ownership (provided that, for purposes of such representations, the rules contained in Section 856(h)(3)(A) of the Code shall apply), and (iii) such Person agreeing that any individual's violation or attempted violation of the Ownership Limit or Existing Holder Limit because of such Person's Beneficial Ownership (provided that, for purposes of such agreement, the rules of Section 856(h)(3)(A) of the Code will apply) will result in the portion of such Person's Equity Stock causing such violation or attempted violation to be converted to Excess Stock in accordance with subparagraph (a)(3) of this Article EIGHTH unless such Person has previously obtained an exemption from the Board of Directors in accordance with this Article EIGHTH (a)(9) with respect to such Person's Equity Stock causing such violation or attempted violation; provided that, any exemption from the Ownership Limit or Existing Holder Limit pursuant to this Article EIGHTH(a)(9) that would allow a Person to Beneficially Own or Constructively Own shares of Equity Stock of the Corporation with an aggregate value that is greater than 25.0% of the value of the outstanding shares of Equity Stock of the Corporation shall not be based solely on the receipt of an opinion of counsel but shall require a receipt of a ruling from the Internal Revenue Service. REQUIRED VOTE The affirmative vote of the holders of a majority of the shares of Common Stock issued and outstanding as of the Record Date is required to approve this amendment to the Charter (Proposal 2). Only holders of shares of Common Stock issued and outstanding on the Record Date are entitled to vote on Proposal 2. Abstentions and broker non-votes will have the same effect as votes against Proposal 2. APPROVAL OF THE PROPOSED AMENDMENT TO ARTICLE EIGHTH BY THE REQUISITE VOTE OF STOCKHOLDERS OF THE COMPANY IS A CONDITION TO CONSUMMATION OF PORTIONS (BUT NOT ALL) OF THE TRANSACTION. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2. 50 PROPOSAL TO CHANGE THE COMPOSITION OF THE BOARD IN CERTAIN CIRCUMSTANCES (PROPOSAL 3) The Board has approved and recommends the approval by the stockholders of the following amendment to Article SIXTH of the Charter to modify the composition of the Board upon the occurrence of a Charter Breach or a Dividend Default or both. SUMMARY OF RELEVANT PORTIONS OF THE CURRENT ARTICLE SIXTH, AS MODIFIED BY THE ARTICLES SUPPLEMENTARY Article SIXTH of the Charter provides, in relevant part, that (i) the Board shall initially consist of four members, all of which are nominated and elected by the holders of the shares of Common Stock, which number of members may be increased or decreased as provided in the Bylaws, and (ii) the members of the Board be classified into three staggered classes, with the term of one class expiring each year. The Articles Supplementary provide the holders of Preferred Stock with the right to nominate and elect, voting as a separate class, one director to the Board and to nominate and elect, voting as a separate class, upon a Charter Breach or Dividend Default or both, up to four additional directors to the Board, for an aggregate of five directors, representing approximately 33% of the directors on the Board (see "Terms of the Preferred Stock--Voting Rights of Holders of Preferred Stock"). The Board currently consists of eleven members, one of whom was nominated and elected by TREP Investor and the rest of whom were nominated and elected by the holders of shares of the Common Stock. REASONS FOR AND POSSIBLE EFFECTS OF THE AMENDMENT Proposal 3 stems from the desire of the Company to streamline the Board in the event of a Dividend Default or Charter Breach or both, and to ensure continued efficient operation of the Company in such event. As currently prescribed by the Charter and the Articles Supplementary and in light of the Board's present eleven-member composition, in the event of a Charter Breach, the size of the Board will increase by three members, for a total of fourteen members, and, in the event of a Dividend Default or both a Charter Breach and a Dividend Default, the size of the Board will increase by four members, for a total of fifteen members (see "Terms of Preferred Stock-- Voting Rights of Holders of Preferred Stock"). The Company believes that, upon the occurrence of a Charter Breach, a Dividend Default or both, an increase in the size of the Board of the magnitude contemplated by the Articles Supplementary will result in a Board that is too large and, hence, unwieldy and inefficient. As an alternative to such increases in the size of the Board in the event of a Dividend Default, a Charter Breach or both, the Board has considered and approved Proposal 3, which will reduce the size of the Board at the next annual meeting of the stockholders following the Dividend Default, Charter Breach or both, while substantially retaining the relative voting rights of the holders of shares of Common Stock and the holders of shares of Preferred Stock, as currently set forth in the Articles Supplementary, upon such event. The proposed amendment to the Charter contemplated by Proposal 3 would cause the following changes to occur in the composition of the Board upon the occurrence of and during the continuance of a Dividend Default, a Charter Breach or both: (i) upon the occurrence of such event, the number of directors nominated and elected by the holders of shares of Preferred Stock, voting as a separate class, would immediately increase in the manner provided in the Articles Supplementary (see "Terms of the Preferred Stock--Voting Rights of Holders of Preferred Stock"); (ii) at the next annual meeting of the stockholders, the terms of all then-current directors would terminate (notwithstanding any classification of the Board) and the Board would be reduced to nine members, three of which shall be nominated and elected by the holders of shares of Preferred Stock, voting as a separate class, and six of which shall be nominated and elected by the holders of shares of Common Stock; and (iii) the directors of the Board would not be classified. The proposed amendment will not affect the percentage of directors of the Board elected by the holders of shares of Preferred Stock from that provided in the Articles Supplementary, except that, in the event of a Charter Breach, the percentage of the directors of the Board elected by the holders of shares of Preferred Stock, will increase from approximately 29% under the Articles Supplementary (based on the current eleven-member Board) to approximately 33% under the proposed 51 amendment. The Board believes that it is in the best interest of the Company to amend the Charter in accordance with Proposal 3 to maintain an economic and efficient size of the Board in the event of a Dividend Default, a Charter Breach or both. Accordingly, the Board is asking the stockholders to approve the amendment to the Charter set forth below. TEXT OF AMENDMENT Add the following as Article SIXTH, subsection (d): (d) Notwithstanding the provisions of the foregoing subsection (c) of this Article SIXTH, while there are any shares of Series 1996A Stock (as such term is defined in the terms of the Series 1996A Stock) outstanding, the following provisions shall be in effect; however, to the extent that the provisions of such subsection (c) are not inconsistent with the provisions of this subsection, the provisions of such subsection (c) shall remain in full force and effect: (1) At each annual meeting of the stockholders, the holders of shares of Series 1996A Stock shall be entitled to elect one director, to serve until the next annual meeting of the stockholders and his successor is elected and qualifies. (2) The number of directors may be (A) decreased upon the vote of a majority of the directors (but no such decrease shall affect the term of any incumbent director), or (B) increased upon the vote of a majority of the directors, so long as each Series 1996A Director (as such term is defined in the terms of the Series 1996A Stock) votes for such increase. (3) In the event of the occurrence of a Dividend Default (as such term is defined in the terms of the Series 1996A Stock) or a Charter Breach (as such term is defined in the terms of the Series 1996A Stock), (A) the number of Series 1996A Directors shall be increased and elected, in accordance with the terms of the Articles Supplementary, and (B) at the next annual meeting of the stockholders (provided however, that, a Dividend Default or Charter Breach still exists as of the record date for such annual meeting), (i) the term of all the directors shall terminate and (ii) the number of directors shall be reduced or increased to nine. (4) (A) At the first annual meeting of stockholders at which the provisions of subsections (d)(3)(B)(i) and (ii) are implemented, and at each successive annual meeting of stockholders until (i) no Dividend Default or Charter Breach exists as of the applicable record date for such annual meeting or (ii) there are no shares of Series 1996A Stock outstanding as of such record date, at which time the number of directors shall be determined in accordance with the provisions of subsection (d)(1) or subsection (c), as applicable, the holders of Common Stock shall be entitled to elect six directors and the holders of Series 1996A Stock, if any, shall be entitled to elect three directors, all such directors to serve until the next annual meeting of stockholders and until their successors are elected and qualify. (B) At the first annual meeting of stockholders at which the number of directors is again determined by subsection (d)(1) or by subsection (c) and the provisions of subsection (c) relating to the classification of directors are again effective, one class of directors shall be elected to hold office initially until the next annual meeting of stockholders; another class shall be elected to hold office initially until the second annual meeting of the stockholders; and another class shall be elected to hold office initially until the third annual meeting of stockholders, with the members of each class to hold office until their successors are duly elected and qualify. At each annual meeting of stockholders, the successors to the class of directors whose term expires at such meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and the other directors shall continue in office. Notwithstanding the foregoing or anything else to the contrary set forth in this subsection (d), each Series 1996A Director shall serve only until the next annual meeting of stockholders and his successor is elected and qualifies. 52 (5) To the extent that the provisions of this subsection (d) conflict with the terms of the Series 1996A Stock or the Bylaws, this subsection shall be controlling. (6) As of the date on which there are no longer any shares of Series 1996A Stock outstanding, (i) the provisions of this subsection (d), except subsection (d)(4)(B), shall terminate and no longer be of any force or effect and (ii) the provisions of subsection (c) shall be in effect in accordance solely with the terms thereof. REQUIRED VOTE The affirmative vote of the holders of two-thirds of the shares of Common Stock issued and outstanding as of the Record Date is required to approve amendments to the Charter to provide for certain modifications to the composition of Board of Directors in the event of the breach of certain protective provisions relating to the Preferred Stock (Proposal 3). Only holders of shares of Common Stock issued and outstanding on the Record Date are entitled to vote on Proposal 3. However, holders of shares of Preferred Stock are entitled to notice of the proposed amendments pursuant to Maryland law. Abstentions and broker non-votes will have the same effect as votes against Proposal 3. APPROVAL OF THIS PROPOSAL 3 BY THE REQUISITE VOTE OF THE STOCKHOLDERS IS NOT A CONDITION TO CONSUMMATION OF THE TRANSACTION. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3. 53 POSSIBLE ANTI-TAKEOVER EFFECT OF THE PROPOSALS The Proposals contained in this Proxy Statement are not part of a plan by the Board to adopt a series of anti-takeover measures; however, they may have the effect of delaying, deferring or preventing a transaction or change in control of the Company that may involve a premium price for the Common Stock or otherwise be in the best interest of the stockholders. The Board does not presently intend to propose any additional measures designed to discourage any unsolicited takeovers, but reserves the right to propose and adopt additional measures if the Board determines that such measures are in the best interests of the Company and its stockholders. POSSIBLE ANTI-TAKEOVER EFFECT OF THE TRANSACTION (PROPOSAL 1) The Company did not seek TREP Investor's investment as an "anti-takeover measure." TREP Investor's acquisition of the Preferred Stock, however, and the director nomination, voting and other rights (including, without limitation, the right to approve certain transactions and corporate actions) granted to TREP Investor and the other holders of Preferred Stock under the terms of the Transaction may make it more difficult for, among other things, (i) other stockholders to challenge the Company's director nominees, elect their own nominees as directors, or remove incumbent directors, even if a significant number of the stockholders believe that such action would be in the best interest of the Company, and (ii) the Company to sell substantially all of its assets or voluntarily undergo a change in control. In addition, the Transaction and the transactions contemplated thereby may render the Company a less attractive target for an unsolicited acquisition by an outsider by making it more difficult for such a person to obtain control of the Board. As a result of the Transaction, the aggregate ownership of the outstanding shares of Common Stock by TREP Investor, unless TREP Investor disposes of all or portions of its shares of Preferred Stock, may reach up to approximately 14.64% (based on the number of shares of Common Stock outstanding as of the Record Date) on a fully-diluted basis. The potential concentration of stock ownership in TREP Investor and the concentration of ownership in George M. Marcus, may have the effect of delaying, deferring or preventing a change in control of the Company (see "Terms of the Transaction--Preferred Stockholders' Stock Ownership"). POSSIBLE ANTI-TAKEOVER EFFECT OF THE PROPOSAL TO AMEND THE OWNERSHIP RESTRICTIONS (PROPOSAL 2) The principal purposes of the amendment to the ownership restrictions in the Charter are to permit TREP Investor to purchase all of the 1,600,000 authorized shares of Preferred Stock and to provide the Board with increased flexibility to waive the Charter ownership limitations in certain circumstances. The Board believes that the proposed amendment of Article EIGHTH, except insofar as it facilitates the completion of the Transaction by TREP Investor (and the consequent potential extent of TREP Investor's ownership interest in the Company (see "Terms of the Transaction--Preferred Stockholders' Stock Ownership"), would not make a change of control more difficult than would be the case under the existing Article EIGHTH. POSSIBLE ANTI-TAKEOVER EFFECT OF THE PROPOSAL TO MODIFY THE COMPOSITION OF THE BOARD IN CERTAIN CIRCUMSTANCES (PROPOSAL 3) The principal purpose of the amendment to the Charter providing for modifications to the composition of the Board under certain circumstances is to prevent the increase in the size of the Board that otherwise might be required by the Articles Supplementary, in the event of a Charter Breach, a Dividend Default or both, which increase the Board believes would be excessive. The proposed amendment does not significantly alter the relative voting rights of the holders of shares of Common Stock and the holders of shares of Preferred Stock from that set forth in the Articles Supplementary (see "PROPOSAL TO CHANGE THE COMPOSITION OF THE BOARD IN CERTAIN CIRCUMSTANCES--Reasons for and Possible Effects of the Amendment"). Consequently, the Board does not believe that the proposed amendment makes a change of control significantly more difficult than would currently be the case pursuant to the Articles Supplementary. 54 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The Company hereby incorporates by reference into this Proxy Statement the following sections of the Company's Form 10-K for the year ended December 31, 1995: (i) Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth at pages 16-21 thereof; and (ii) the Company's Financial Statements and Supplementary Data, set forth on pages F1- F26 thereof. In addition, the Company hereby incorporates by reference into this Proxy Statement (i) the unaudited Financial Statements, set forth at pages 3-8, and Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth at pages 9-12, of the Company's Form 10-Q for its first quarter ended March 31, 1996, and (ii) the unaudited Financial Statements, set forth at pages 3-10, and Management's Discussion and Analysis of Financial Condition and Results of Operation, set forth at pages 11-15 of the Company's Form 10-Q for its second quarter ended June 30, 1996. The Company will provide without charge to each person to whom a copy of this Proxy Statement is delivered, on the written or oral request of such person and by first class mail or other equally prompt means within one business day of receipt of such request, a copy of any and all of the documents referred to above which may have been or may be incorporated by reference in this Proxy Statement. Such written or oral request should be directed to Essex Property Trust, Inc., 777 California Avenue, Palo Alto, California, Attention: Investor Relations, (415) 494-3700. OTHER MATTERS No business may be brought before the Special Meeting other than the Proposals and procedural matters that may arise in connection with the Proposals. Any stockholder proposal intended for inclusion in the Company's proxy statement and form of proxy relating to the Company's 1997 annual meeting of stockholders, scheduled to be held on or about May 29, 1997, must be received by the Company's General Counsel, Jordan E. Ritter, at Essex Property Trust, Inc., 777 California Avenue, Palo Alto, California, no later than December 12, 1996, pursuant to the Bylaws and the proxy soliciting regulations promulgated under the Exchange Act. Nothing in this paragraph shall be deemed to require the Company to include in its proxy statement and form of proxy for such meeting any stockholder proposal which does not meet the requirements of the Exchange Act in effect at the time. By Order of the Board of Directors Keith R. Guericke Chief Executive Officer and President September 5, 1996 Palo Alto, California 55 APPENDIX A STOCK PURCHASE AGREEMENT BY AND BETWEEN TIGER/WESTBROOK REAL ESTATE FUND, L.P. AND TIGER/WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP, L.P., AND ESSEX PROPERTY TRUST, INC., A MARYLAND CORPORATION DATED AS OF JUNE 20, 1996 THIS STOCK PURCHASE AGREEMENT (the "Agreement), dated as of June 20, 1996, is made by and between Essex Property Trust, Inc., a Maryland corporation (the "Company") and Tiger/Westbrook Real Estate Fund, L.P., a Delaware limited partnership, and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P., a Delaware limited partnership (individually and collectively, "Buyer"). RECITALS: WHEREAS, Buyer wishes to purchase from the Company, and the Company wishes to issue and sell to Buyer, an aggregate of 280,000 shares of a newly authorized series of preferred stock of the Company designated as 8.75% Convertible Preferred Stock, Series 1996A (the "Preferred Stock"), having the terms set forth in the form of Company's Articles Supplementary attached as Exhibit A (the "Articles Supplementary") establishing the rights, privileges and preferences of the Preferred Stock, at a price of $25.00 per share; WHEREAS, an affiliate of Buyer and the Company have entered into that certain Loan Facility Agreement (the "Loan Agreement") as of even date herewith whereby T/W Essex Funding, L.L.C. ("Lender") has agreed to lend to the Company and the Company has agreed to borrow from the Lender up to an aggregate of $33,000,000 which borrowed funds shall under the circumstances set forth in the Loan Agreement be exchangeable for additional shares of Preferred Stock or, if the Company and Buyer so agree, Operating Partnership Units, subject to the terms and conditions set forth herein and therein; and WHEREAS, Buyer and the Company are entering into this Agreement to provide for such purchase and sale of the Preferred Stock and to establish various rights and obligations in connection therewith. AGREEMENT: ARTICLE I Definitions As used in this Agreement, the following terms shall have the following respective meanings: Capitalized terms used herein but not defined herein shall have the meanings set forth in the Loan Agreement. Section 1.1 "Action" shall mean any suit, arbitration, inquiry, proceeding or injunction by or before any Government Authority, court or arbitrator. Section 1.2 "Additional Purchase Price" shall mean the consideration payable by Buyer to the Company for the shares of Preferred Stock acquired by Buyer at any Initial Exchange Closing or any Subsequent Closing, consisting of an exchange of principal amount of the Loan, cash, or a combination thereof, as the case may be. A-1 Section 1.3 "Affiliate" shall have the meaning ascribed thereto in Rule 12b- 2 promulgated under the Exchange Act, and as in effect on the date hereof. Section 1.4 "Agreement" shall have the meaning set forth in the first paragraph hereof. Section 1.5 "Annual Report" shall have the meaning set forth in Section 3.1(e). Section 1.6 "Articles Supplementary" shall have the meaning set forth in the second paragraph hereof. Section 1.7 "Benefit Arrangements" shall have the meaning set forth in Section 3.15 (b). Section 1.8 "Blue Sky Laws" shall have the meaning set forth in Section 3.4(e). Section 1.9 "Buyer" shall have the meaning set forth in the first paragraph hereof. Section 1.10 "CERCLA" shall have the meaning set forth in Section 3.14(b). Section 1.11 "Charter Amendment" shall mean an amendment to the Company Charter mutually satisfactory to the Company and Buyer which provides that the Company may issue to the Buyer the Preferred Stock under the terms and conditions set forth herein. Section 1.12 "Closing Agreement" shall mean a written and legally binding agreement with a taxing authority relating to Taxes. Section 1.13 "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto, including all of the rules and regulations promulgated thereunder. Section 1.14 "Common Stock" shall mean the common stock, par value $.0001 per share, of the Company. Section 1.15 "Company" shall have the meaning set forth in the first paragraph hereof. Section 1.16 "Company Charter" shall mean the Articles of Amendment and Restatement of the Company, as in effect on the date hereof. Section 1.17 "Company Leases" shall mean all ground leases residential or shopping center leases relating to the Company Properties. Section 1.18 "Company Plan" shall have the meaning set forth in Section 3.15(a). Section 1.19 "Company Properties" shall mean all real property owned or leased by the Company or any of its Subsidiaries (collectively, and together with all buildings, structures and other improvements and fixtures located on or under such land and all easements, rights and other appurtenances to such land). Section 1.20 "Company Registration Statement" shall have the meaning set forth in Section 3.5(a). Section 1.21 "Company Reports" shall have the meaning set forth in Section 3.5(a). Section 1.22 "Debt Instruments" shall mean all notes, mortgages, deeds of trust or similar instruments which evidence or secure any indebtedness. Section 1.23 "Election" shall have the meaning set forth in Section 3.10(b). Section 1.24 "Employee Benefit Plans" shall have the meaning set forth in Section 3.15(b). Section 1.25 "Employees" shall have the meaning set forth in Section 3.15(b). A-2 Section 1.26 "Environment" shall have the meaning set forth in Section 3.14(b). Section 1.27 "Environmental Laws" shall have the meaning set forth in Section 3.14(b). Section 1.28 "EPA" shall have the meaning set forth in Section 3.14(a). Section 1.29 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor thereto. Section 1.30 "ERISA Affiliates" shall mean, with respect to any entity, trade or business, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or business, or that is a member of the same "controlled group" as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA. Section 1.31 "Exchange Act" shall have the meaning set forth in Section 3.4(e). Section 1.32 "GAAP" shall have the meaning set forth in Section 3.5(b). Section 1.33 "Government Authority" shall mean any government or state (or any subdivision thereof) of or in the United States, or any agency, authority, bureau, commission, department or similar body or instrumentality thereof, or any governmental court or tribunal thereof. Section 1.34 "Hazardous Substance" shall have the meaning set forth in Section 3.14(b). Section 1.35 "HSR Act" shall have the meaning set forth in Section 3.4(e). Section 1.36 "Indemnified Party" shall mean Buyer or the Company, as the context may require. Section 1.37 "Initial Closing" shall mean the consummation of the purchase and sale of shares of Preferred Stock pursuant to Section 2.1. Section 1.38 "Initial Closing Date" shall have the meaning set forth in Section 2.1. Section 1.39 "Initial Exchange Closing" shall mean any of the closings with respect to the issuance of Preferred Stock contemplated by Section 2.10 of the Loan Agreement. Section 1.40 "Initial Purchase Price" shall have the meaning set forth in Section 2.1. Section 1.41 "IRS" shall mean the Internal Revenue Service. Section 1.42 "Leases" shall have the meaning set forth in Section 3.15(h). Section 1.43 "Liabilities" shall mean, as to any person, all debts, adverse claims, liabilities and obligations, direct, indirect, absolute or contingent of such person, whether accrued, vested or otherwise, whether in contract, tort, strict liability or otherwise and whether or not actually reflected, or required by GAAP to be reflected, in such person's or entity's balance sheets or other books and records, including (i) obligations arising from non- compliance with any law, rule or regulation of any Government Authority or imposed by any court or any arbitrator of any kind, (ii) all indebtedness or liability of such person for borrowed money, or for the purchase price of property or services (including trade obligations), (iii) all obligations of such person as lessee under leases, capital or other, (iv) liabilities of such person in respect of plans covered by Title IV of ERISA, or otherwise arising in respect of plans for employees or former employees or their respective families or beneficiaries, (v) reimbursement obligations of such person in respect of letters of credit, (vi) all obligations of such person arising under acceptance facilities, (vii) all liabilities of other persons or entities, directly or indirectly, guaranteed, endorsed (other than for collection or deposit in the ordinary course of business) or discounted with recourse by such person or with respect to which the person in question is otherwise directly or A-3 indirectly liable, (viii) all obligations secured by any Lien on property of such person, whether or not the obligations have been assumed, and (ix) all other items which have been, or in accordance with GAAP would be, included in determining total liabilities on the liability side of the balance sheet. Section 1.44 "Liens" shall mean all liens, mortgages, deeds of trust, deeds to secure debt, security interests, pledges, claims, charges, easements and other encumbrances of any nature whatsoever. Section 1.45 "Loan" shall have the meaning set forth in the Loan Agreement. Section 1.46 "Loan Agreement" shall have the meaning set forth in Section 2.1. Section 1.47 "Material Adverse Effect" shall mean a material adverse effect on the financial condition, results of operations or business of the Company and its Subsidiaries (to the extent of the Company's interests therein) taken as a whole. Section 1.48 "NYSE Advice" shall mean such advice as may be requested by, and reasonably acceptable to, Buyer and/or the Company regarding the Company's compliance with New York Stock Exchange listing requirements regarding the issuance of Preferred Stock in accordance with the transactions contemplated hereby. Section 1.49 "OP Subscription Agreement" shall mean an agreement mutually satisfactory to the Company and Buyer pertaining to Buyer's possible purchase of preferred Operating Partnership Units and reflecting the terms and conditions of an amendment to the Partnership Agreement mutually satisfactory to the Company and Buyer in accordance with Section 7.2. Section 1.50 "Operating Partnership" shall mean Essex Portfolio, L.P., a California limited partnership, or any successor thereto. Section 1.51 "Other Filings" shall have the meaning set forth in Section 5.1(b). Section 1.52 "Partnership Agreement" shall mean that certain Agreement of Limited Partnership of the Operating Partnership, dated as of March 15, 1994 as amended on April 15, 1994. Section 1.53 "Pension Plans" shall have the meaning set forth in Section 3.15(b). Section 1.54 "Permitted Liens" shall mean (i) Liens (other than Liens imposed under ERISA or any Environmental Law or in connection with any Environmental Claim) for taxes or other assessments or charges of Governmental Authorities that are not yet delinquent or that are being contested in good faith by appropriate proceedings, in each case, with respect to which adequate reserves or other appropriate provisions are being maintained by the Company or its Subsidiaries to the extent required by GAAP, (ii) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen and other Liens (other than Liens imposed under ERISA or any Environmental Law or in connection with any Environmental Claim) imposed by law and created in the ordinary course of business for amounts not yet overdue or which are being contested in good faith by appropriate proceedings, in each case, with respect to which adequate reserves or other appropriate provisions are being maintained by the Company or its Subsidiaries to the extent required by GAAP and which do not exceed $750,000 in the aggregate, (iii) the Company Leases, (iv) easements, rights-of-way, covenants and restrictions which are customary and typical for commercial or residential properties similar to the commercial and residential Company Properties, as the case may be, and which do not (x) interfere materially with the ordinary conduct of any Company Property or the business of the Company and its Subsidiaries as a whole or (y) detract materially from the value or usefulness of the Company Property to which they apply, (v) the other Liens relating to the Company's Camarillo property and (vi) such imperfections of title and encumbrances, if any, as would not, individually, or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Section 1.55 "Per Unit Purchase Price" shall have the meaning set forth in Section 2.3. A-4 Section 1.56 "Per Share Purchase Price" shall mean the price of $25.00 per share for the Preferred Stock. Section 1.57 "person" shall mean any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, other form of business or legal entity or Government Authority. Section 1.58 "Preferred Stock" shall have the meaning set forth in the second paragraph hereof. Section 1.59 "Proxy Statement" shall have the meaning set forth in Section 5.1(b). Section 1.60 "Registration Rights Agreement" shall have the meaning set forth in Section 2.2(a). Section 1.61 "Regulatory Filings" shall have the meaning set forth in Section 3.4(e). Section 1.62 "REIT" shall have the meaning set forth in Section 3.10(b). Section 1.63 "Release" shall have the meaning set forth in Section 3.14(c). Section 1.64 "REOC" shall have the meaning set forth in Section 3.15(h). Section 1.65 "REOC Qualification Date" shall have the meaning set forth in Section 3.14(d). Section 1.66 "SEC" shall have the meaning set forth in Section 3.5(a). Section 1.67 "Securities Act" shall mean the Securities Act of 1933, as amended. Section 1.68 "Securities Laws" shall have the meaning set forth in Section 3.5(a). Section 1.69 "Stockholders Agreement" shall have the meaning set forth in Section 2.2(a). Section 1.70 "Subsidiaries" shall mean, collectively, the Operating Partnership and any other company of which the Company is the direct or indirect general partner or as to which the Company has the right or power, direct or indirectly, to elect a majority of the board of directors or other persons performing similar functions or as to which the Company, directly or indirectly, has a majority economic ownership interest. Section 1.71 "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add- on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. The term "Tax" also includes any amounts payable pursuant to any tax sharing agreement to which any relevant entity is liable as a successor or pursuant to contract. Section 1.72 "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. Section 1.73 "Tax Ruling" shall mean a written ruling of a taxing authority relating to Taxes. Section 1.74 "Welfare Plans" shall have the meaning set forth in Section 3.15(b). A-5 ARTICLE 2 Purchase and Sale of Securities; Closings Section 2.1 "Initial Closing". Subject to the terms and conditions hereof, on the Initial Closing Date, the Company will sell, convey, assign, transfer and deliver, and Buyer will purchase and acquire from the Company, 280,000 shares of Preferred Stock at a price of $25.00 per share for an aggregate purchase price in immediately available funds of $7,000,000 (the "Initial Purchase Price"). The Initial Closing shall take place at the offices of Morrison & Foerster LLP, 755 Page Mill Road, Palo Alto, California, at 10:00 a.m. on such date as the parties hereto may mutually agree (the "Initial Closing Date"). Section 2.2 "Initial Closing Deliveries". (a) At the Initial Closing, and as a condition to the parties' obligations hereunder to effect the transactions contemplated hereby at the Initial Closing, the Company and Buyer shall enter into a registration rights agreement substantially in the form attached as Exhibit C (the "Registration Rights Agreement"), the Company, Buyer and Messrs. Marcus and Guericke each shall enter into a stockholders agreement substantially in the form attached as Exhibit D (the "Stockholders Agreement"). (b) In addition to the other things required to be done hereby including the delivery of the Diligence Fee, at the Initial Closing, the Company shall deliver, or cause to be delivered, to Buyer the following: (i) certificates representing the number of shares of Preferred Stock to be issued and delivered at the Initial Closing, free and clear of all Liens (unless created by Buyer or any of its Affiliates) with all necessary stock transfer and other documentary stamps attached, (ii) a certificate, dated the Initial Closing Date and validly executed by an appropriate officer of the Company, as contemplated by Section 7.1(a), (iii) evidence or copies of any consents, approvals, orders, qualifications or waivers required pursuant to Section 7.1, (iv) all certificates and other instruments and documents required by this Agreement to be delivered by the Company to Buyer at or prior to the Initial Closing, and (v) such other instruments reasonably requested by Buyer, as may be necessary or appropriate to confirm or carry out the provisions of this Agreement. (c) In addition to the delivery of the Initial Purchase Price and the other things required to be done hereby, at the Initial Closing, Buyer shall deliver, or cause to be delivered, to the Company the following: (i) a certificate, dated the Initial Closing Date and validly executed by Buyer, as contemplated by Section 7.3(a), (ii) if not previously delivered to the Company, all other certificates, documents, instruments and writings required pursuant hereto to be delivered by or on behalf of Buyer at or before the Initial Closing, and (iii) such other instruments reasonably requested by the Company, as may be necessary or appropriate to confirm or carry out the provisions of this Agreement. Section 2.3 "Initial Exchange Closings and Subsequent Closings". (I) "Initial Exchange Closings" (a) Option A. If Option A is applicable, effective as of the Option A Maturity Date, (i) Buyer shall, or cause the Lender to, exchange $13,000,000 principal amount of the Loan for 520,000 shares of Preferred Stock to be issued by the Company (subject to the antidilution and "Organic Change" provisions of the Loan Agreement). (b) Option B. If Option B is applicable, effective as of the Option B Maturity Date, (i) Buyer shall, or cause the Lender to, exchange $13,000,000 principal amount of the Loan for 520,000 shares of Preferred Stock to be issued by the Company (subject to the anti-dilution and "Organic Change" provisions of the Loan Agreement). (c) Option C. If Option C is applicable, effective as of the Option C Maturity Date, Buyer shall, or cause the Lender to, exchange up to $1,500,000 principal amount of the Loan for 60,000 shares of Preferred Stock to be issued by the Company at an Additional Purchase Price of $25.00 per share (subject to the antidilution and "Organic Change" provisions of the Loan Agreement). A-6 (d) Option D. If Option D is applicable, effective as of the Option D Maturity Date, Buyer (i) shall or cause the Lender to, exchange $13,000,000 principal amount of the Loan for 520,000 shares of Preferred Stock to be issued by the Company (subject to the antidilution and "Organic Change" provisions of the Loan Agreement) and (ii) shall have the option to acquire up to an additional 240,000 shares of Preferred Stock to be issued by the Company at a per share Additional Purchase Price of $25.00 (subject to the antidilution and "Organic Change" provisions of the Loan Agreement). (II) "Subsequent Closings". If Option A or B is applicable, Buyer shall purchase from the Company an additional 800,000 shares of Preferred Stock at an Additional Purchase Price of $25.00 per share prior to June 20, 1997 (subject to the antidilution and "Organic Change" provisions of the Loan Agreement), pursuant to no more than three Subsequent Closings each involving the purchase of not less than 200,000 shares of Preferred Stock. (III) "Place of Closing". The consummation of each Subsequent Closing shall take place at the Palo Alto offices of Morrison & Foerster LLP at 10:00 a.m. on the Subsequent Closing Date or such other place as agreed upon by the parties. Section 2.4 "Initial Exchange Closing and Subsequent Closing Deliveries". (a) At each Initial Exchange Closing and Subsequent Closing, the Company shall deliver or cause to be delivered, to Buyer the following (i) such documentation as may be reasonably required to be delivered by the Company pursuant to the terms of the Loan Agreement, (ii) certificates representing the number of shares of Preferred Stock free and clear of all Liens (unless created by Buyer or any of its Affiliates) with all necessary stock transfer and other documentary stamps attached, (iii) a certificate dated such Subsequent Closing Date and validly executed by an appropriate officer of the Company, as contemplated by Section 7.2(a), (iv) as to Subsequent Closings, evidence or copies of any consents, approvals, orders, qualifications or waivers required pursuant to Section 7.2, (v) all certificates and other instruments and documents required by this Agreement or the Loan Agreement to be delivered by the Company to Buyer at or prior to each Subsequent Closing, and (vi) such other instruments reasonably requested by Buyer as may be necessary or appropriate to confirm or carry out the provisions of this Agreement. (b) Buyer shall deliver to the Company, by wire transfer of immediately available funds in U.S. dollars to an account designated by the Company, the amount of the Additional Purchase Price in excess of the principal amount of the Loan exchanged therefore together with all interest or fees due to the Lender under the Loan Agreement, if any. In addition to the delivery of the Additional Purchase Price and the other things required to be done hereby, at the Initial Exchange Closing and each Subsequent Closing, Buyer shall deliver, or cause to be delivered, to the Company the following: (i) at each Subsequent Closing a certificate, dated such Subsequent Closing Date and validly executed by Buyer, as contemplated by Section 7.3(a), (ii) at the Initial Exchange Closing and each Subsequent Closing, if not previously delivered to the Company, all other certificates, documents, instruments and writings required pursuant hereto to be delivered by or on behalf of Buyer at or before each such closing, and (iii) such other instruments reasonably requested by the Company, as may be necessary or appropriate to confirm or carry out the provisions of this Agreement. Section 2.5 "Operating Partnership Units". Notwithstanding the foregoing, provided that the Company and Buyer shall have previously entered into the OP Subscription Agreement, Buyer may purchase such number of Operating Partnership Units in lieu of any shares of Preferred Stock on any Subsequent Closing Date on economically equivalent terms. At any Subsequent Closing at which Operating Partnership Units are to be purchased, Buyer shall deliver to the Company the Purchase Price for such Operating Partnership Units upon such terms and together with such other documentation set forth in Section 2.4(b) and the Company shall deliver to Buyer an amended and restated Partnership Agreement (in form and substance satisfactory to both Company and Buyer) and any other appropriate documents evidencing the Operating Partnership Units, such Operating Partnership Units to be free and clear of all Liens (unless created by Buyer or any of its Affiliates) together with such other appropriate documentation set forth in Section 2.4(a). A-7 Section 2.6 "Exchange of Preferred Stock for Units; Units for Preferred Stock". Provided that the Company and Buyer shall have previously entered into the OP Subscription Agreement, at any time and from time to time after the later of the Stockholder Approval Date and the date on which the Partnership Agreement shall have been amended in accordance with Section 7.2: (a) Buyer shall have the right to exchange its shares of Preferred Stock into such number of Operating Partnership Units as is equal to the product of (i) the number of shares of Preferred Stock held by Buyer multiplied by (ii) the quotient of (x) the Per Share Purchase Price divided by (y) the Per Unit Purchase Price then in effect. Any accrued and unpaid dividends on Buyer's Preferred Stock may be exchanged into such number of Operating Partnership Units achieved by dividing the aggregate amount of such dividend accrued on the Preferred Stock by the Per Unit Purchase Price then in effect; (b) Buyer shall have the right to exchange its Operating Partnership Units into such number of shares of Preferred Stock as is equal to the product of (i) the number of Operating Partnership Units then held by Buyer multiplied by (ii) the quotient of (x) the Per Unit Purchase Price then in effect divided by (y) the Per Share Purchase Price. ARTICLE 3 Representations and Warranties of the Company The Company hereby represents and warrants to Buyer as follows: Section 3.1 "Organization and Qualification; Subsidiaries". (a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Maryland. The Company has all requisite corporate power and authority to enter into this Agreement, the Registration Rights Agreement, the Stockholders Agreement, the Loan Agreement and the Promissory Note and to perform its obligations hereunder and thereunder. The Company has all requisite governmental licenses, authorizations, consents and approvals to own, operate, lease and encumber its properties and carry on its business as now conducted, except where the failure to so have could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (b) The Operating Partnership is a limited partnership duly organized, validly existing and in good standing under the laws of the State of California. The Operating Partnership has all requisite partnership power and authority to enter into the Guarantee. The Operating partnership has all requisite governmental licenses, authorizations, consents and approvals to own, operate, lease and encumber its properties and carry on its business as now conducted, except where the failure to do so could not have, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (c) Each of the Subsidiaries of the Company is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, and has the corporate or partnership power and authority to own its properties and carry on its business as it is now being conducted. Each of the Subsidiaries has all requisite governmental licenses, authorizations, consents and approvals, except where the failure to could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (d) Each of the Company and its Subsidiaries is duly qualified to do business and in good standing in each jurisdiction in which the ownership of its property or the conduct of its business requires such qualification, except for any failures to be so qualified or to be in good standing as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (e) The Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1995 (as amended, together with all information incorporated by reference therein, the "Annual Report") sets forth all information regarding the Company's Subsidiaries required to be stated therein. All of the outstanding shares of capital stock of, or other equity interest in, each of the Subsidiaries owned by the Company or the Operating Partnership are duly authorized, validly issued, fully paid and nonassessable, A-8 and are owned, directly or indirectly, by the Company free and clear of all Liens. Except as described in the Company Reports, there are no existing options, warrants, calls, subscriptions, convertible securities or other rights, agreements or commitments which obligate the Company or any of the Subsidiaries to issue, transfer or sell any shares of capital stock or equity interests in any of the Subsidiaries. (f) The financial statements to the Annual Report set forth a description of all allocations among the Company and any Subsidiary of the material expenses incurred by the Company and its Subsidiaries, taken as a whole as are required to be stated therein. Section 3.2 "Authority Relative to Agreements; Board Approval". (a) The execution, delivery and performance by the Company of this Agreement, the Registration Rights Agreement, the Stockholders Agreement, the Articles Supplementary, the Loan Agreement and the Promissory Note and the issuance and delivery of shares of Common Stock upon conversion of shares of Preferred Stock in accordance with the provisions of the Articles Supplementary and Bylaws of the Company, have been duly and validly authorized (or by the Initial Closing Date will have been authorized) by all necessary corporate action on the part of the Company. Each of this Agreement, the Registration Rights Agreement, the Stockholders Agreement, the Loan Agreement and the Promissory Note has been duly executed and delivered by the Company and constitutes the valid and legally binding obligations of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights or general principles of equity, subject to the approval of the Board of Directors to recommend to the stockholders that they approve the issue to Buyer of the Preferred Stock under the terms and conditions set forth herein, including approval of amendments to the Charter and Bylaws of the Company and the recommendation of any action to be taken by the stockholders. Upon issuance of any shares of Preferred Stock, the Articles Supplementary will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights or general principles of equity. (b) The Executive Committee has determined to recommend to the Board of Directors of the Company that it recommend that the stockholders of the Company vote in favor of and approve the issuance to Buyer of Preferred Stock under the terms and conditions set forth herein. (c) The shares of Preferred Stock to be acquired pursuant to this Agreement have been duly authorized for issuance, and upon issuance and delivery by the Company in accordance with this Agreement will be duly and validly issued, fully paid and nonassessable. The shares of Common Stock issuable upon conversion of the Preferred Stock to be acquired pursuant to this Agreement will, upon issuance, be duly and validly issued, fully paid and nonassessable. (d) The conversion of the Preferred Stock pursuant to the terms of the Articles Supplementary, will not give any stockholder of the Company the right to demand payment for his shares under the Corporations & Associations Code of Maryland. (e) The Guaranty has been duly executed and delivered by the Operating Partnership and constitutes the valid and legally binding obligations of the Operating Partnership enforceable against the Operating Partnership in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or similar laws relating to creditors' rights or general principals of equity. Section 3.3 "Capital Stock and Voting Rights". (a) The authorized capital stock of the Company on the date hereof consists of 670,000,000 shares of Common Stock, and 330,000,000 shares of excess stock. As of the date hereof, there are 6,275,000 shares of Common Stock issued and outstanding, and no shares of any other class or series of stock issued and outstanding. All such issued and outstanding shares of Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. The Company has no outstanding bonds, debentures, A-9 notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities the holders of which have the right to vote) with the stockholders of the Company on any matter. Other than as set forth in the Company Reports, there are no existing options, warrants, calls, subscriptions, convertible securities, or other rights, agreements or commitments which obligate the Company to issue, transfer or sell directly or indirectly any shares of capital stock or other equity interests of the Company or which entitle any person to acquire from the Company any shares of capital stock or other equity interest of the Company. (b) Except for interests in the Subsidiaries of the Company, and except as set forth in the Company Reports, none of the Company or any of its Subsidiaries owns directly or indirectly any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in short-term investment securities), which would have a material effect on the business prospects and condition (financial or otherwise) and operations of the Company; (c) The outstanding shares of Common Stock have been issued in accordance with the registration or qualification provisions of the Securities Act and relevant state securities laws or pursuant to valid exemptions thereto; (d) Except as set forth in the Company Reports, the Company is not obligated to register under the Securities Act any of its currently outstanding securities or any of its securities that may subsequently be issued. Section 3.4 "No Conflicts; No Defaults; Required Filings and Consents". Except as contemplated hereby, neither the execution and delivery by the Company hereof nor the consummation by the Company of the transactions contemplated hereby in accordance with the terms hereof, will: (a) Violate, conflict with, or result in a breach of, any provisions of the Company Charter or Bylaws of the Company; (b) Result in a breach or violation of, a default under, or the triggering of any payment or other obligations pursuant to, or accelerate vesting under, any of the Company stock option plans or Operating Partnership Unit option plans or similar compensation plan or any grant or award made under any of the foregoing; (c) Violate or conflict with any law, regulation, judgment, order, writ, decree or injunction applicable to the Company or its Subsidiaries except where any such violation or conflict, individually or in the aggregate, could not result in a Material Adverse Effect; (d) Except as set forth in Schedule 3.4, violate or conflict with or result in a breach of any provision of, or constitute a default (or any event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or accelerate the performance required by, or result in the creation of any Lien upon any of the properties of the Company or its Subsidiaries under, or result in being declared void, voidable or without further binding effect, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust or any license, franchise, permit, lease, contract, agreement or other instrument, commitment or obligation to which the Company or its Subsidiaries is a party, or by which the Company or its Subsidiaries or any of their properties is bound or affected which could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect; or (e) Require any consent, approval or authorization of, or declaration, filing or registration with, any Government Authority, other than any filings required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), state securities laws ("Blue Sky Laws") (collectively, the "Regulatory Filings"), and any filings required to be made with the Maryland State Department of Assessments and Taxation, the Recorder of Deeds or similar office in any applicable jurisdiction or any national securities exchange on which the Common Stock is listed. A-10 Section 3.5 "SEC and Other Documents; Financial Statements; Undisclosed Liabilities". (a) The Company has delivered or made available to Buyer the registration statement of the Company filed with the Securities and Exchange Commission ("SEC") in connection with the Company's initial public offering of Common Stock, and all exhibits, amendments and supplements thereto (collectively, the "Company Registration Statement"), and each registration statement, report, proxy statement or information statement and all exhibits thereto prepared by it or relating to its properties since the effective date of the Company Registration Statement, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "Company Reports"). The Company Reports were filed with the SEC in a timely manner and constitute all forms, reports and documents required to be filed by the Company under the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder (the "Securities Laws"). As of their respective dates, the Company Reports (i) complied as to form in all material respects with the applicable requirements of the Securities Laws and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. To the Company's knowledge, there is no unresolved violation asserted by any Government Authority with respect to any of the Company Reports. (b) Each of the balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presented the financial position of the entity or entities to which it relates as of its date and each of the statements of operations, stockholders' equity (deficit) and cash flows included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presented the results of operations, retained earnings or cash flows, as the case may be, of the entity or entities to which it relates for the periods set forth therein, in each case in accordance with United States generally accepted accounting principles ("GAAP") consistently applied during the periods involved, except as may be noted therein and except, in the case of the unaudited statements, normal recurring year-end adjustments which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (c) Except as, and to the extent, set forth in the Company Reports or any Schedule hereto, to the Company's knowledge, none of the Company or any of its Subsidiaries has any Liabilities (nor do there exist any circumstances) that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Section 3.6 "Litigation; Compliance With Law". (a) Except as disclosed in the Company Reports, there are no Actions pending or, to the Company's knowledge, threatened against the Company or any of its Subsidiaries that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect or result in any material change in the equity ownership of the Company, or which in any manner question the validity of this Agreement, the Loan Agreement, the Stockholders Agreement or the Registration Rights Agreement. (b) None of the Company or its Subsidiaries is in violation of any law, rule, regulation, order, writ, decree or injunction of any Government Authority or any body having jurisdiction over them or any of their respective properties which could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Section 3.7 "Investment Company." The Company is not, and after giving effect to the sale and issuance of the Preferred Stock, will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Section 3.8 "Solicitation; Access to Information." No form of general solicitation or general advertising was used by the Company or, to the best of its knowledge, any other person acting on its behalf, in respect of or in connection with the offer and sale of the Preferred Stock. A-11 Section 3.9 "Absence of Certain Changes or Events". Since March 31, 1996, the Company and each of its Subsidiaries has conducted its business only in the ordinary course of such business and has not acquired any real estate other than in the ordinary course of business or entered into any financing arrangements in connection therewith other than in the ordinary course of business, and there has not been (a) any change, circumstance or event that could reasonably be expected to result in a Material Adverse Effect, (b) any declaration, setting aside or payment of any dividend or other distribution with respect to the Common Stock other than any publicly declared quarterly dividends on the Common Stock, (c) any commitment, contractual obligation, borrowing, capital expenditure or transaction (each, a "Commitment") entered into by the Company or any of its Subsidiaries, other than Commitments which could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, or (d) any change in the Company's accounting principles, practices or methods which could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Section 3.10 "Tax Matters; REIT and Partnership Status". (a) The Company and each of its Subsidiaries have timely filed with the appropriate taxing authority all Tax Returns required to be filed by it or has timely requested extensions and such request has been granted and has not expired. Each such Tax Return is true, complete and correct in all material respects. Except as set forth on Schedule 3.10, the Company and its Subsidiaries have paid, within the time and manner prescribed by law all Taxes that are due and payable, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The Company and each of its Subsidiaries have properly accrued all Taxes for such periods subsequent to the periods covered by such Tax Returns as required by GAAP. None of the Company or any of its Subsidiaries has executed or filed with the IRS or any other taxing authority any agreement now in effect extending the period for assessment or collection of any Tax. None of the Company or any of its Subsidiaries is a party to any pending action or proceedings by any taxing authority for assessment or collection of any Tax, and no claim for assessment or collection of any Tax has been asserted against it and no basis exists for any such claim or assessment. True and complete copies of all federal, state and local income or franchise Tax Returns filed by the Company and each of its Subsidiaries for 1994 and 1995 and all written communications between the relevant taxing authorities and Buyer relating thereto have been delivered to Buyer or will be made available to representatives of Buyer. No claim of which the Company has received notice has been made by an authority in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. Except as set forth on Schedule 3.10, there are no Tax Liens upon the assets of the Company or any Subsidiary. The Company has not received a Tax Ruling (other than the Tax Ruling previously received by the Company regarding its status as a REIT) or entered into a Closing Agreement with any Tax Authority that would have a continuing adverse effect after the Initial Closing Date. No event, transaction, act or omission has occurred which will result in the Company becoming liable to pay or to bear any Tax as a transferee, successor or otherwise which is primarily or directly chargeable or attributable to any other person, firm or company, which has not been properly accrued as required by GAAP and which could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The Company and each Subsidiary have no actual or contingent material liability (whether by reason of any indemnity, warranty, tax sharing agreement or otherwise) to any other person in respect of any actual, contingent or deferred liability of such person for Taxes. The Company and each Subsidiary have complied (and will comply) in all respects with the provisions of the Code relating to the payment and withholding of Taxes, including, without limitation, the withholding and reporting requirements under Code Sections 1441 through 1464, 3401 through 3606, and 6041 and 6049, as well as similar provisions under any other laws, and have, within the time and in the manner prescribed by law, withheld and paid over to the proper governmental authorities all amounts required in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party which could, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (b) The Company (i) has in its federal income tax return for its tax year ended December 31, 1994 elected to be taxed as a real estate investment trust ("REIT") within the meaning of Section 856 of the A-12 Code (the "Election"), such Election has remained in effect, (ii) has complied (or will comply) with all applicable provisions of the Code relating to a REIT, for each of its taxable years, (iii) has operated, and intends to continue to operate, in such a manner as to qualify as a REIT for each of its taxable years, (iv) has not taken or omitted to take any action which could result in a challenge to its status as a REIT, and, no such challenge of which the Company has received notice is pending or threatened, and (v) will not be rendered unable to qualify as a REIT for federal income tax purposes as a consequence of the transactions contemplated hereby. As of the date hereof, (x) the Company is a "domestically-controlled" REIT within the meaning of Code Section 897(h)(4)(B), and (y) all non-domestic beneficial owners of Common Stock are set forth in Schedule 3.10 as of the date set forth therein. Except as set forth in the Company Reports, to the Company's knowledge no person or entity which would be treated as an "individual" for purposes of Section 542(a)(2) of the Code (as modified by Section 856(h) of the Code) owns or would be considered to own (taking into account the ownership attribution rules under Section 544 of the Code, as modified by Section 856(h) of the Code) in excess of 6% of the value of the outstanding equity interest in the Company. (c) Any amount or other entitlement that could be received (whether in cash or property or the vesting of property) as a result of any of the transactions contemplated hereby by any employee, officer, or director of the Company or the Operating Partnership or any of their Affiliates who is a "disqualified individual" (as such term is defined in proposed Treasury Regulation Section 1.280G-1) under any employment, severance or termination agreement, other compensation arrangement or plan currently in effect would not be characterized as an "excess parachute payment" (as such term is defined in Section 280G(b)(1) of the Code). (d) The disallowance of a deduction under Section 162(m) of the Code for employee remuneration will not apply to any amount paid or payable by the Company or any of its Subsidiaries under any contract, stock plan, program, arrangement or understanding currently in effect. (e) The Operating Partnership and each Subsidiary of the Company and the Operating Partnership organized as a partnership (and any other Subsidiary that files Tax Returns as a partnership for federal income tax purposes) have at all times been classified as partnerships for federal income tax purposes. Section 3.11 "Agreements, Etc." (a) Neither the Company nor any of its Subsidiaries is in default under or in violation of any provision of the Company Charter, the Bylaws of the Company or the Partnership Agreement (or equivalent documents) or any agreement filed as an exhibit to the Company Reports except where such default or violation would not result in a Material Adverse Effect. (b) Other than agreements relating to the Camarillo refinancing, all material agreements, as of the date hereof, entered into by the Company or any of its Subsidiaries, except for agreements entered into in the ordinary course of business, relating to the indebtedness of the Company, the development or construction of, additions or expansions to, or management or leasing services for commercial or residential buildings or other real properties which are currently in effect and under which the Company or any of its Subsidiaries currently has, or expects to incur, any material obligation and which are required to be described in the Company Reports, are described in the Company Reports. No payment, if any thereunder, are delinquent and no notice of such delinquency thereunder has been received by the Company, except where such default or violation would not result in a Material Adverse Effect. True and complete copies of such agreements with all amendments and supplements thereto have been delivered to Buyer. Section 3.12 "Financial Records; Company Charter and Bylaws; Corporate Records." (a) The books of account and other financial records of the Company and each of its Subsidiaries are in all material respects true and complete, have been maintained in accordance with good business practices, and are accurately reflected in all material respects, as required by GAAP, in the financial statements included in the Company Reports. Except as set forth in the notes thereto, all such financial statements were prepared in accordance with GAAP and fairly present the consolidated financial results of operation of the A-13 Company and its consolidated Subsidiaries as of the respective dates thereof and for respective periods covered thereby. Except as described in the Company Reports, the financial conditions of each Subsidiary are consolidated with those of the Company. (b) The Company has previously delivered or made available to Buyer true and complete copies of the Company Charter and the Bylaws of the Company, as amended to date, the Partnership Agreement, and the charter, Bylaws, organization documents, partnership agreements and joint venture agreements of the Subsidiaries, and all amendments thereto. (c) The minute books and other records of corporate or partnership proceedings of the Company and each of its Subsidiaries will be made available to Buyer and contain in all material respects accurate records of all meetings and accurately reflect in all material respects all other corporate action of the stockholders and directors and any committees of the Board of Directors of the Company and its Subsidiaries which are corporations and all actions of the partners of the Operating Partnership and Subsidiaries which are partnerships, except for documentation of discussions relating to or in connection with the transactions contemplated hereby or matters related hereto. Section 3.13 "Properties." (a) The Company has the requisite power, right and authority to conduct its business as now conducted, or as proposed to be conducted by it, and to own and operate the Company Properties consistent with past practice and in compliance with applicable law and to enjoy uninterrupted ownership, operation and maintenance of the Company Properties, except where any such failure could not, individually, or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (b) Except as described in the Company Reports and except as to earthquake insurance, each of the Company and the Subsidiaries is insured by insurers of recognized financial responsibility against such losses and risks in such amounts as are prudent and customary in the Company's business, and none of Company and the Subsidiaries have any reason to believe that it will be unable to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue it's business, at a cost that could not reasonably be expected to result in a Material Adverse Effect. (c) Each of the Company and the Subsidiaries possesses such certificates, authorizations or permits issued by the appropriate regulatory agencies or bodies necessary to conduct the business now conducted by it, or proposed to be conducted by it, and none of the Company or any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to result in a Material Adverse Effect. Section 3.14 "Environmental Matters." (a) Except as disclosed in the environmental reports set forth on Schedule 3.14 or in the Company Reports, (A) to the knowledge of the Company, the Environment at each Company Property is free of any Hazardous Substance except for any Hazardous Substance that could not reasonably be expected to have a Material Adverse Effect; (B) none of the Company, or any Subsidiary and, to the knowledge of the Company, no prior owner of any Company Property has caused or suffered to occur any Release of any Hazardous Substance into the Environment on, in, under or from any Company Property in violation of any Environmental Law applicable to such Company Property in an amount that would reasonably be expected to have a Material Adverse Effect and no condition exists on, in or under any Company Property or, to the knowledge of the Company, any property adjacent to any Company Property that could reasonably be expected to result in the occurrence of material liabilities under, or any material violations of, any Environmental Law applicable to such Company Property, give rise to the imposition of any material Lien under any Environmental Law, or cause or constitute a material environmental hazard to any property, person or entity, except where such condition or violation could not result in a Material Adverse Effect; (c) neither of the Company, nor any Subsidiary is engaged in or intends to engage in any manufacturing or any other similar operations at any Company Property and, to the knowledge of the Company, no prior owner A-14 of any Company Property engaged in any manufacturing or any similar operations at any Company Property that (1) require the use, handling, transportation, storage, treatment or disposal of any Hazardous Substance (other than paints, stains, cleaning solvents, insecticides, herbicides, or other substances that are used in the ordinary course of operating any Property and in compliance with all applicable Environmental Laws) or (2) require permits or are otherwise regulated pursuant to any Environmental Law; (D) neither of the Company, nor any Subsidiary and, to the knowledge of the Company, no prior owner of any Company Property has received any notice of a claim under or pursuant to any Environmental Law applicable to a Company Property or under common law pertaining to Hazardous Substances on any Company Property or pertaining to other property at which Hazardous Substances generated at any Company Property have come to be located; (E) none of the Company or any Subsidiary and, to the best knowledge of the Company, no prior owner of any Company Property has received any notice from any Governmental Authority claiming any violation of any Environmental Law that is uncured or unremediated as of the date hereof; and (F) no Company Property (1) is included or proposed for inclusion on the National Priorities List issued pursuant to CERCLA (as defined below) by the United States Environmental Protection Agency (the "EPA") or on the Comprehensive Environmental Response, Compensation, and Liability Information System database maintained by the EPA as a potential CERCLA removal, remedial or response site or (2) is included or proposed for inclusion on, any similar list of potentially contaminated sites pursuant to any other applicable Environmental Law nor has the Company, or any Subsidiary received any written notice from the EPA or any other Governmental Authority proposing the inclusion of any Property on such list. (b) As used herein, "Hazardous Substance" shall include any hazardous substance, hazardous waste, toxic or dangerous substance, pollutant, asbestos-containing materials, PCBs, pesticides, explosives, radioactive materials, dioxins, urea formaldehyde insulation, pollutant or waste, including any such substance, pollutant or waste identified, listed or regulated under any Environmental Law (including, without limitation, materials listed in the United States Department of Transportation Optional Hazardous Material Table, 49 C.F.R. Section 172.101, as the same may now or hereafter be amended, or in the EPA's List of Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 3202, as the same may now or hereafter be amended); "Environment" shall mean any surface water, drinking water, ground water, land surface, subsurface strata, river sediment, buildings and structures; "Environmental Law" shall mean the Comprehensive Environmental Response, Compensation and Liability Act, as amended (42 U.S.C. Section 9601, et seq.,) ("CERCLA"), the Resource Conservation Recovery Act, as amended (42 U.S.C. Section 6901, et seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401, et seq.), the Clean Water Act, as amended (33 U.S.C. Section 1251, et seq.), the Toxic Substances Control Act, as amended (15 U.S.C. Section 2601 et seq.), the Toxic Substances Control Act, as amended (29 U.S.C. Section 651, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), together with all rules, regulations and orders promulgated thereunder and all other federal, state and local laws, ordinances, rules, regulations and orders relating to the protection of the environment from environmental effects; and "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, emanating or disposing of any Hazardous Substance into the Environment, including, without limitation, the abandonment or discard of barrels, containers, tanks (including, without limitation, underground storage tanks) or other receptacles containing or previously containing any Hazardous Substance or any release, emission, discharge or similar term, as those terms are defined or used in any Environmental Law. Section 3.15 "Employees and Employee Benefit Plans." (a) The Company Reports or Schedule 3.15(a) sets forth a complete and accurate list of all Employee Benefit Plans which affect Employees of the Company or any of its Subsidiaries. With respect to each Employee Benefit Plan and each material Benefit Arrangement (collectively, "Company Plan") (i) the Company and each of its Subsidiaries is in compliance in all material respects with the terms of each Company Plan and with the requirements prescribed by all applicable statutes, orders or government rules or regulations, (ii) the Company and each of its Subsidiaries has contributed all amounts due under each Company Plan, and (iii) none of the Company or any of its Subsidiaries has any funding commitment or A-15 other liabilities except as reserved for in the financial statements in or incorporated by reference into the Company Reports, and, in the case of clauses (i) through (iii), except for such matters as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. None of the Company or any of its Subsidiaries has made any commitment to establish any new Employee Benefit Plan, to modify any Employee Benefit Plan, or to increase benefits or compensation of Employees of the Company or any of its Subsidiaries (except for normal increases in compensation consistent with past practices), and to the Company's knowledge, no intention to do so has been communicated to Employees of the Company or any of its Subsidiaries. There are no pending or, to the Company's knowledge, anticipated claims against or otherwise involving any of the Company Plans or any fiduciaries thereof with respect to their duties to the Company Plans and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Company Plan activities) has been brought against or with respect to any such Company Plans that can reasonably be expected to result in a Material Adverse Effect. (b) For purposes hereof, "Employee Benefit Plans" means each and all "employee benefit plans" as defined in Section 3(3) of ERISA maintained or contributed to by a party hereto or in which a party hereto participates or participated and which provides benefits to Employees, including (i) any such plans that are "employee welfare benefit plans" as defined in Section 3(1) of ERISA, including retiree medical and life insurance plans ("Welfare Plans"), and (ii) any such plans that constitute "employee pension benefit plans" (including "multiemployer plans") as defined in Section 3(2) of ERISA ("Pension Plans"). "Benefit Arrangements" means life and health insurance, hospitalization, savings, bonus, deferred compensation, incentive compensation, holiday, vacation, severance pay, sick pay, sick leave, disability, tuition refund, service award, company car, scholarship, relocation, patent award, fringe benefit, individual employment, consultancy or severance contracts and agreements and other policies or practices of a party hereto providing employee or executive compensation or benefits to Employees, other than Employee Benefit Plans. "Employees" mean all current employees, former employees and retired employees of a party hereto or any of its Subsidiaries, including employees on disability, layoff or leave status. (c) Neither the Company nor any other employer that is (or at any relevant time was) part of a controlled group (as defined in Section 412(l)(8)(c) of the Code) of which the Company is (or at any relevant time was) a member maintains or has ever maintained a plan covered by Title IV of ERISA. Neither the Company nor any such employer has engaged in any transaction described in Section 4069 or Section 4212(c) of ERISA. (d) The Company represents and warrants that through its investment in the Operating Partnership of which it is the sole general partner and owner of 77.2% of the ownership interests therein, it has been actively engaged in the management or development of real estate in the ordinary course of its business at all times from the date of its first long-term investment that was not a short-term investment of funds pending long-term commitment, ("REOC Qualification Date") to and including the Initial Closing Date, and that it will continue to be so engaged in the management or development of real estate so long as Buyer has any interest in any equity or debt issued by the Company. (e) The Company represents and warrants that the "real estate" referenced above which was purchased on the REOC Qualification Date and thereafter includes the Company Properties. To the extent any of the Company Properties are subject to tenant leases (the "Leases"), the Company has substantial responsibilities under each of the Leases, and none of the Leases provide that substantially all management and maintenance activities with respect to the Property in question or any portion thereof are the responsibility of the tenant leases. (f) The Company represents that it has not merely passively assumed the risks of its real estate ownership, but that the return to its stockholders from its investment in the Properties has been and is based in part on the cash flow and capital appreciation of the Properties, and that such return depends in substantial part on the success of the Company's management and development efforts with respect to the Company Properties. (g) The Company represents and warrants that the employees of the Company perform most of the development and management functions of the real estate business described herein, except that the A-16 Company has employed independent contractors, each of which is terminable without cause and without substantial penalty upon reasonable short notice, to perform certain of the day-to-day management activities associated with the Company Properties. In any event, the Company represents and warrants that it devotes substantial resources to such management and development activities and to the oversight of its independent contractors who perform such activities. (h) The Company covenants and warrants that it will comply with requirements, and take all procedural action and cause the Operating Partnership to take all procedural actions necessary, to maintain its status as a "real estate operating company" as such term is defined in 29 C.F.R. Section 2510.3-101 (a "REOC"). Specifically, but without limitation, the Company covenants that it has or it will establish an "annual valuation period" (as such term is defined in 29 C.F.R., Section 2510.3-101). The Company agrees to certify to Buyer its compliance with the requirements recited in this paragraph within 10 days after the close of each annual valuation period. Section 3.16 "Affiliate Transactions". The Company Reports set forth an accurate description of all transactions with Affiliates, which are required to be included therein. A true and complete copy of all agreements or contracts relating to any such transaction has been made available to Buyer. Except as set forth in the Company Reports, all such Affiliate transactions were conducted on an arm's-length basis. Section 3.17 "Maryland Takeover Law". The terms of Section 3-602 and Subtitle 7 of Title 3 of the Corporations & Associations Code of Maryland will not apply to Buyer or any transaction contemplated hereby. Section 3.18 "Brokers or Finders". No agent, broker, investment banker or other firm or person, including any of the foregoing that is an Affiliate of the Company, is or will be entitled to any broker's or finder's fee or any other commissions or similar fee from the Company in connection with this Agreement or any of the transactions contemplated hereby for which Buyer will be responsible except as a result of actions by Buyer. Section 3.19 "Knowledge Defined". As used herein, the phrase "to the Company's knowledge" (or words of similar import) shall include the actual knowledge after due inquiry of George Marcus, Keith Guericke, Michael J. Schall, and Jordan Ritter and includes any facts, matters or circumstances set forth in any written notice from any Government Authority, and also including any matter of which Buyer informs the Company in writing. The term "due inquiry" is hereby defined to mean such inquiry by the applicable person as such person would normally be reasonably expected to make in the ordinary course of his regular and usual duties as either an employee or as a board member, as the case may be, of the Company. ARTICLE 4 Representations and Warranties of Buyer Each Buyer hereby represents and warrants to the Company, as follows: Section 4.1 "Organization". (a) Buyer is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has all requisite partnership power and authority to own, operate, lease and encumber its properties and carry on its business as now conducted, and to enter into this Agreement, the Stockholders Agreement and to perform its obligations hereunder and thereunder. Section 4.2 "Due Authorization". The execution, delivery and performance of this Agreement, the Registration Rights Agreement, and the Stockholders Agreement have been duly and validly authorized by all necessary partnership action on the part of Buyer. The execution, delivery and performance of the Loan Agreement has been duly and validly authorized by all necessary limited liability company action on the part of Lender. This Agreement has been duly executed and delivered by Buyer for itself and constitutes the valid and legally binding obligations of Buyer enforceable against Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights or general principles of A-17 equity. The Loan Agreement has been duly executed and delivered by the Lender for itself and constitutes the valid and legally binding obligations of the Lender enforceable against the Lender in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights or general principles of equity. Section 4.3 "Conflicting Agreements and Other Matters". Neither the execution and delivery of this Agreement nor the performance by Buyer of its obligations hereunder nor the execution and delivery of the Loan Agreement nor the performance by the Lender of its obligations thereunder will conflict with, result in a breach of the terms, conditions or provisions of, constitute a default under, result in the creation of any mortgage, security interest, encumbrance, Lien or charge of any kind upon any of the properties or assets of Buyer or Lender pursuant to, or require any consent, approval or other action by or any notice to or filing with any Government Authority pursuant to, the organizational documents or agreements of Buyer or Lender, or any agreement, instrument, order, judgment, decree, statute, law, rule or regulation by which Buyer or Lender is bound, except for filings after the Initial Closing, the Initial Exchange Closing or any Subsequent Closing under Section 13(d) of the Exchange Act. Section 4.4 "Acquisition for Investment; Sophistication; Source of Funds". Buyer is acquiring the Preferred Stock being purchased by it for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, and Buyer has no present intention or plan to effect any distribution of shares of Preferred Stock, provided that the disposition of Preferred Stock owned by Buyer shall at all times be and remain within its control and, in the ordinary course of its affairs, the Buyer may effect transfer of any of its assets, including the Preferred Stock, subject to the provisions of this Agreement and the Registration Rights Agreement. Buyer is able to bear the economic risk of the acquisition of Preferred Stock pursuant hereto and can afford to sustain a total loss on such investment, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the proposed investment, and therefore has the capacity to protect its own interests in connection with the acquisition of Preferred Stock pursuant hereto. Section 4.5 "Brokers or Finders". No agent, broker, investment banker or other firm or person, including any of the foregoing that is an Affiliate of Buyer is or will be entitled to any broker's or finder's fee or any other commission or similar fee from Buyer in connection with this Agreement or any of the transactions contemplated hereby for which the Company will be responsible except as a result of actions by the Company. Section 4.6 "Investment Company Matters". Buyer is not and after giving effect to the purchase of Preferred Stock contemplated hereby will not be, an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Section 4.7 "Accredited Investor". Buyer is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, as presently in effect. ARTICLE 5 Covenants Relating to Closings Section 5.1 "Taking of Necessary Action". (a) Each party hereto agrees to use commercially reasonable efforts promptly to take or cause to be taken all action and promptly to do or cause to be done all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, the Loan Agreement, the Registration Rights Agreement and the Stockholders Agreement, subject to the terms and conditions hereof and thereof, including, without limitation, to cause necessary or appropriate amendments to the Operating Partnership's Partnership Agreement; provided, however, this proviso shall not apply to a party's ability to exercise its discretionary rights hereunder to the extent such party's obligations hereunder are conditioned upon the performance of certain conditions precedent which shall be satisfactory to such party in such party's sole discretion. The Company shall use its best efforts A-18 promptly to take or cause to be taken all action and promptly to do or cause to be done all things necessary, proper or advisable under applicable laws or regulations to consummate and make effective the Charter Amendment and the IRS Approval. (b) As promptly as practicable after the date hereof, the Company shall prepare and file with the SEC a preliminary proxy statement (the "Proxy Statement") by which the Company's stockholders will be asked to approve the Charter Amendment and other matters in connection with the transactions contemplated hereby as the Company may reasonably suggest and the Buyer may reasonably request, which proposed Charter Amendment shall be in form and substance satisfactory to Buyer. The Proxy Statement as initially filed with the SEC, as it may be amended and refiled with the SEC and as it may be mailed to the Company's stockholders, shall be in form and substance reasonably satisfactory to Buyer. The Company shall use its reasonable efforts to respond to any comments of the SEC, and to cause the Proxy Statement to be mailed to the Company's stockholders at the earliest practicable time. As promptly as practicable after the date hereof, the Company shall prepare and file any other filings required under the Exchange Act, the Securities Act or any other federal, state or local laws relating to this Agreement and the transactions contemplated hereby, including under the HSR Act (and shall promptly on request therefore provide Buyer with information requested by Buyer in connection with Buyer's HSR matters and filings) and state takeover laws (the "Other Filings"), and Buyer shall prepare and file any filings required by Buyer under the HSR Act and shall cooperate with the Company in the preparation of any such filings. The Company will notify Buyer promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff or any other government officials for amendments or supplements to the Proxy Statement or any Other Filing or for additional information and will supply Buyer with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the Proxy Statement or any Other Filing. The Proxy Statement and any Other Filing shall comply in all material respects with all applicable requirements of law. Buyer shall provide the Company all information about Buyer required to be included or incorporated by reference in the Proxy Statement or any Other Filing and shall otherwise cooperate with the Company in taking the actions described in this paragraph. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Proxy Statement or any Other Filing, the Company or Buyer, as the case may be, shall promptly inform the other party of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to stockholders of the Company, such amendment or supplement. The Proxy Statement shall include the recommendation of the Board of Directors of the Company that the stockholders of the Company vote in favor of and approve the Charter Amendment and the issuance of Preferred Stock pursuant to this Agreement. (c) Buyer agrees to assist the Company in its preparation of a submission to the IRS seeking IRS Approval, including information as to the nature of Buyer's investors, provided that Buyer may refuse information if it reasonably believes that not doing so would be adverse to its interests. Such submission shall be in form and substance reasonably satisfactory to Buyer. The Company will notify Buyer promptly of the receipt of any comments, notices or requests for additional information from IRS or its staff and will supply Buyer with copies of all correspondence between the Company or any of its representatives on one hand and the IRS or its staff on the other hand. (d) The Company shall call a meeting of its stockholders to be held as promptly as practicable for the purpose of voting upon the Charter Amendment and shall use its best efforts to cause the stockholder approval of the Charter Amendment by August 31, 1996. (e) The parties agree to negotiate in good faith whether to issue Operating Partnership Units to Buyer as contemplated hereby as promptly as practicable after the date hereof. In the event the parties mutually agree for the exchange of Operating Partnership Units, the Company shall propose and submit an amendment to the Partnership Agreement to the limited partners of the Operating Partnership to provide for the exchange of the Loan and Preferred Stock for Operating Partnership Units and shall seek a written consent or call a meeting to vote thereon. The Company shall vote all of the Operating Partnership Units held by it at the time of such written consent or meeting in favor of such Amended Partnership Agreement. A-19 (f) The Company shall use its best efforts to obtain the requisite lender consents required hereby. Section 5.2 "Registration Rights Agreement". At the Initial Closing, the Company and Buyer shall enter into the Registration Rights Agreement. Section 5.3 "Stockholders Agreement". At the Initial Closing, the Company, Buyer and the Messrs. Marcus and Guericke shall enter into the Stockholders Agreement. Section 5.4 "Modification to Structure". The parties agree to negotiate in good faith modification to the structure of the Operating Partnership and/or the Operating Partnership's investments in, and ownership of, the Property of the Company, (a) to avoid the imposition of a corporate tax on any income of the Operating Partnership, (b) to minimize the effects of UBTI on a direct or indirect investor of the Buyer or (c) to assist Buyer in respect of requirements pertinent to Buyer under ERISA. Unless and until such date Buyer has distributed to its investors aggregate funds exceeding 50% of the net acquisition cost of all assets which it has purchased to such date, the Company and the Operating Partnership, considered as a single entity, or any entity in which the partners and/or the Company and the Operating Partnership, considered as a single entity, owns an interest and which owns any portion of the Property, shall qualify as and/or remain an "operating company" under the plan asset rules of ERISA at 29 C.F.R. 2510.3-101 provided that such actions shall not have a material adverse effect on Operating Partnership limited partners, considered as a whole. Section 5.5 "Designation of Directors." (a) The Company shall use its best efforts to cause the stockholders of the Company to approve and adopt an amendment to the Company Charter, which permits the termination of Directors such that, upon a failure by the Company to pay dividends on the Preferred Stock in accordance with the Articles Supplementary or in the event of certain breaches thereof: (i) the holders of Preferred Stock shall have the power to cause the removal or resignation of such requisite number of Directors and to appoint the designees to fill such vacancies or, alternatively, (ii) that the Company shall increase the number of authorized directors of its Board of Directors and appoint such persons designated by the holders of Preferred Stock to fill such newly-created vacancies. (b)The Company shall cause the committees of the Board of Directors to include Preferred Stockholder director designees, as set forth in the Articles Supplementary. Section 5.6 "Listing of Preferred Stock". Upon the request of the Buyer, the Company shall use commercially reasonable efforts to list the Preferred Stock on such securities exchanges as may be mutually agreeable between the parties, including, without limitation, the Singapore, Amsterdam and Luxembourg Securities Exchanges, provided that the cost thereof including any periodic reporting or listing costs shall be borne by the Buyer and provided further that in the Company's reasonable discretion such listing shall not have an adverse effect on the Company. Section 5.7 "Public Announcements, Confidentiality." (a) Subject to each party's disclosure obligations imposed by law and any stock exchange or similar rules and the confidentiality provisions contained in Section 5.7(b), the Company and Buyer will cooperate with each other in the development and distribution of all news releases and other public information disclosures with respect to this Agreement, the Registration Rights Agreement, the Stockholders Agreement and any of the transactions contemplated hereby or thereby. (b) Buyer agrees that all information provided to Buyer or any of its representatives pursuant to this Agreement shall be kept confidential, and Buyer shall not disclose such information to any persons other than the directors, officers, employees, financial advisors, legal advisors, accountants, consultants and affiliates of Buyer who reasonably need to have access to the confidential information and who are advised A-20 of the confidential nature of such information; provided, however, the foregoing obligation of Buyer shall not (i) relate to any information that (1) is or becomes generally available other than as a result of unauthorized disclosure by Buyer or by persons to whom Buyer has made such information available, (2) is or becomes available to Buyer on a non- confidential basis from a third party that is not, to Buyer's knowledge, bound by any other confidentiality agreement with the Company, or (ii) prohibit disclosure of any information if required by law, rule, regulation, court order or other legal or governmental process. (c) The Company agrees that all information provided to the Company or any of its representatives pursuant to this Agreement shall be kept confidential, and the Company shall not disclose such information to any persons other than the directors, officers, employees, financial advisors, legal advisors, accountants, consultants and affiliates of the Company who reasonably need to have access to the confidential information and who are advised of the confidential nature of such information; provided, however, the foregoing obligation of the Company shall not (i) relate to any information that (1) is or becomes generally available other than as a result of unauthorized disclosure by the Company or by persons to whom the Company has made such information available, (2) is or becomes available to the Company on a non-confidential basis from a third party that is not, to the Company's bound by any other confidentiality agreement with Buyer, or (ii) prohibit disclosure of any information if requested by law, rule, regulation, court order or other legal or governmental process. Section 5.8 "Information and Access". For so long as Buyer owns 100,000 shares or more of Preferred Stock, the Company and its Subsidiaries shall afford to Buyer and Buyer's accountants, counsel and other representatives full and reasonable access during normal business hours (and at such other times as the parties may mutually agree) to its properties, books, contracts, commitments, records and personnel and, during such period, shall furnish promptly to Buyer (x) a copy of each report, schedule and other document filed or received by it pursuant to the requirements of the Securities Laws, and (y) all other information concerning its business, personnel and the Company Properties as Buyer may reasonably request. Buyer and its accountants, counsel and other representatives shall, in the exercise of the rights described in this Section, not unduly interfere with the operation of the business of the Company or its Subsidiaries. Section 5.9 "Notification of Certain Matters". Each of Buyer and the Company shall use its good faith efforts to notify the other party in writing of its discovery of any matter that would render any of such party's or the other party's representations and warranties contained herein untrue or incorrect in any material respect, but the failure of either party to so notify the other party shall not be deemed a breach of this Agreement. ARTICLE 6 Certain Additional Covenants Section 6.1 "Resale". Buyer acknowledges and agrees that the securities that Buyer acquires hereunder will not, as of the relevant Closing thereof, be registered under the Securities Act or the securities laws of any state and that it may be sold or otherwise disposed of only in one or more transactions registered under the Securities Act and, where applicable, state securities laws or as to which an exemption from the registration requirements of the Securities Act and, where applicable, state securities laws is available. Section 6.2 "Use of Funds". The Company shall use the funds received pursuant to the terms hereof, first to repay outstanding indebtedness (of either the Company or the Operating Partnership) and second for the acquisition or development by the Operating Partnership of assets. Section 6.3 "REIT Status". From and after the date hereof and so long as Buyer owns 10% or more of the Company's outstanding Common Stock (for purposes of this provision, the Company's convertible securities, including Preferred Stock, shall be treated as Common Stock on an as-converted basis), the Company will elect to be taxed as a REIT in its federal income tax returns for each of its tax years, will comply with all applicable A-21 laws, rules and regulations of the Code relating to a REIT, and will not take any action or fail to take any action which would result in the loss of its status as a REIT for federal income tax purposes. Section 6.4 "Affiliated Transactions". All transactions by and between the Company and any Affiliate of the Company shall be conducted on an arm's-length basis, and if any such transaction involves a cost to the Company to such Affiliate in excess of $500,000 in a single transaction, or in excess of an aggregate $1,000,000 for a series of transactions with all Affiliates in any twelve-month period, shall be on terms and conditions no less favorable (when all aspects of the transactions are considered) to the Company than could be obtained from non-related persons except as disclosed in the Company Reports. Section 6.5 "Loan Agreement Covenants". The Company agrees to take such actions necessary or as may be requested by Buyer to afford Buyer the rights set forth in the Loan Agreement, which is incorporated herein by reference, and hereby authorizes Buyer to take such actions as are reasonably necessary to accomplish such rights. The Buyer agrees to cause Lender to take such actions necessary or as may be requested by the Company to afford the Company the rights set forth in the Loan Agreement, which is incorporated herein by reference, and hereby authorizes the Company to take such actions as are reasonably necessary to accomplish such rights. ARTICLE 7 Conditions to Closings Section 7.1 "Conditions of Purchase at Initial Closing". The obligations of Buyer to purchase and pay for the Preferred Stock at the Initial Closing are subject to satisfaction or waiver of each of the following conditions precedent: (a) "Representations and Warranties; Covenants". The representations and warranties of the Company contained herein shall have been true and correct in all respects on and as of the date hereof, and shall be true and correct in all respects on and as of the date of the Initial Closing with the same effect as though such representations and warranties had been made on and as of the date of the Initial Closing (except for representations and warranties that speak as of a specific date or time other than the date of the Initial Closing), other than, in all such cases, such failures to be true and/or correct as would not in the aggregate reasonably be expected to have a Material Adverse Effect; provided, however, that if any of the representations and warranties is already qualified in any respect by materiality or as to Material Adverse Effect for purposes of this Section 7.1(a) such materiality or Material Adverse Effect qualification will be in all respects ignored (but subject to the overall standard as to Material Adverse Effect set forth immediately prior to this proviso). The covenants and agreements of the Company to be performed on or before the date of the Initial Closing in accordance with this Agreement shall have been duly performed in all respects, other than (except for the Company's obligation to deliver the relevant shares of Preferred Stock at the Initial Closing, and for the covenants set forth in Sections 5.2, 5.3 and 6.3 as to which the proviso set forth in this other-than clause shall not apply) for such failures to have been performed as would not in the aggregate reasonably be expected to have a Material Adverse Effect (provided, however, that if any such covenant or agreement is already qualified in any respect by materiality or as to Material Adverse Effect for purposes of determining whether this condition has been satisfied, such materiality or Material Adverse Effect qualification will be in all respects ignored and such covenant or agreement shall have been performed in all respects without regard to such qualification (but subject to the overall exception as to Material Adverse Effect set forth immediately prior to this proviso)). The Company shall have delivered to Buyer at the Initial Closing a certificate of an appropriate officer in form and substance reasonably satisfactory to Buyer dated the date of the Initial Closing to such effect. In making any determination as to Material Adverse Effect under this Section 7.1(a) or under Section 7.2(a), the matters set forth in each such Section shall be aggregated and considered together. A-22 (b) "Preferred Stock; Articles Supplementary". The Articles Supplementary shall have been duly filed with the State Department of Assessments and Taxation of the State of Maryland and shall be in full force and effect in form and substance satisfactory to Buyer. (c) "Consents". The Company shall have obtained the consents set forth in Schedule 3.4. (d) "No Injunction". There shall not be in effect any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits consummation of the transactions contemplated hereby and there shall be no pending Actions which could reasonably be expected to have a Material Adverse Effect on the ability of the Company to consummate the transactions contemplated hereby or to issue the Preferred Stock. (e) "Proceedings". All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Buyer and Buyer shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (f) "Opinion of Counsel". Buyer shall have received an opinion from Morrison & Foerster LLP substantially in form and substance reasonably satisfactory to Buyer. (g) "Bylaws". The Company shall have adopted the amendments to the Company's Bylaws relating to alterations to the size and composition of the Board of Directors in form and substance reasonably satisfactory to Buyer. (h) "Resolutions". Buyer shall have received a certified copy or resolutions of the Board of Directors in form and substance satisfactory to Buyer, relating to the Buyer's and its Affiliates' exemption from the provisions of Section 3--602 of the Maryland Corporations and Associations Code. (i) "Registration Rights Agreement". Buyer shall have received the Registration Rights Agreement executed by the Company, in form and substance reasonably satisfactory to Buyer. (j) "Stockholders Agreement". Buyer shall have received the Stockholders Agreement executed by the Company, in form and substance reasonably satisfactory to Buyer. (k) "Disclosure Statement". Buyer shall have received from the Company a Disclosure Statement attaching all Schedules to the Agreement. (l) "NYSE Advice". Buyer shall have received the NYSE Advice. (m) "Maryland Counsel Opinion". If requested by Buyer, Buyer shall have received an opinion of the Company's Maryland counsel in form and substance reasonably satisfactory to Buyer. (n) "Amendment to Investor Rights Agreement". Buyer shall have received from the Company a copy of an amendment to that certain Investor Rights Agreement dated as of June 13, 1994 between the Company and the investors party thereto, whereby such investors shall have agreed that their rights thereunder shall be subordinated to the rights of holders of Preferred Stock; (o) "Appointment of Buyer's Designees to Board of Directors and Committees". The Buyer's designee shall have been appointed to the Board of Directors and to all committees pursuant to the terms of the Bylaws and Articles Supplementary. (p) "Preemptive Rights Agreements". Buyer and Company shall have executed an agreement providing for preemptive rights of Buyer, in form and substance reasonably satisfactory to Buyer. Section 7.2 "Conditions of Purchase at Subsequent Closings". The obligations of Buyer to purchase and pay for the shares of Preferred Stock at each Subsequent Closing are subject to satisfaction or waiver of each of the following conditions precedent: (a) "Representations and Warranties; Covenants". The representations and warranties of the Company contained herein shall have been true and correct in all respects on and as of the date hereof, and as of the Initial Closing Date. The covenants and agreements of the Company to be performed on or before the relevant Subsequent Closing Date in accordance with this Agreement shall have been duly performed in A-23 all respects, other than (except for the Company's obligation to deliver the relevant shares of Preferred Stock at the relevant Subsequent Closing, as to which the proviso set forth in this other-than clause shall not apply) for such failures to have been performed as would not in the aggregate reasonably be expected to have a Material Adverse Effect, provided, however, that if any such covenant or agreement is already qualified in any respect by materiality or as to Material Adverse Effect for purposes of determining whether this condition has been satisfied, such materiality or Material Adverse Effect or qualification will be in all respects ignored and such covenant or agreement shall have been performed in all respects without regard to such qualification (but subject to the overall exception as to Material Adverse Effect set forth immediately prior to this proviso). The Company shall have delivered to Buyer at the relevant Subsequent Closing a certificate of an appropriate officer in form and substance reasonably satisfactory to Buyer dated the relevant Subsequent Closing Date to such effect. (b) "No Material Adverse Change". Since the Initial Closing Date, there shall not have been any change, circumstance or event which has had or could reasonably be expected to have a Material Adverse Effect. (c) "Operating Partnership Agreement". If Operating Partnership Units are to be purchased by Buyer, the Partnership Agreement shall have been duly and validly amended and restated so that it is in a form which is satisfactory to both the Company and Buyer (the "Amended Partnership Agreement") by the requisite vote or consent of the partners of the Operating Partnership, all as required by and in accordance with the Partnership Agreement. (d) "Amended Company Charter; Modification of Ownership Limit". As to Subsequent Closings under Option A or Option B, the Charter Amendment shall have been approved by the requisite vote of holders of Common Stock, all as required by and in accordance with the Company Charter, and duly filed with the State Department of Assessments and Taxation of the State of Maryland and shall be in full force and effect. (e) "No Injunction". There shall not be in effect any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits consummation of the transactions contemplated hereby and there shall be no pending Actions which could reasonably be expected to have a Material Adverse Effect on the ability of the Company to consummate the transactions contemplated hereby or to issue the Preferred Stock. (f) "Proceedings". All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Buyer and Buyer shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (g) "REIT Status". The Company shall have elected to be taxed as a REIT in its most recent federal income tax return, and shall be in compliance with all applicable laws, rules and regulations, including the Code, necessary to permit it to be taxed as a REIT. The Company shall not have taken any action or have failed to take any action which would reasonably be expected to, alone or in conjunction with any other factors, result in the loss of its status as a REIT for federal income tax purposes. (h) "Opinion of Counsel". Buyer shall have received an opinion from Morrison & Foerster LLP in such form and substance reasonably satisfactory to Buyer. (i) "IRS Approval". As to the Initial Exchange Closing under Option D, the IRS Approval shall have been obtained and shall be in full force and effect. (j) "Certain Conditions Still True". The conditions precedent set forth in Sections 7.1(c), (e), (h) and (i) shall continue to be satisfied or waived in all respects on and as of each relevant Closing Date. With respect to the Initial Exchange Closing and each Subsequent Closing: (k) "HSR Act". Any waiting period applicable to the consummation of the transactions contemplated hereby under the HSR Act shall have expired or been terminated, and no action shall have been instituted by the United States Department of Justice or the United States Federal Trade Commission A-24 challenging or seeking to enjoin the consummation of the transactions contemplated hereby, which action shall not have been withdrawn or terminated, or the Company and Buyer shall have mutually concluded that no filing under the HSR Act is required with respect to the transactions contemplated hereby. Section 7.3 "Conditions of Sale". The obligation of the Company to issue and sell any Preferred Stock at any closing (including the Initial Closing) is subject to satisfaction or waiver of each of the following conditions precedent: (a) "Representations and Warranties; Covenants". The representations and warranties of Buyer contained herein shall have been true and correct in all respects on and as of the date hereof and as of the date of the Initial Closing, other than, in all such cases, such failures to be true and/or correct as would not in the aggregate reasonably be expected to have a Material Adverse Effect on the Company or Buyer's ability to consummate the transactions contemplated hereby; provided, however, that if any of the representations and warranties is already qualified in any respect by materiality or as to Material Adverse Effect for purposes of this Section 7.3(a) such materiality or Material Adverse Effect qualification will be in all respects ignored (but subject to the overall standard as to Material Adverse Effect set forth immediately prior to this proviso). The covenants and agreements of Buyer to be performed on or before the relevant Closing Date in accordance with this Agreement shall have been duly performed in all respects, other than (except for Lender's obligations under the Loan Agreement, Buyer's obligation to pay the relevant Purchase Price at the relevant Closing, including any Closing under Section 2.5(b), and except for Buyer's covenants set forth in Sections 5.2 and 5.3, as to which the proviso set forth in this other-than clause shall not apply) for such failures to have been performed as would not in the aggregate reasonably be expected to have a Material Adverse Effect on the Company or Buyer's ability to consummate the transactions contemplated hereby (provided, however, that if any such covenant or agreement is already qualified in any respect by materiality or as to Material Adverse Effect for purposes of determining whether this condition has been satisfied, such materiality or Material Adverse Effect qualification will be in all respects ignored and such covenant or agreement shall have been performed in all respects without regard to such qualification (but subject to the overall exception as to Material Adverse Effect set forth immediately prior to this proviso)). Buyer shall have delivered to the Company at the relevant Closing a certificate of an appropriate officer in form and substance reasonably satisfactory to the Company dated the relevant Closing Date to such effect. (b) "No Injunction". There shall not be in effect any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits consummation of the transactions contemplated hereby and there shall be no pending Actions which would reasonably be expected to have a material adverse effect on the ability of Buyer to consummate the transactions contemplated hereby or to acquire the Preferred Stock. (c) "Consents". The Company shall have obtained the consents set forth in Schedule 3.4. (d) "Proceedings". All corporate and other proceedings to be taken by Buyer in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and the Company shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (e) "Opinion of Counsel". The Company shall have received an opinion from counsel to Buyer in form and substance reasonably satisfactory to the Company. (f) "Bylaws". The Company shall have adopted the amendments to the Company's Bylaws relating to alterations to the size and composition of the Board of Directors. (g) "Registration Rights Agreement". The Company shall have received the Registration Rights Agreement executed by the Buyer in form and substance satisfactory to the Company. (h) "Stockholders Agreement". The Company shall have received the Stockholders Agreement executed by the Buyer in form and substance satisfactory to the Company. A-25 With respect to any Subsequent Closing only: (x) "Amended Company Charter; Modification of Ownership Limit". As to Subsequent Closings under Option A or Option B, the Charter Amendment shall have been approved by the requisite vote of holders of Common Stock, all as required by and in accordance with the Company Charter, and duly filed with the State Department of Assessments and Taxation of the State of Maryland and shall be in full force and effect. (y) "Operating Partnership Agreement". If Operating Partnership Units are to be purchased by Buyer, the Partnership Agreement shall have been duly and validly amended and restated as the Amended Partnership Agreement by the requisite vote or consent of the partners of the Operating Partnership, all as required by and in accordance with the Partnership Agreement. (z) "HSR Act". Any waiting period applicable to the consummation of the transactions contemplated hereby under the HSR Act shall have expired or been terminated, and no action shall have been instituted by the United States Department of Justice or the United States Federal Trade Commission challenging or seeking to enjoin the consummation of the transactions contemplated hereby, which action shall not have been withdrawn or terminated, or the Company and Buyer shall have mutually concluded that no filing under the HSR Act is required with respect to the transactions contemplated hereby. ARTICLE 8 Survival; Indemnification Section 8.1 "Survival". All representations, warranties and (except as provided by the last sentence of this Section 8.1) covenants and agreements of the parties contained herein, including indemnity or indemnification agreements contained herein, or in any Schedule or Exhibit hereto, or any certificate, document or other instrument delivered in connection herewith shall survive the Initial Closing until 18 months after the Initial Closing. No Action or proceeding may be brought with respect to any of the representations and warranties, or any of the covenants or agreements which survive until 18 months after the Initial Closing, unless written notice thereof, setting forth in reasonable detail the claimed misrepresentation or breach of warranty or breach of covenant or agreement, shall have been delivered to the party alleged to have breached such representation or warranty or such covenant or agreement prior to 18 months after the Initial Closing; provided, however, that, if Buyer shall have complied with this Section 8.1, the damages for breach by the Company of any of the representations and warranties, or any of the covenants or agreements which survive until 18 months after the Initial Closing, shall be measured with respect to all of Buyer's purchases of Preferred Stock hereunder and not with respect only to Buyer's purchases hereunder made during the period ending 18 months after the Initial Closing, but such measurement shall not in any event include any shares of Preferred Stock that Buyer may have purchased other than from the Company. Notwithstanding the foregoing, those covenants or agreements that contemplate or may involve actions to be taken or obligations in effect after the Initial Closing shall survive in accordance with their terms, and representations and warranties of the Company contained in Section 3.10 herein shall survive until the running of the applicable statutes of limitations. Section 8.2 "Indemnification by Buyer or the Company." (a) Subject to Section 8.1, from and after any Closing Date, Buyer shall indemnify and hold harmless the Company, its successors and assigns, from and against any and all damages, claims, losses, expenses, costs, obligations, and liabilities, including liabilities for all reasonable attorneys' fees and expenses (including attorney and expert fees and expenses incurred to enforce the terms of this Agreement) (collectively, "Loss and Expenses") suffered, directly or indirectly, by the Company by reason of, or arising out of, (i) any breach as of the date made or deemed made or required to be true of any representation or warranty made by Buyer in or pursuant to this Agreement, or (ii) any failure by Buyer to perform or fulfill any of its covenants or agreements set forth herein. Notwithstanding any other provision of this Agreement to the contrary, in no event shall Loss and Expenses include a party's incidental or consequential damages. A-26 (b) Subject to Section 8.1, from and after any Closing Date, the Company shall indemnify and hold harmless Buyer, its successors and assigns, from and against any and all Loss and Expenses, suffered, directly or indirectly, by Buyer by reason of, or arising out of, (i) any breach as of the date made or deemed made or required to be true of any representation or warranty made by the Company in or pursuant to this Agreement and any statements made in any certificate delivered pursuant to this Agreement, or (ii) any failure by the Company to perform or fulfill any of its covenants or agreements set forth herein. Notwithstanding any other provision of this Agreement to the contrary, in no event shall Loss and Expenses include a party's incidental or consequential damages. (c) Notwithstanding the foregoing, (i) neither Buyer nor the Company shall be responsible for any Loss and Expenses as provided by paragraphs (a) and (b), respectively, of this Section 8.2, until the cumulative aggregate amount of such Loss and Expenses suffered by Buyer or the Company, as the case may be, exceeds $1,000,000, and only to the extent such Losses and Expenses exceed $1,000,000, in which case Buyer or the Company, as the case may be, shall then be liable for all such Loss and Expenses, and (ii) the cumulative aggregate indemnity obligation of each of Buyer and the Company under this Section 8.2 shall in no event exceed $40,000,000. Except with respect to third-party claims being defended in good faith or claims for indemnification with respect to which there exists a good faith dispute, the indemnifying party shall satisfy its obligations hereunder within 30 days of receipt of a notice of claim under this Article 8. Section 8.3 "Third-Party Claims". If a claim by a third party is made against an Indemnified Party and if such Indemnified Party intends to seek indemnity with respect thereto under this Article, such Indemnified Party shall promptly notify the indemnifying party in writing of such claims setting forth such class in reasonable detail. The indemnifying party shall have 20 days after receipt of such notice to undertake, through counsel of its own choosing and at its own expense, the settlement or defense thereof, and the Indemnified Party shall cooperate with it in connection therewith; provided, however, that the Indemnified Party may participate in such settlement or defense through counsel chosen by such Indemnified Party, provided that the fees and expenses of such counsel shall be borne by such Indemnified Party. The Indemnified Party shall not pay or settle any claim which the indemnifying party is contesting. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay or settle any such claim, provided that in such event it shall waive any right to indemnity therefor by the indemnifying party. If the indemnifying party does not notify the Indemnified Party within 20 days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party, with the Indemnifying Party's consent not to be unreasonably withheld or delayed, shall have the right to contest, settle or compromise the claim but shall not thereby waive any right to indemnity therefor pursuant to this Agreement. ARTICLE 9 Miscellaneous Section 9.1 "Counterparts". This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section, provided receipt of copies of such counterparts is confirmed. Section 9.2 "Governing Law". THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF. Section 9.3 "Consequential Damages". In no event will either party be liable to the other in contract, tort or otherwise for any consequential, indirect, exemplary, incidental or special damages arising out of or relating to this Agreement. A-27 Section 9.4 "Entire Agreement". This Agreement (including agreements incorporated herein) and the Schedules and Exhibits hereto contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties other than those set forth or referred to herein. This Agreement is not intended to confer upon any person not a party hereto (and their successors and assigns) any rights or remedies hereunder. Section 9.5 "Notices". All notices and other communications hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below. Notices to the Company shall be addressed to: with a copy to: Essex Property Trust, Inc. 777 California Avenue Palo Alto, CA 94304 Attn: Keith Guericke with a copy to: Michael Schall Essex Property Trust, Inc. 777 California Avenue Palo Alto, CA 94304 and another copy to: Jordan Ritter Essex Property Trust, Inc. 777 California Avenue Palo Alto, CA 94304 or at such other address and to the attention of such other person as the Company may designate by written notice to Buyer. Notices to Buyer shall be addressed to: with a copy to: Patrick K. Fox General Counsel Westbrook Partners, L.L.C. 14400 North Dallas Parkway, #200 Dallas, Texas 75240 with a copy to: Keith Gelb Vice President Westbrook Partners, L.L.C. 11150 Santa Monica Boulevard Los Angeles, California 90023 and another copy to: Allen Curtis Greer, II Rogers & Wells 200 Park Avenue New York, New York 10166 Section 9.6 "Successors and Assigns". This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Section 9.7 "Headings". The Section, Article and other headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections or Articles contained herein mean Sections or Articles of this Agreement unless otherwise stated. A-28 Section 9.8 "Amendments and Waivers". This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Either party hereto may, only by an instrument in writing, waive compliance by the other party hereto with any term or provision hereof on the part of such other party hereto to be performed or compiled with. The waiver by any party hereto of a breach of any term or provision hereof shall not be construed as a waiver of any subsequent breach. Section 9.9 "Interpretation; Absence of Presumption". (a) For the purposes hereof, (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (ii) the terms "hereof", "herein", and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules and Exhibits hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph, Exhibit and Schedule references are to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified, (iii) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall apply, when appropriate, to successive events and transactions. (b) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party, drafting or causing any instrument to be drafted. Section 9.10 "Severability". Any provision hereof which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. Section 9.11 "Further Assurances". The Company and Buyer agree that, from time to time, whether before, at or after any Closing Date, each of them will execute and deliver such further instruments of conveyance and transfer and take such other action as may be necessary to carry out the purposes and intents hereof. Section 9.12 "Specific Performance". Buyer and the Company each acknowledge that, in view of the uniqueness of the parties hereto, the parties hereto would not have an adequate remedy at law for money damages in the event that this Agreement were not performed in accordance with its terms, and therefore agree that the parties hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the parties hereto may be entitled at law or in equity. Section 9.13 "Schedules". Any matter set forth on any Schedule shall be deemed to be referred to on all other Schedules to which such matter logically relates and where such reference would be appropriate and can reasonably be inferred from the matters disclosed on the first Schedule as if set forth on such other Schedules. Section 9.14 "Expenses". Except as set forth in this Agreement, whether or not any purchase of Preferred Stock contemplated hereby is consummated, all reasonable legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Company. * * * A-29 IN WITNESS WHEREOF, this Agreement has been signed by, or on behalf of each of the parties hereto as of the day first above written. Tiger/Westbrook Real Estate Fund, L.P., a Delaware limited partnership By: Tiger/Westbrook Real Estate Partners Management, L.L.C. a Delaware limited liability company, General Partner By: Westbrook Real Estate Fund I, L.L.C., a Delaware limited liability company, Managing Member By /s/ W. H. Walton ----------------------------------- WILLIAM H. WALTON, III, Managing Member Tiger/Westbrook Real Estate Co-Investment Partnership, L.P., a Delaware limited partnership By: Tiger/Westbrook Real Estate Partners Management, L.L.C., a Delaware limited liability company, General Partner By: Westbrook Real Estate Fund I, L.L.C., a Delaware limited liability company, Managing Member By /s/ W. H. Walton ----------------------------------- WILLIAM H. WALTON III, Managing Member Essex Property Trust, Inc. By /s/ Jordan E. Ritter ----------------------------------- JORDAN E. RITTER Vice President A-30 EXHIBITS AND SCHEDULES NOT ATTACHED A-31 AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT THIS AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT ("Amendment"), dated as of July 1, 1996, is made by and between Essex Property Trust, Inc., a Maryland corporation (the "Company"), and Tiger/Westbrook Real Estate Fund, L.P., a Delaware limited partnership, and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P., a Delaware limited partnership (individually and collectively, and including any nominee or nominees in whose name securities may be held, "Buyer"). RECITALS: WHEREAS, the parties hereto entered into that certain Stock Purchase Agreement, dated as of June 20, 1996 (the "Stock Purchase Agreement"), whereby, subject to certain conditions, the Company agreed to sell to the Buyer and the Buyer agreed to purchase from the Company an aggregate of 280,000 shares of a newly authorized series of preferred stock of the Company designated as 8.75% Convertible Preferred Stock, Series 1996A (the "Preferred Stock"), having the terms set forth in the form of Company's Articles Supplementary attached as Exhibit A thereto (the "Articles Supplementary") establishing the rights, privileges and preferences of the Preferred Stock, at a price of $25.00 per share; WHEREAS, an affiliate of Buyer and the Company entered into that certain Loan Facility Agreement, dated as of June 20, 1996, as amended to the date hereof (as amended, the "Loan Agreement"), whereby T/W Essex Funding, L.L.C. (the "Lender"), agreed to lend to the Company and the Company agreed to borrow from the Lender up to an aggregate of $31,500,000, and portions of such borrowed funds were, under the circumstances set forth in the Loan Agreement, to be repaid or exchangeable for additional shares of Preferred Stock or, if the Company and Buyer so agree, Operating Partnership Units or other interests, subject to the terms and conditions set forth therein; WHEREAS, the parties hereto desire, among other things, to provide that the Buyer shall purchase an aggregate of 340,000 shares of Preferred Stock at the Initial Closing (as defined herein) and may, subject to the terms and conditions hereof, of the Stock Purchase Agreement and the Loan Agreement purchase up to an aggregate of 1,600,000 shares of Preferred Stock; and WHEREAS, the parties hereto have agreed, among other things, to amend and modify the Stock Purchase Agreement as set forth herein. AGREEMENTS: NOW, THEREFORE, in consideration of the foregoing premises and covenants hereinafter set forth, and other good and valuable consideration had and received, the parties hereto, upon the terms and subject to the conditions contained herein, hereby agree as follows: 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Stock Purchase Agreement has the meaning ascribed to such term in the Stock Purchase Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference contained in the Stock Purchase Agreement shall from and after the date hereof refer to the Stock Purchase Agreement as amended hereby. 2. Amendment to Preamble to Definitions. The Preamble to the Definitions in Article I of the Stock Purchase Agreement shall be amended by adding "All references in this Agreement to any other agreement or instrument shall include such other agreement or instrument as the same may be amended, modified, reaffirmed or supplemented on or before the date hereof in accordance with the terms thereof." immediately following the first sentence thereof. 3. Amendment to Section 2.1. Section 2.1 of the Stock Purchase Agreement is hereby amended (a) by deleting the term "280,000" in the third line thereof and inserting the term "340,000" in its place and stead, and (b) by deleting the term "$7,000,000" in the fourth line thereof and inserting the term "$8,500,000" in its place and stead. A-32 4. Amendment to Section 2.2(b). Section 2.2(b) of the Stock Purchase Agreement shall be amended by deleting the words "including the delivery of the Diligence Fee," in the first and second lines thereof. 5. Amendment to Section 2.3(I)(a). Section 2.3(I)(a) of the Stock Purchase Agreement shall be amended (a) by deleting the term "$13,000,000" in the second line thereof and inserting the term "$11,500,000" in its place and stead, and (b) by deleting the term "520,000" in the third line thereof and inserting the term "460,000" in its place and stead. 6. Amendment to Section 2.3(I)(b). Section 2.3(I)(b) of the Stock Purchase Agreement shall be amended (a) by deleting the term "$13,000,000" in the second line thereof and inserting the term "$11,500,000" in its place and stead, and (b) by deleting the term "520,000" in the third line thereof and inserting the term "460,000" in its place and stead. 7. Amendment to Section 2.3(I)(c). Section 2.3(I)(c) of the Stock Purchase Agreement shall be deleted in its entirety. 8. Amendment to Section 2.3(I)(d). Section 2.3(I)(d) of the Stock Purchase Agreement shall be amended (a) by deleting the term "$13,000,000" in the second line thereof and inserting the term "$11,500,000" in its place and stead, and (b) by deleting the term "520,000" in the third line thereof and inserting the term "460,000" in its place and stead and (c) by deleting the term "240,000" in the fifth line thereof and inserting the term "280,000" in its place and stead. 9. Amendment to Section 5.1(d). Section 5.1(d) of the Stock Purchase Agreement shall be amended by deleting the words "August 31" in the third line thereof and inserting the words "September 30" in their place and stead. 10. Amendment to Article 5. Article 5 of the Stock Purchase Agreement shall be amended to add the following new Section 5.10: "Section 5.10 Stockholders Agreements. The Company agrees that it shall not knowingly permit the transfer, or knowingly allow the Operating Partnership to permit the transfer, of the interests restricted from transfer pursuant to the terms of the Stockholders Agreements each dated July 1, 1996 among Mr. Guericke, the Company and Buyer and among Mr. Marcus, the Company and Buyer, respectively. If the Operating Partnership is requested to transfer Partnership Units of the Operating Partnership now held by either of Messrs. Marcus or Guericke directly, or indirectly by the person or persons holding of record as reflected in the Company's 1996 Proxy Statement, the Company will make reasonable inquiries and use its reasonable efforts to ascertain that any such transfer is not in violation of the terms of the applicable Stockholders Agreement. The Company will also monitor the Form 4 and Form 5 Reports that each of Messrs. Marcus or Guericke files with the Securities and Exchange Commission to ascertain that their transfers are in compliance with the terms of the applicable Stockholders Agreement." 11. Addition of Article 10. The Stock Purchase Agreement shall be amended by inserting the following Article 10 therein: "ARTICLE 10 "Preemptive Right "10.1 Preemptive Right. For so long as any shares of Preferred Stock are outstanding, the Buyer shall have the rights set forth in this Article 10 as if it was the holder of record and beneficially of all such outstanding shares. The rights set forth herein are in favor of the Buyer and its successors and assigns, provided that any exercise procedures to be accomplished hereunder shall be performed by the Buyer or its nominee and no other person may accomplish such procedures or seek to exercise the preemptive right set forth in this Article 10. Absent an express assignment of the rights of the Buyer under this Article 10, no transfer by the Buyer of shares of Preferred Stock shall affect the rights of the Buyer hereunder. A-33 "The Buyer shall have, as if it were the holder of each and every of the issued and outstanding shares of Preferred Stock, at any time and from time to time the preemptive right to purchase, in the case of the proposed issuance by the Company of, or the proposed granting by the Company of shares of, any class of the Company's stock ("Capital Stock"), or any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (including, without limitation, interests in the Operating Partnership) (such rights or options being hereinafter referred to as "Options" and such convertible or exchangeable stock or securities being hereinafter referred to as "Convertible Securities"). On each occasion that the Company proposes to issue Capital Stock, Options or Convertible Securities, or any of the foregoing, the Company shall give to the Buyer prior written notice (the "Company Notice") of its intention, by first class mail, postage prepaid, addressed at its last address as shown by the records of the Company, describing the same, the price and the specific terms (or in the context of an offering of Capital Stock, Convertible Securities or Options to the public, a range of price and terms) upon which the Company proposes to issue the same. The Buyer shall have fifteen (15) days from the date of the receipt by the Buyer of the Company Notice to deliver a notice (the "Rights Exercise Notice") notifying the Company of the Buyer's intention to purchase all or a part of its pro rata share of shares or other securities represented by Capital Stock, Options or Convertible Securities, or any of the foregoing, in accordance herewith, for the price and upon the terms specified by the Company Notice, such pro rata share to be that number of such shares or securities or Capital Stock, Options or Convertible Securities, or any of the foregoing, as shall bear the same proportion to the aggregate number of such shares or securities or Capital Stock, Options or Convertible Securities, or any of the foregoing, to be issued or sold as (i) the number of shares of Common Stock as are issuable upon conversion of the Preferred Stock issued and outstanding on the date of the Company Notice bears to (ii) the sum of (A) the total number of shares of Common Stock issued and outstanding on the date of the Company Notice and (B) the number of shares of Common Stock issuable upon conversion or exercise of the Preferred Stock and any Convertible Securities or Options, or both, issued and outstanding on the date of the Company Notice, and at a price or prices no less favorable to the Buyer than the price or prices at which such Capital Stock, Convertible Securities or Options are proposed to be offered for sale to others, provided, however, that the purchase of such Capital Stock, Convertible Securities or Options shall be consummated prior to the later of (x) thirty (30) days after the date of the Rights Exercise Notice and (y) the date the Company consummates the issuance of the Capital Stock, Convertible Securities or Options described in the Company Notice. If, in connection with any proposed issue of Capital Stock, Convertible Securities or Options, the Buyer fails to exercise in full its preemptive right as set forth in this Article 10 then, subject to the next following sentence, the Company may sell the unsold Capital Stock, Convertible Securities or Options at any time within 180 days (60 days in the case of a public offering) thereafter at a price and upon terms no more favorable to the purchasers thereof than specified in the Company Notice; provided, that the Company shall not sell or grant, or permit conversion under, any Capital Stock, Convertible Securities or Options, or any of the foregoing, after such 180--day period (or 60-- day period in the case of a public offering) without renewed compliance with this Section 10.1; provided, further, that in the case of an underwritten public offering of Securities, if in the opinion of the Company and the underwriter, such renewed compliance by the Company with the procedural requirements hereunder (i.e., timing of notices, etc.) would otherwise impede the consummation of such public offering, the parties agree to take such further action as may be reasonably necessary to effectuate such offering while preserving Buyer's substantive preemptive right hereunder. "10.2 Certain Exclusions. The provisions of this Section 10 shall not apply to any shares of any class of the Company's Capital Stock or Options or Convertible Securities, or both (i) issuable upon conversion of any Preferred Stock; (ii) issuable upon conversion of Convertible Securities or the exercise of Options, or both, if the Buyer was offered the opportunity to purchase such shares or securities, or Convertible Securities or Options, or both, pursuant to this Article 10, and declined the same, or as to which the Buyer was not given such opportunity by reason of the application of this A-34 Article 10; (iii) issuable in connection with stock splits, stock dividends or recapitalizations as to the effects of which adjustment will be made as provided elsewhere herein or in the Articles Supplementary pertaining to the Preferred Stock; or (iv) issuable to employees and prospective employees pursuant to any plan or pattern of employee equity participation or issuable in connection with the Company's Dividend Reinvestment Plan. "10.3 Adjustments Prior to the Defining Event. Notwithstanding the foregoing, in the event the Company delivers the Company Notice to the Buyer on a date prior to the earliest to occur of (A) December 15, 1996, (B) the Stockholder Approval Date, (c) the later of (x) the Stockholder Rejection Date and (y) the IRS Approval Date (the earliest to occur of (A), (B) and (c), above, shall hereinafter be referred to as the "Defining Event"), the following shall apply: (i) subject to subsections (iv) and (v), below, the Buyer shall have the preemptive right to purchase all or part of its pro rata share of Capital Stock, Options or Convertible Securities (collectively, "Securities"), which pro rata share shall equal such number of Securities which bears the same proportion to the aggregate number of Securities to be issued or sold as (a) the number of shares issuable upon conversion of 800,000 shares of Preferred Stock bears to (b) the sum of (I) the total number of shares of Common Stock issued and outstanding on the date of the Company Notice and (II) the number of shares of Common Stock issuable upon conversion of 800,000 shares of Preferred Stock and any Convertible Securities or Options issued and outstanding on the date of the Company Notice; (ii) the Buyer's Rights Exercise Notice must be delivered to the Company within fifteen (15) days of receipt by the Buyer of the Company Notice; (iii) the Buyer must consummate any purchases hereunder on or prior to the later of (a) forty-five (45) days after the Defining Event and (b) the date the Company consummates the issuance of the Securities specified in the Company Notice; (iv) if and to the extent that on the date of or following the Defining Event, the Buyer is prevented or prohibited from the exercise in full or in part of its preemptive right to purchase any Securities due to restrictions on the ownership by the Buyer (or any group of holders with which such the Buyer may be affiliated or may be deemed to be affiliated) of any of such Securities, whether under applicable Maryland law, provisions of the Company's Charter, any Articles Supplementary thereto or ByLaws, or by reason of restrictions applicable for purposes of the Company's continued qualification as a real estate investment trust' for purposes of the Internal Revenue Code of 1986, as amended from time to time (the "Exercise Restriction"), such number of Securities required to be purchased pursuant to such preemptive right shall automatically be reduced to such amount as to not exceed the Exercise Restriction. (v) Provided further, notwithstanding Section 10.3(i), in the event that, after the date of the Defining Event, the Company issues Securities (the date of such issuance, the "Issuance Date") specified in the Company Notice applicable to such securities and such Company Notice was dated a date before the date of the Defining Event, the Buyer shall have the preemptive right to purchase all or part of its pro rata share of Securities which pro rata share shall equal such number of Securities which bears the same proportion to the aggregate number of Securities sold on the Issuance Date as (a) the number of shares issuable upon conversion of the issued and outstanding Preferred Stock on the Issuance Date bears to (b) the sum of (I) the total number of shares of Common Stock issued and outstanding on the Issuance Date and (II) the number of shares of Common Stock issuable upon conversion of the issued and outstanding Preferred Stock on the Issuance Date and any other Securities issued and outstanding on the Issuance Date." A-35 12. Amendment to Section 9.2. Section 9.2 of the Stock Purchase Agreement is hereby amended by deleting Section 9.2 in its entirety and inserting in lieu thereof: "(a) OTHER THAN WITH RESPECT TO THE PROVISIONS OF ARTICLE 10, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF. ARTICLE 10 OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF. THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT OR OF ANY COURT OF THE STATE OF MARYLAND WHICH IS LOCATED IN THE CITY BALTIMORE, MARYLAND, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AND RELATED TO OR IN CONNECTION WITH THE RIGHTS AND OBLIGATIONS SET FORTH IN ARTICLE 10 OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY ARTICLE 10 AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THE RIGHTS AND OBLIGATIONS SET FORTH IN ARTICLE 10 OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO THEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. "(b) The parties to this Agreement agree to use their best efforts to cause the provisions of Section 9.2(a) to be observed. "(c) The parties hereto knowingly, voluntarily and expressly waive all right to trial by jury in any action, proceeding or counterclaim enforcing or defending any rights arising out of or relating to this Agreement or the transactions contemplated hereby. Each of the parties acknowledge that the provisions of this Section 9.2(c) have been bargained for and that it has been represented by counsel in connection therewith." 13. Full Force and Effect. Except as specifically amended and modified hereby, the Stock Purchase Agreement shall remain in full force and effect and no party hereto waives any of its rights under the Stock Purchase Agreement. 14. Counterparts. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. Copies of executed counterparts have been signed by each party hereto and delivered to the other party. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section, provided receipt of copies of such counterparts is confirmed. 15. Consequential Damages. In no event will either party be liable to the other in contract, tort or otherwise for any consequential, indirect, exemplary, incidental or special damages arising out of or relating to this Amendment. 16. Entire Agreement. The Stock Purchase Agreement, as amended hereby (including agreements incorporated herein or therein), and the Schedules and Exhibits thereto contain the entire agreement between the parties with respect to the subject matter hereof and thereof and there are no agreements, understandings, A-36 representations or warranties between the parties other than those set forth or referred to herein or therein. This Amendment is not intended to confer upon any person not a party hereto (and their successors and assigns) any rights or remedies hereunder. 17. Successors and Assigns. Except as otherwise provided herein, this Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 18. Headings. The Section headings contained in this Amendment are inserted for convenience of reference only and will not affect the meaning or interpretation of this Amendment. 19. Amendments and Waivers. This Amendment may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Either party hereto may, only by an instrument in writing, waive compliance by the other party hereto with any term or provision hereof on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision hereof shall not be construed as a waiver of any subsequent breach. 20. Absence of Presumption. This Amendment shall be construed without regard to any presumption or rule requiring construction or interpretation against the party, drafting or causing any instrument to be drafted. 21. Severability. Any provision hereof which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. 22. Further Assurances. The Company and Buyer agree that, from time to time, each of them will execute and deliver such further instruments of conveyance and transfer and take such other action as may be necessary to carry out the purposes and intents hereof. 23. Specific Performance. Buyer and the Company each acknowledge that, in view of the uniqueness of the parties hereto, the parties hereto would not have an adequate remedy at law for money damages in the event that this Amendment were not performed in accordance with its terms, and therefore agree that the parties hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the parties hereto may be entitled at law or in equity. 24. Expenses. Whether or not any purchase of Preferred Stock contemplated hereby is consummated, all reasonable legal and other costs and expenses incurred in connection with this Amendment and the transactions contemplated hereby shall be paid by the Company. * * * A-37 IN WITNESS WHEREOF, the parties have duly executed, or have caused their duly authorized officer or representative to execute, this Amendment No. 1 to Stock Purchase Agreement as of the date first above written. TIGER/WESTBROOK REAL ESTATE FUND, L.P., a Delaware limited partnership By: Tiger/Westbrook Real Estate Partners Management, L.L.C. a Delaware limited liability company, General Partner By: Westbrook Real Estate Fund I, L.L.C., a Delaware limited liability company, Managing Member By: /s/ W.H. Walton III ------------------------------------------- William H. Walton III, Managing Member By: /s/ Paul D. Kazilionis ------------------------------------------- Paul D. Kazilionis, Managing Member TIGER/WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP, L.P., a Delaware limited partnership By: Tiger/Westbrook Real Estate Partners Management, L.L.C. a Delaware limited liability company, General Partner By: Westbrook Real Estate Fund I, L.L.C., a Delaware limited liability company, Managing Member By: /s/ W. H. Walton III ------------------------------------------- William H. Walton III, Managing Member By: /s/ Paul D. Kazilionis ------------------------------------------- Paul D. Kazilionis, Managing Member ESSEX PROPERTY TRUST, INC. By: /s/ Michael Schall ------------------------------------------- Name: Michael Schall Title: CFO A-38 APPENDIX B LOAN FACILITY AGREEMENT DATED AS OF JUNE 20, 1996 AMONG ESSEX PROPERTY TRUST, INC., AS BORROWER AND T/W ESSEX FUNDING, L.L.C., AS LENDER LOAN FACILITY AGREEMENT dated as of June 20, 1996, among Essex Property Trust, Inc., a Maryland corporation (the "Borrower") and T/W Essex Funding, L.L.C., a Delaware limited liability company (the "Lender"). W I T N E S S E T H: WHEREAS, the Borrower and certain affiliates of the Lender (collectively, the "Buyer") have entered into a Stock Purchase Agreement dated as of the date hereof (as the same may be amended, restated or supplemented from time to time, the "Stock Purchase Agreement"), pursuant to which Buyer has agreed to purchase up to 1,600,000 shares of convertible preferred stock of the Borrower on the terms and subject to the conditions contained therein; and WHEREAS, the terms of the Stock Purchase Agreement provide for the execution and delivery of this Agreement simultaneously with the closing of the initial transactions contemplated thereby; NOW, THEREFORE, the Borrower and the Lender hereby agree as follows: ARTICLE 1 Defined Terms 1.1 Definitions. Each term defined in this Section 1.1, when used in this Agreement, has the meaning indicated below. Capitalized terms used herein but not defined herein shall have the meanings given to them in the Stock Purchase Agreement. "Agreement" shall mean this Loan Agreement, as amended, restated, modified or supplemented from time to time. "Applicable Rate" shall mean the greater of (i) 8.75% per annum, and (ii) the rate which is equal to the quarterly dividend on the Common Stock, annualized, divided by $21.875. "Appreciated Stock Price" shall mean (i) with respect to Loans that are paid in full by the Borrower on or prior to December 31, 1996, the average of the closing price (as reported in The Wall Street Journal, absent manifest error) of Borrower's Common Stock for the twenty consecutive Business Days immediately preceding, but not including, the earlier of the date of payment or December 31, 1996, and (ii) with respect to Loans that are paid or mature on February 28, 1997, or are paid or mature on April 30, 1997, as the case may be, the average of the closing price (as reported in The Wall Street Journal, absent manifest error) of Borrower's Common Stock for any twenty consecutive Business Days, as selected by the Lender, from and including December 1, 1996, through but not including the Option C Maturity Date. B-1 "Business Day" shall mean any day on which both state and federally chartered banks in New York, New York are required to be open for general banking business. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Dollars" or "$" shall mean the lawful currency of the United States of America and, in relation to any amount to be advanced or paid hereunder, funds having same day value. "Event of Default" shall mean each of the events set forth in Section 6.1 hereof. "Exchange Price" shall have the meaning set forth in Section 2.11 hereof. "Guarantee" shall mean the guarantee to be executed and delivered by the Guarantor, substantially in the form of Exhibit B hereto. "Guarantor" shall mean Essex Portfolio L.P., a California limited partnership, of which the Borrower is the sole general partner. "Indebtedness" shall mean for any person all indebtedness or other obligations of such person for borrowed money and all indebtedness of such person with respect to any other items (other than accounts payable in the ordinary course of business, income taxes payable, deferred taxes and deferred credits) which would, all in accordance with generally accepted accounting principles, be classified as a liability on the balance sheet of such person. "Initial Commitment" means $13,000,000. "Initial Exchange Closing" shall have the meaning set forth in Section 2.10 below. "Judicial Prohibition Maturity Date" shall mean if a Judicial Prohibition Maturity Event has occurred, notwithstanding any other provision of this Agreement, December 31, 1996; provided, however, Borrower may, in its sole discretion, by delivery of written notice of same to Lender on or prior to December 20, 1996 (unless the applicable Judicial Prohibition Maturity Event shall have occurred on or after December 20, 1996, in which case not later than three Business Days after such occurrence but in no event later than December 30, 1996), extend the date for repayment of the Loans from the Judicial Prohibition Maturity Date (assuming there exists a Judicial Prohibition Maturity Event on such date and, if not, Lender and Buyer shall follow the procedures for the appropriate Option, and there shall be no extension) to February 28, 1997; and, provided, further, Borrower may also, in its sole discretion, by delivery of written notice of same to Lender not later than February 20, 1997, further extend such date to April 30, 1997. "Judicial Prohibition Maturity Event" shall mean an event whereby the Lender is estopped from the exercise of any Option otherwise available as a result of judicial process other than as a result of an action or claim brought by the Lender itself or by Buyer, or by any other person in collusion with the Lender or Buyer, and such estoppel shall remain in effect until and including December 30, 1996. "IRS Approval Date" shall mean the date of receipt by the Borrower of a Private Letter Ruling from the Internal Revenue Service as required by Article EIGHTH(a)(9) of the Articles of Amendment and Restatement of the Borrower enabling the Borrower to exempt Lender's affiliates from the Ownership Limit as defined in such Articles of Amendment and Restatement ("IRS Approval"), provided, however, such event shall have occurred, if at all, on or prior to December 15, 1996. "Loan" shall mean each loan to be made by the Lender to the Borrower pursuant to Article II hereof. "Note" shall mean a promissory note of the Borrower in registered form payable to the order of the Lender evidencing the Loans, substantially in the form of Exhibit A hereto, and any promissory note or notes issued in substitution thereof. B-2 "Notice of Occurrence" shall have the meaning set forth in Section 2.10. "Obligations" shall mean any and all of the debts, obligations and liabilities of the Borrower provided for or arising under this Agreement, whether now existing or hereafter arising, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or extinguished and later increased, created or incurred. "Option A" shall mean the Lender's obligation (absent the existence of a Judicial Prohibition Maturity Event which is not discharged prior to the Judicial Prohibition Maturity Date) (i) to exchange the Loan comprising the Initial Commitment for Preferred Stock pursuant to Section 2.11 hereof, and (ii) to utilize the funds otherwise comprising the Subsequent Commitment to acquire Preferred Stock in accordance with the Stock Purchase Agreement, in each case if the Stockholder Approval Date has occurred. "Option B" shall mean the Lender's obligation (absent the existence of a Judicial Prohibition Maturity Event which is not discharged prior to the Judicial Prohibition Maturity Date) (i) to exchange the Loan comprising the Initial Commitment for Preferred Stock pursuant to Section 2.11 hereof, and (ii) to utilize the funds otherwise comprising the Subsequent Commitment to acquire Preferred Stock in accordance with the Stock Purchase Agreement, in each case if the IRS Approval Date shall have occurred prior to the Stockholder Approval Date and the Stockholder Approval Date shall have occurred. "Option C" shall mean (i) the Lender's option to exchange up to $1,500,000 principal amount of the Loan comprising the Initial Commitment for Preferred Stock pursuant to Section 2.11 hereof, and (ii) the automatic reduction of the Subsequent Commitment to zero if, but only if, (x) (A) the IRS Approval Date shall not have occurred on or before December 15, 1996, and (B) the Stockholder Rejection Date shall have occurred, or (y) the Stock Purchase Agreement shall be terminated for any reason or any material provision thereof shall have ceased to be in full force and effect such that the Buyer under the Stock Purchase Agreement shall not be able to realize the material benefits thereof. "Option D" shall mean (i) the Lender's obligation (absent the existence of a Judicial Prohibition Maturity Event which is not discharged prior to the Judicial Prohibition Maturity Date) to exchange the Loan comprising the Initial Commitment for Preferred Stock pursuant to Section 2.11 hereof, (ii) the Lender's option to exchange up to $6,000,000 in Loans comprising the Subsequent Commitment for Preferred Stock pursuant to Section 2.11 hereof, and (iii) the automatic reduction of the balance of the Subsequent Commitment to zero upon the Lender's exercise of, or failure to exercise, the option set forth in (ii) above if, but only if, (x) the IRS Approval Date shall have occurred, and (y) the Stockholder Rejection Date shall have occurred. "Option A Event" shall mean the occurrence of the Stockholder Approval Date provided that the IRS Approval Date shall not have first occurred. "Option B Event" shall mean the occurrence of the Stockholder Approval Date provided that the IRS Approval Date shall have first occurred. "Option C Event" shall mean either (i) (A) the IRS Approval Date shall not have occurred on or prior to December 15, 1996, and (B) the Stockholder Rejection Date shall have occurred, or (ii) the Stock Purchase Agreement shall have terminated for any reason or any material provision thereof shall have ceased to be in full force and effect such that Buyer under the Stock Purchase Agreement shall not be able to realize the material benefits thereof. "Option D Event" shall mean the IRS Approval Date shall have occurred and the Stockholder Rejection Date shall have occurred. "Option A Maturity Date" shall mean the Stockholder Approval Date. "Option B Maturity Date" shall mean the Stockholder Approval Date. B-3 "Option C Maturity Date" shall mean (i) December 16, 1996, in respect of that portion of the Loan which comprised part of the Initial Commitment which is exchanged for Preferred Stock, if any (i.e., pursuant to Option C, up to $1,500,000), and (ii) with respect to the balance of the Loan, December 31, 1996; provided, however, if the Borrower shall have notified the Lender on or before December 20, 1996, that it requests an extension, the Option C Maturity Date shall be extended to February 28, 1997; and provided, further, that if the Borrower shall have notified the Lender on or before February 20, 1997, that it requests another extension, the Option C Maturity Date shall be further extended to April 30, 1997. "Option D Maturity Date" shall mean (i) the Shareholder Rejection Date if the IRS Approval Date precedes the Stockholder Rejection Date or (ii) the IRS Approval Date if the Stockholder Rejection Date precedes the IRS Approval Date. "Options" shall mean each of Option A, Option B, Option C and Option D, one of which shall be available in accordance with the definitions thereof upon the conditions set forth therein. "Organic Change" shall have the meaning set forth in Section 2.11 hereof. "Register" shall mean the Note Register maintained by Borrower or by Borrower's bank. "Related Document" shall mean any agreement, certificate or other document executed by the parties hereto in connection with this Agreement. "Stock Purchase Agreement" shall have the meaning set forth in the first recital hereof. "Stockholder Approval Date" shall mean the date, which shall be on or prior to October 30, 1996, on which the stockholders of the Borrower have duly approved all necessary amendments to the Company Charter in form and substance satisfactory to the Lender and Buyer, permitting issuance to Affiliates of the Lender on and after the Initial Closing Date of up to 1,600,000 shares of Preferred Stock and covering such other matters as the Borrower, the Lender and Buyer mutually agree should be properly presented for approval by the Borrower's stockholders. "Stockholder Rejection Date" shall mean the earlier to occur of (i) the date on which the stockholders of the Borrower have duly rejected any necessary transaction contemplated by this Agreement and by the Stock Purchase Agreement; and (ii) October 30, 1996. "Subsequent Commitment" means initially $20,000,000, as such amount may be reduced pursuant to Section 2.9 hereof by stock purchase or as otherwise provided herein. "TWREF" means Tiger/Westbrook Real Estate Fund, L.P., a Delaware limited partnership. ARTICLE 2 Terms of the Loans; Fees 2.1 The Loans. On the terms and subject to the conditions of this Agreement, the Lender shall make Loans to the Borrower of (i) an amount equal to the amount of the Initial Commitment on July 1, 1996, and (ii) in accordance with the applicable Option, the Subsequent Commitment on the Option A Maturity Date if an Option A Event has occurred, the Option B Maturity Event if an Option B Event has occurred, or the Option D Maturity Date if an Option D Event has occurred. 2.2 Disbursement of Loan Proceeds. (a) The Lender shall make the Loan proceeds of the Initial Commitment available to the Borrower by transferring the amount thereof by 12:00 noon (New York time) on July 1, 1996, and, in accordance with the B-4 applicable Option, fifteen Business Days after the Lender's receipt of a notice from the Borrower specifying the date and amount of each Loan representing all or any part of the Subsequent Commitment, in the case of the Loans representing the Subsequent Commitment, to a bank account held by the Borrower at the Borrower's bank and for credit to the account so identified on the signature page hereto. Upon the Lender's receipt of any such notice in respect of any Loan representing the Subsequent Commitment, the Lender shall have the right either to make such Loan or to have the Buyer purchase Preferred Stock under the Stock Purchase Agreement. However, upon the applicable event that gives rise to any such finding of the Subsequent Commitment as a Loan, the principal amount of such Loan shall be deemed to be immediately exchanged into Preferred Stock. (b) The Loan representing the Initial Commitment shall be made by a single disbursement on July 1, 1996, and, in accordance with the applicable Option, the Loans representing the Subsequent Commitment shall, in the case of an Option A Event or an Option B Event, be made in no more than three disbursements of not less than $5,000,000 per disbursement on any date from and including the Stockholder Approval Date to June 20, 1997, and, in the case of an Option D Event, be made in one disbursement on the Option D Maturity Date; provided, however, that, in the case of Option A and Option B, the Borrower shall be deemed to have requested, and the Lender shall fund, Loans comprising the unutilized portion of the Subsequent Commitment on June 20, 1997. (c) Notwithstanding the provisions of Section 2.1 hereof and this Section 2.2, in the event that each of the Lender and Buyer have reviewed and approved the certificate of limited partnership of the Guarantor, the agreement of limited partnership of the Guarantor and any and all amendments to any of the foregoing and are satisfied, in their sole discretion, with the provisions thereof (including a provision that the ownership of a preferred limited partnership interest Guarantor will not require any indirect investors of Lender to treat any income allocated to it from Guarantor as unrelated business taxable income under the Code), the Borrower will be permitted to request the Lender to exchange, and the Lender will, upon receipt of such request from the Borrower, exchange, the Loan representing the Initial Commitment for limited partnership interests in the Guarantor on such terms as the Lender and the Guarantor shall mutually agree (reflecting the economics contemplated in the Stock Purchase Agreement). 2.3 Repayment of Principal. The Borrower shall not be permitted to prepay any amounts outstanding hereunder at any time. The Borrower shall repay the principal amount of the Loans on the Option A Maturity Date if an Option A Event has occurred, the Option B Maturity Date if an Option B Event has occurred, the Option C Maturity Date if an Option C Event has occurred, or the Option D Maturity Date if an Option D Event has occurred (i) in Dollars, but only if an Option C Event has occurred, and (ii) in Preferred Stock as provided in Sections 2.10 and 2.11 hereof if an Option A Event, Option B Event or Option D Event has occurred. The Borrower shall, notwithstanding the foregoing, repay the principal amount of the Loans, in Dollars, on the Judicial Prohibition Maturity Date if a Judicial Prohibition Maturity Event shall have been in continuous effect since the occurrence of an Option A Event, Option B Event or Option D Event, as the case may be, with result that any of Option A, Option B or Option D, as applicable, shall not have been exercised on or prior to the Judicial Prohibition Maturity Date. 2.4 Rate of Interest. The Borrower shall pay interest on the unpaid principal amount of the Loans from and including the date of each Loan to but not including the date on which such Loan is paid in full at the Applicable Rate, which shall be calculated and paid as specified in the definition of Applicable Rate. Notwithstanding the foregoing, if the Borrower shall fail to pay when due (whether at scheduled maturity, on acceleration or otherwise) any principal amount owing under this Agreement, the Borrower will pay interest on the amount in default from the date of such default until paid at the rate specified in Section 6.4 hereof. Notwithstanding any other provisions contained in this Agreement, neither the Applicable Rate nor any dividends payable on any Preferred Stock shall begin to accrue until the date Lender or Buyer, as the case may be, actually funds the amount to be funded for the Loan or Preferred Stock related thereto. 2.5 Payment of Interest. Accrued interest on the Loans shall be payable quarterly in arrears on the last day of each calendar quarter, and on the Option A Maturity Date, Option B Maturity Date, Option C Maturity Date or the Option D Maturity Date, as the case may be, except that default interest shall be payable on demand. B-5 2.6 Computation of Interest. Interest payable under this Agreement shall be computed on the basis of a year of 360 days and twelve 30-day months. 2.7 Manner of Payments. Each payment by the Borrower under this Agreement shall be made by transferring the amount thereof in Dollars (unless otherwise specified in Section 2.03 hereof) to the Lender's bank account at the Lender's bank and for credit to the account so identified on the signature page hereto, not later than 1:00 p.m. (New York City time) on the date on which such payment shall become due. Each such payment shall be made without set-off or counterclaim and free and clear of, and without deduction for, any taxes, duties, levies, imposts or other charges of a similar nature. 2.8 Extension of Payments. If any payment under this Agreement shall become due on a day which is not a Business Day, the due date thereof shall be extended to the next following day which is a Business Day, and such extension shall be taken into account in computing the amount of any interest then due and payable hereunder. 2.9 Reduction of the Subsequent Commitment. The Subsequent Commitment shall be automatically reduced by (i) the principal amount of each Loan (other than the Initial Commitment, which shall already have been exchanged in full for Preferred Stock), and (ii) amounts expended by Buyer in any purchase of Preferred Stock representing the Subsequent Commitment under the Stock Purchase Agreement or, if applicable, in any acquisition of limited partnership interests in the Guarantor, in each case after the Initial Closing Date, (ii) in the case of an Option C Event or Option D Event, the Subsequent Commitment shall be reduced as provided under Option C and Option D, respectively, and (iii) in the event of the existence of a Judicial Prohibition Maturity Event on the Judicial Prohibition Maturity Date, the amount of the then unutilized portion thereof. 2.10 Procedures for Option Events. (a) Within two Business Days following the occurrence of an Option A Event, Option B Event, Option C Event or Option D Event, Borrower shall provide Lender written notice of such occurrence (the "Notice of Occurrence"), such notice specifying the type of Option which has occurred. In the case of an Option A Event or Option B Event, the closing whereby the Loan comprising the Initial Commitment shall be exchanged for Preferred Stock shall be held on the third Business Day following Lender's receipt of the Notice of Occurrence; provided, however, the Loan shall be deemed exchanged as of the Option A Maturity Date or the Option B Maturity Date, as the case may be. In the case of an Option C Event, Lender shall deliver a written notice to Borrower within three Business Days of Lender's receipt of the Notice of Occurrence, which written notice shall specify Lender's election with respect to its option to exchange up to $1,500,000 of the Loan which comprised part of the Initial Commitment for Preferred Stock and shall specify the amount, if any, up to $1,500,000 which Lender intends to exchange. The closing of such an exchange shall take place on the second Business Day following the date Lender's written notice is received by Borrower; provided, however, that up to $1,500,000 comprising the portion of the Initial Commitment shall be deemed exchanged as of the date Lender makes such election. In the case of an Option D Event, Lender shall deliver a written notice to Borrower within three Business Days of receipt of the Notice of Occurrence which written notice shall specify Lender's election with respect to the exchange of up to $6,000,000 of the Subsequent Commitment for Preferred Stock. The closing of such an exchange of up to $6,000,000 together with the exchange of the Loan comprising the Initial Commitment shall take place fifteen Business Days following the date Lender's written notice is received by Borrower; provided, however, the Loan comprising the Initial Commitment shall be deemed exchanged as of the Option D Maturity Date, and up to $6,000,000 Loan comprising the portion of the Subsequent Commitment shall be deemed exchanged as of the date Lender makes such election. Any such closing pursuant to this Section 2.10(a) shall be referred to as an "Initial Exchange Closing". (b) In the case of Option A or Option B, each closing relating to the funding of the Subsequent Commitment (or any portion thereof), and its automatic exchange into Preferred Stock, shall be held fifteen Business Days following Lender's receipt of a written notice from Buyer setting forth Buyer's request for such an exchange and the principal amount of Loan to be exchanged thereby. If any portion of the Subsequent B-6 Commitment remains as of June 20, 1997, the Loan, borrowing and exchange with respect to such amount shall be held on June 20, 1997. Each such closing pursuant to this Section 2.10(b) shall be referred to as a "Subsequent Closing", and the date of any such Subsequent Closing shall be referred to as a "Subsequent Closing Date". (c) All closings relating to the foregoing shall be held on such date specified in this Section 2.10 at the Palo Alto offices of Morrison & Foerster or such other date and place as the parties mutually agree. 2.11 Exchange; Construction. References to exchanges of Loans for Preferred Stock shall refer to exchanges of the outstanding principal amount of the Loans (but not any accrued and unpaid interest thereon) for fully paid and nonassessable shares of Preferred Stock. Exchange of the Loans for Preferred Stock shall be at a price (the "Exchange Price") of $25 per share. If the Borrower at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Preferred Stock into a greater number of shares, the corresponding Exchange Price in effect immediately prior to such subdivision shall be proportionately reduced, and if the Borrower at any time combines (by reverse stock split or otherwise) its outstanding shares of Preferred Stock into a smaller number of shares, the corresponding Exchange Price in effect immediately prior to such combination shall be proportionately increased. Lender may cause an exchange to occur in its name or in the name of its nominee, including Buyer. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another person or other transaction which is effected in such a manner that holders of Preferred Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to, in exchange for or upon conversion of Preferred Stock is referred to herein as an "Organic Change." Prior to the consummation of any Organic Change, the Borrower shall make appropriate provisions (in form and substance reasonably satisfactory to the Lender) to insure that the Lender shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Preferred Stock immediately theretofore acquirable and receivable upon the exchange of the Loan, such shares of stock, securities or assets as the Lender would have received in connection with such Organic Change if the Lender had exchanged the Loan or converted the Preferred Stock issuable upon exchange of the Loans immediately prior to such Organic Change. In each such case, the Borrower shall also make appropriate provisions (in form and substance reasonably satisfactory to the Lender) to insure that the provisions of this paragraph and the immediately preceding paragraph shall thereafter be applicable to the Loans. The Borrower shall not effect any such Organic Change unless, prior to the consummation thereof, the successor corporation (if other than the Borrower) resulting from such Organic Change or the corporation purchasing assets in such Organic Change assumes by written instrument (in form reasonably satisfactory to the Lender) the obligation to deliver to the Lender such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Lender may be entitled to acquire. Each Loan shall be exchangeable by the Lender to the extent set forth above and upon the occurrence of any event which requires or permits the Lender to exchange loans under the Initial Commitment and/or the Subsequent Commitment for Preferred Stock, and, upon the occurrence of any such event, the rights of the Lender as Lender in respect of each exchanged Loan shall cease, and the Buyer (or such other nominee as Lender shall utilize) shall thereafter be treated for all purposes as the record holder of the equivalent amount of Preferred Stock at such time. At each closing described above, the Borrower shall issue and shall deliver at such office or at such other address requested by the Lender a certificate or certificates in blank or in such name as Lender shall direct for the number of full and fractional shares of Preferred Stock issuable upon exchange and Lender hereby consents to all such shares of Preferred Stock being issued and delivered. The issuance of certificates for shares of Preferred Stock upon exchange of each Loan shall be made without charge to the Lender or to Buyer for any issuance tax in respect thereof or other cost incurred by the Borrower in connection with such exchange and the related issuance of shares of Preferred Stock. Upon exchange of each Loan, the Borrower shall take all such actions as are necessary in order to insure that the Preferred Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable. B-7 The Borrower's obligations on the Option A Maturity Date, the Option B Maturity Date, the Option C Maturity Date or the Option D Maturity Date, as the case may be, shall be governed by the terms of the Stock Purchase Agreement as if such exchange were a purchase and sale of Preferred Stock thereunder. 2.12 Use of Proceeds. The Borrower shall use the proceeds of each Loan for lending to the Guarantor to acquire properties and to reduce outstanding Indebtedness of the Guarantor. 2.13 Fees. In the event that the Stockholder Rejection Date shall have occurred, the Borrower shall pay to the Lender a prepayment fee on such Stockholder Rejection Date equal to the product of (i) the Appreciated Stock Price minus $21.875 times (ii) a fraction, the numerator of which is the amount of Loans outstanding on such date and the denominator of which is $21.875. ARTICLE 3 Conditions Precedent 3.1 Conditions. As conditions precedent to the Lender's obligation to make the initial Loan, the Lender shall have received (i) the Note and a counterpart of this Agreement, each duly executed by the Borrower, (ii) the Guarantee, duly executed by the Guarantor, (iii) all other documents that are required to be delivered by the Borrower pursuant to Articles 2 and 7 of the Stock Purchase Agreement on or prior to the Initial Closing and evidence reasonably satisfactory to the Lender that all other conditions precedent to such Initial Closing have been met. As conditions precedent to the Lender's obligation to make each Loan (including the initial Loan), (i) no Event of Default or event which, with the giving of notice or lapse of time or both, shall have occurred and be continuing or shall result from the making of such Loan, (ii) there shall not have been a failure of a representation or warranty incorporated by reference herein to be true when made and where such failure would have or could reasonably be expected to have had a Material Adverse Effect, and (iii) the Stock Purchase Agreement shall not have terminated for any reason nor shall any material provision thereof have ceased to be in full force and effect other than by the mutual consent of the parties to the Stock Purchase Agreement such that the TWREF under the Stock Purchase Agreement shall not be able to realize the material benefits thereof. In the case of Option A and Option B, as a condition precedent to the Lender's obligation to make any Loan in respect of a Subsequent Commitment, since March 31, 1996, there shall not have been any change, circumstance or event which has or could reasonably be expected to have a Material Adverse Effect. ARTICLE 4 Representations and Warranties 4.1 Representations and Warranties. The Borrower repeats and restates all of the representations and warranties set forth in Article 3 of the Stock Purchase Agreement for the benefit of Lender, all of which are deemed to be incorporated by reference into this Agreement as if such representations and warranties were set forth in full herein. ARTICLE 5 Covenants 5.1 Covenants. For so long as any of the Obligations shall be outstanding hereunder, the Borrower covenants and agrees as follows: (a) If the Lender or TWREF has a reasonable basis to believe that a Material Adverse Effect has occurred, each of the Lender and TWREF may conduct audits of income and expenses to verify the amounts of such items as stated in any financial statements, reports or projections furnished to Lender and TWREF B-8 under this Agreement or any Related Document at the Lender's expense. The Borrower will keep adequate records and books of account with respect to each of the Properties, in which proper entries, reflecting all of the financial transactions with respect to such Properties, are made in accordance with generally accepted accounting principles applied on a consistent basis. (b) The Borrower shall take such actions as are reasonably necessary or as are reasonably requested by the Lender or TWREF to afford the Lender and TWREF the following rights, and hereby authorizes Lender and TWREF to take such actions as are reasonably necessary to accomplish such rights: (i) The right routinely to consult with and advise the management of the Borrower regarding significant business activities and business and financial developments of the Borrower, as well as to communicate directly with the Borrower's independent certified public accountants and tax advisors. The Borrower hereby authorizes those advisors of the Borrower to disclose to the Lender and TWREF any and all financial statements, other supporting financial documents and schedules, including copies of auditor response letters and management letters with respect to the business, financial condition and other affairs of the Borrower. Borrower will deliver authorizing letters to its advisors confirming the above. (ii) The right to examine the books and records of the Borrower at any time upon reasonable notice, and, at Lender's or TWREF's expense, to conduct audits of income and expenses to verify the amounts of such items as stated in any financial statements or reports furnished to Lender and TWREF under this Agreement or any related documents. (iii) The right to receive quarterly unaudited and yearly audited financial reports, including balance sheets, statements of income, shareholders' equity and cash flow, a management report, schedules of outstanding indebtedness and a monthly report displaying by property gross income, net operating income, cash flow and, on an aggregate basis, FFO and Adjusted FFO per share, and copies of all filings with the Securities and Exchange Commission promptly when same have been filed. In addition, by virtue of TWREF's representation on the several committees of the Borrower (including the Executive Committee and the Audit Committee) and the Board of Directors of the Borrower, as provided in or by reference in the Stock Purchase Agreement, Lender and TWREF will be consulted and given an opportunity to advise Borrower (and such committees and the Board) as to financing matters, property acquisitions and dispositions and operating budget and capital expenditure matters. (c) In addition to the foregoing, the Borrower agrees that all of the covenants set forth in Articles 5 and 6 of the Stock Purchase Agreement are incorporated by reference into this Agreement as if such affirmative covenants were set forth in full herein and agrees to comply with all such covenants. ARTICLE 6 Events of Default 6.1 Events of Default. If any one or more of the following events (an "Event of Default") shall occur and be continuing, the Lender shall be entitled to exercise the remedies set forth in Section 6.2 hereof: (a) Failure of the Borrower to pay when due (i) the principal of or interest on the Loan or (ii) any other amount payable hereunder if the failure to pay any such amount continues for five Business Days after receipt of notice thereof; or (b) Default in the performance of any material covenant or obligation contained or incorporated by reference herein or in the Stock Purchase Agreement or any document or instrument delivered hereunder or thereunder if the failure to perform such covenant continues for 15 Business Days after receipt of notice thereof; provided, however, that Borrower shall have a reasonable time to cure same if such cure cannot reasonably be accomplished in 15 Business Days but is being diligently pursued; or B-9 (c) The entry of a decree or order for relief in respect of the Borrower by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Borrower or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (d) The commencement by the Borrower of a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or the consent by it to the entry of an order for relief in an involuntary case under any such law or the consent by it to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Borrower or of any substantial part of its property, or the making by it of a general assignment for the benefit of creditors, or the failure of the Borrower generally to pay its debts as such debts become due or the taking of any corporate action in furtherance of any of the foregoing; or (e) Any of the assets of the Borrower shall be attached for execution or become subject to the order of any court or any other process for execution and attachment and such attachment, order or process shall remain in effect and undischarged for 60 days. 6.2 Default Remedies. If any Event of Default shall occur and be continuing, then and in every such event, and at any time thereafter during the continuance of such Event of Default the Lender may (i) terminate the Initial Commitment and the Subsequent Commitment, and (ii) declare the Loans to be forthwith due and payable, whereupon the Loans shall become forthwith due and payable both as to principal and interest together with all other amounts payable by the Borrower under this Agreement which may be due or accrued and unpaid, in each case without presentment, demand, protest or any other notice of any kind, all of which are expressly waived. 6.3 Set-Off. The Lender is hereby authorized at any time and from time to time, upon the occurrence and during the continuance of any Event of Default, without prior notice to the Borrower, to the fullest extent permitted by law, to set off and apply any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or monies at any time held and other indebtedness at any time owing by the Lender to or for the account of the Borrower against any and all of the amounts owing by the Borrower under this Agreement whether or not the Lender shall have made any demand hereunder or thereunder. 6.4 Default Interest. If the Borrower shall fail to pay when due any amount owing to the Lender under this Agreement, then to the extent permitted by law the Borrower will pay to the Lender on demand interest on the amount in default from the date such payment became due until payment in full at a rate equal to the sum of the amount due under Section 2.4 of this Agreement plus 4% per annum. ARTICLE 7 General Provisions 7.1 Expenses; Indemnification. The Borrower agrees to pay all reasonable out-of-pocket costs and expenses, including the reasonable fees and disbursements of counsel, incurred by the Lender in connection with the preparation, execution and delivery of this Agreement and the Related Documents, and any amendments and waivers hereof or thereof. The Borrower agrees to pay any reasonable legal or other expenses incurred by the Lender in connection with investigating, defending or participating in any loss, claim, damage, liability or other proceeding in connection with the enforcement of this Agreement or any of the Related Documents and the collection of any amounts owing hereunder or thereunder; provided that the Borrower shall not be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Lender or its Affiliates or any of their respective agents or employees. B-10 7.2 Cumulative Rights; No Waiver. The rights, powers and remedies of the Lender hereunder are cumulative and in addition to all rights, powers and remedies provided under any and all agreements between the Borrower and the Lender, at law, in equity or otherwise. Neither any delay nor any omission by the Lender to exercise any right, power or remedy shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or any exercise of any other right, power or remedy. 7.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section, provided receipt of copies of such counterparts is confirmed. 7.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. 7.5 Entire Agreement. This Agreement (including agreements incorporated herein), the Schedule and the Exhibits hereto contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties other than those set forth or referred to herein. This Agreement is not intended to confer upon any person not a party hereto (and their successors and assigns) any rights or remedies hereunder. B-11 7.6 Notices. All notices and other communications hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below. Notices to the Borrower shall be addressed to: Essex Property Trust, Inc. 777 California Avenue Palo Alto, CA 94304 Attn: Keith Guericke with a copy to: Michael Schall Essex Property Trust, Inc. 777 California Avenue Palo Alto, CA 94304 and another copy to: Jordan Ritter Essex Property Trust, Inc. 777 California Avenue Palo Alto, CA 94304 Notices to the Lender shall be addressed to: Patrick K. Fox General Counsel Westbrook Partners, L.L.C. 14400 North Dallas Parkway, #200 Dallas, Texas 75240 with a copy to: Keith Gelb Vice President Westbrook Partners, L.L.C. 11150 Santa Monica Boulevard Los Angeles, California 90023 and another copy to: Allen Curtis Greer, II Rogers & Wells 200 Park Avenue New York, New York 10166 or at such other address and to the attention of such other person as either party may designate by written notice to the other party delivered in accordance with this Section. 7.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Except as specifically provided by the Stock Purchase Agreement, the Borrower shall not be permitted to assign any of its rights hereunder to any third party, other than to one or more Affiliates of the Borrower of which the Borrower, directly or indirectly, beneficially owns B-12 98% or more of the voting power and the economic interests, provided that such Affiliates agree to be bound hereby , and provided that the Borrower shall remain liable hereunder, and provided that any bona fide financial institution to which the Borrower or any permitted transferee has transferred (including upon foreclosure of a pledge) shares of Company Stock for the purpose of securing bona fide indebtedness of the Borrower shall also be entitled to enforce the rights of the Borrower hereunder. The Lender may assign, or grant participations in, all or any part of its rights and interests herein and in the Note to any Person without the consent of, or notice of, the Borrower. 7.8 Headings. The Section, Article and other headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections or Articles contained herein mean Sections or Articles of this Agreement unless otherwise stated. 7.9 Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Either party hereto may, only by an instrument in writing, waive compliance by the other party hereto with any term or provision hereof on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision hereof shall not be construed as a waiver of any subsequent breach. 7.10 Interpretation; Absence of Presumption. (a) For the purposes hereof, (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (ii) the terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Exhibits hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph and Exhibit references are to the Articles, Sections, paragraphs and Exhibits to this Agreement unless otherwise specified, (iii) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall apply, when appropriate, to successive events and transactions. (b) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party, drafting or causing any instrument to be drafted. 7.11 Severability. Any provision hereof which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. 7.12 Further Assurances. The Borrower agrees that, from time to time, it will take such action as may reasonably be necessary to carry out the purposes and intents hereof. 7.13 Waiver of Jury Trial. The parties hereto knowingly, voluntarily and expressly waive all right to trial by jury in any action, proceeding or counterclaim enforcing or defending any rights arising out of or relating to this Agreement or the transactions contemplated hereby. Each of the Borrower and the Lender acknowledges that the provisions of this Section 7.13 have been bargained for and that it has been represented by counsel in connection therewith. 7.14 Maximum Interest Rate. In no event shall the rate of any interest or fee exceed the maximum rate permissible for corporate borrowers by applicable law (the "Maximum Rate"). If, in any month, any rate for any such interest or fee, absent such limitation, would have exceeded the Maximum Rate, then the rate for that month shall be the Maximum Rate, and, if in future months, that interest rate would otherwise be less than the Maximum Rate, then that interest rate shall remain at the Maximum Rate until such time as the amount of interest paid hereunder equals the amounts which would have been paid if the same had not been limited by the Maximum Rate. In the event that, upon payment in full of the Obligations, the total amount of interest and fees paid or accrued under the terms of this Agreement is less than the total amount of interest which would have been paid or accrued if the rates set forth in this Agreement had at all times been in effect, then the Borrower B-13 agrees, to the extent permitted by applicable law, to pay to the Lender an amount equal to the difference between (a) the lesser of (i) the amount of interest which would have been charged if the Maximum Rate had, at all times, been in effect, and (ii) the amount of interest and fees which would have accrued had the rates set forth in this Agreement, at all times, been in effect, and (b) the amount of interest and fees actually paid or accrued under this Agreement (up to the maximum amount of such shortfall). In addition to the foregoing provisions of this Section 7.14, the Borrower agrees that in the event the rate of interest or fees hereunder (to the extent that such fees are or are deemed by a court of competent jurisdiction to be a payment for the use of money) exceeds the Maximum Rate at any time of determination, the Lender shall have the right, but not the obligation, to the extent permitted by applicable law, to apply such excess retroactively in respect of interest or such fees such that the rate of interest or such fees hereunder is less than the Maximum Rate at such time. 7.15 Note Register. The Note or Notes are issued in registered form only and the Lender shall maintain or cause to be maintained the Note Register. B-14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date first above written. LENDER BORROWER: T/W ESSEX FUNDING, L.L.C., ESSEX PROPERTY TRUST, INC., a limited liability company a Maryland corporation By: ESSEX/TW FUNDING CORP., By: /s/ Jordan E. Ritter as Managing member ---------------------------------- Name: Jordan E. Ritter Title: Vice President By: /s/Jeffrey M. Kaplan ---------------------------- Name: Jeffrey M. Kaplan Title: Vice President By: /s/Patrick K. Fox ---------------------------- Name: Patrick K. Fox Title: Secretary LENDER BANK: BORROWER BANK: - -------------------------------------------- -------------------------------------------- - -------------------------------------------- -------------------------------------------- - -------------------------------------------- -------------------------------------------- ACCT. NO.: _________________________________ ACCT. NO.: _________________________________ CALL ADVICE: _______________________________ CALL ADVICE: _______________________________ TELEPHONE: _________________________________ TELEPHONE: _________________________________ FACSIMILE: _________________________________ FACSIMILE: _________________________________
NOTE REGISTER NOTE HOLDER PRINCIPAL AMOUNT - ---------------------------------------------------------------------------------- R-1 T/W Essex Funding, L.L.C. $33,000,000 - ----------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- B-15 EXHIBITS NOT ATTACHED B-16 AMENDMENT NO. 1 TO LOAN FACILITY AGREEMENT THIS AMENDMENT NO. 1 TO LOAN FACILITY AGREEMENT ("Amendment"), dated as of July 1, 1996, is made by and between Essex Property Trust, Inc., a Maryland corporation (the "Borrower"), and T/W Essex Funding, L.L.C., a Delaware limited liability company (the "Lender"). RECITALS: WHEREAS, the Lender and the Borrower entered into that certain Loan Facility Agreement, dated as of June 20, 1996 (the "Loan Agreement"), whereby the Lender agreed to lend to the Company and the Company agreed to borrow from the Lender up to an aggregate of $33,000,000; WHEREAS, the Borrower and certain affiliates of the Lender (such affiliates, collectively, the "Buyer") entered into that certain Stock Purchase Agreement, dated as of June 20, 1996, as amended to the date hereof (as so amended, the "Stock Purchase Agreement"), whereby, subject to certain conditions, the Borrower has agreed to sell to the Buyer and the Buyer has agreed to purchase from the Borrower an aggregate of up to 1,600,000 shares of a newly authorized series of preferred stock of the Borrower designated as 8.75% Convertible Preferred Stock, Series 1996A (the "Preferred Stock"), having the terms set forth in the form of Borrower's Articles Supplementary attached as Exhibit A thereto (the "Articles Supplementary") establishing the rights, privileges and preferences of the Preferred Stock, at a price of $25.00 per share; WHEREAS, the parties hereto desire, among other things, to reduce the amount available under the Loan Agreement to $31,500,000; WHEREAS, the Buyer and the Borrower have agreed, among other things, to enter into Amendment No. 1 to the Stock Purchase Agreement dated as of June 20, 1996; and WHEREAS, the parties hereto have agreed, among other things, to amend and modify the Loan Agreement as set forth herein. AGREEMENTS: NOW, THEREFORE, in consideration of the foregoing premises and covenants hereinafter set forth, and other good and valuable consideration had and received, the parties hereto, upon the terms and subject to the conditions contained herein, hereby agree as follows: 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Loan Agreement has the meaning ascribed to such term in the Loan Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference contained in the Loan Agreement shall from and after the date hereof refer to the Loan Agreement as amended hereby. 2. Amendment to Definitions. (a) The preamble to Section 1.1 shall be amended by adding "All references in this Agreement to any other agreement or instrument shall include such other agreement or instrument as the same may be amended, modified, reaffirmed or supplemented from time to time in accordance with the terms thereof." immediately following the first sentence thereof. (b) The definition of "Initial Commitment" in the Loan Agreement shall be amended by restating it in its entirety as follows: " "Initial Commitment' means $11,500,000." (c) The definition of "Option C" in the Loan Agreement shall be amended by deleting the words "(i) the Lender's option to exchange up to $1,500,000 principal amount of the Loan comprising the Initial Commitment for Preferred Stock pursuant to Section 2.11 hereof, and (ii) " in the first through third lines thereof. B-17 (d) The definition of "Option D" in the Loan Agreement shall be amended by deleting the term "$6,000,000" in the fourth line thereof and inserting the term "$7,000,000" in its place and stead. (e) The definition of "Option C Maturity Date" shall be amended by restating it in its entirety as follows: "Option C Maturity Date" shall mean December 31, 1996; provided, however, if the Borrower shall have notified the Lender on or before December 20, 1996, that it requests an extension, the Option C Maturity Date shall be extended to February 28, 1997; and provided, further, that if the Borrower shall have notified the Lender on or before February 20, 1997, that it requests another extension, the Option C Maturity Date shall be further extended to April 30, 1997." 3. Amendment to Section 2.10(a). Section 2.10(a) of the Loan Agreement shall be amended by restating it in its entirety as follows: "2.10(a) Procedures for Option Events. Within two Business Days following the occurrence of an Option A Event, Option B Event, Option C Event or Option D Event, Borrower shall provide Lender written notice of such occurrence (the "Notice of Occurrence"), such notice specifying the type of Option which has occurred. In the case of an Option A Event or Option B Event, the closing whereby the Loan comprising the Initial Commitment shall be exchanged for Preferred Stock shall be held on the third Business Day following Lender's receipt of the Notice of Occurrence; provided, however, the Loan shall be deemed exchanged as of the Option A Maturity Date or the Option B Maturity Date, as the case may be. In the case of an Option D Event, Lender shall deliver a written notice to Borrower within three Business Days of receipt of the Notice of Occurrence which written notice shall specify Lender's election with respect to the exchange of up to $7,000,000 of the Subsequent Commitment for Preferred Stock. The closing of such an exchange of up to $7,000,000 together with the exchange of the Loan comprising the Initial Commitment shall take place fifteen Business Days following the date Lender's written notice is received by Borrower; provided, however, the Loan comprising the Initial Commitment shall be deemed exchanged as of the Option D Maturity Date, and up to $7,000,000 Loan comprising the portion of the Subsequent Commitment shall be deemed exchanged as of the date Lender makes such election. Any such closing pursuant to this Section 2.10(a) shall be referred to as an "Initial Exchange Closing'." 4. Amendment to Section 2.11. Section 2.11 of the Loan Agreement shall be amended by deleting the words "the Option C Maturity Date" in the second line of the last paragraph thereof. 5. Amendment to Note Register and Replacement of Note. The Note Register on page 18 of the Loan Agreement shall be amended by deleting "$33,000,000" in the Principal Amount column and inserting in lieu thereof "$31,500,000." The Borrower has executed and delivered a Note in the principal amount of $31,500,000, but otherwise identical to the Note previously executed, and the Lender will, on the receipt of same at closing proceedings in New York City, cancel and surrender to the Borrower the Note reflecting a principal amount of $33,000,000. 6. Full Force and Effect. Except as specifically amended and modified hereby, the Loan Agreement shall remain in full force and effect and no party hereto waives any of its rights under the Loan Agreement. 7. Expenses; Indemnification. The Borrower agrees to pay all reasonable out- of-pocket costs and expenses, including the reasonable fees and disbursements of counsel, incurred by the Lender in connection with the preparation, execution and delivery of this Amendment and any amendments and waivers hereof. The Borrower agrees to pay any reasonable legal or other expenses incurred by the Lender in connection with investigating, defending or participating in any loss, claim, damage, liability or other proceeding in connection with the enforcement of this Amendment and the collection of any amounts owing hereunder or thereunder; provided that the Borrower shall not be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Lender or its Affiliates or any of their respective agents or employees. B-18 8. Cumulative Rights; No Waiver. The rights, powers and remedies of the Lender hereunder are cumulative and in addition to all rights, powers and remedies provided under any and all agreements between the Borrower and the Lender, at law, in equity or otherwise. Neither any delay nor any omission by the Lender to exercise any right, power or remedy shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or any exercise of any other right, power or remedy. 9. Counterparts. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section, provided receipt of copies of such counterparts is confirmed. 10. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AMENDMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. 11. Entire Agreement. The Loan Agreement, as amended hereby (including agreements incorporated herein), the Schedule and the Exhibits thereto contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties other than those set forth or referred to herein. This Amendment is not intended to confer upon any person not a party hereto (and their successors and assigns) any rights or remedies hereunder. 12. Successors and Assigns. The Loan Agreement, as amended hereby, shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Except as specifically provided by the Stock Purchase Agreement, the Borrower shall not be permitted to assign any of its rights hereunder to any third party, other than to one or more Affiliates of the Borrower of which the Borrower, directly or indirectly, beneficially owns 98% or more of the voting power and the economic interests, provided that such Affiliates agree to be bound hereby, and provided that the Borrower shall remain liable hereunder, and provided that any bona fide financial institution to which the Borrower or any permitted transferee has transferred (including upon foreclosure of a pledge) shares of capital stock for the purpose of securing bona fide indebtedness of the Borrower shall also be entitled to enforce the rights of the Borrower hereunder. The Lender may assign, or grant participations in, all or any part of its rights and interests herein and in the Note to any Person without the consent of or notice of the Borrower. 13. Headings. The Section headings contained in this Amendment are inserted for convenience of reference only and will not affect the meaning or interpretation of this Amendment. B-19 14. Amendments and Waivers. This Amendment may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Either party hereto may, only by an instrument in writing, waive compliance by the other party hereto with any term or provision hereof on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision hereof shall not be construed as a waiver of any subsequent breach. 15. Interpretation; Absence of Presumption. This Amendment shall be construed without regard to any presumption or rule requiring construction or interpretation against the party, drafting or causing any instrument to be drafted. 16. Severability. Any provision hereof which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. 17. Further Assurances. The Borrower agrees that, from time to time, it will take such action as may reasonably be necessary to carry out the purposes and intents hereof. 18. Waiver of Jury Trial. The parties hereto knowingly, voluntarily and expressly waive all right to trial by jury in any action, proceeding or counterclaim enforcing or defending any rights arising out of or relating to this Amendment or the transactions contemplated hereby. Each of the Borrower and the Lender acknowledges that the provisions of this Section have been bargained for and that it has been represented by counsel in connection therewith. * * * IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed on the date first above written. LENDER: BORROWER: T/W Essex Funding, L.L.C., Essex Property Trust, Inc., a a Delaware limited liability company Maryland corporation By: Essex/TW Funding Corp., as /s/ Michael Schall Managing Member By:__________________________________ Name: Michael Schall /s/ Jeffrey M. Kaplan Title: CFO By:__________________________________ Name: Jeffrey M. Kaplan Title: Vice President B-20 APPENDIX C REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of this 20th day of June 1996, by and between Essex Property Trust, Inc., a Maryland corporation (the "Company"), and Tiger/Westbrook Real Estate Fund, L.P., a Delaware limited partnership, and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P., a Delaware limited partnership (collectively, and including any nominee or nominees in whose name securities may be held, the "Investor"). RECITALS WHEREAS, the Company and the Investor are parties to a Stock Purchase Agreement, as amended on the date hereof (as amended, the "Stock Purchase Agreement") of even date herewith relating to the purchase by Investor of certain shares of the Company's 8.75% Convertible Preferred Stock, Series 1996A; WHEREAS, in order to induce the Investor to invest funds in the Company pursuant to the Stock Purchase Agreement and to induce the Company to enter into the Stock Purchase Agreement, the Investor and the Company hereby agree that this Agreement shall govern the rights of the Investor to cause the Company to register shares of Preferred Stock and Common Stock issuable to the Investor upon conversion of the Preferred Stock or otherwise as provided herein; WHEREAS, the Company has entered into an amendment, of even date herewith, a copy of which is attached hereto as Exhibit A-1, to that certain Investor Rights Agreement dated as of June 13, 1994 (as amended, the "Existing Investor Rights Agreement", a copy of which is attached hereto as Exhibit A-2), between the Company and the investors party thereto (collectively, the "Existing Rights Holders"), whereby the Existing Rights Holders have agreed their rights thereunder shall be subordinated to the rights of the Investor hereunder; NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Definition. As used in this Agreement, the following: 1.1 The term "Common Stock" shall mean the Common Stock of the Company, par value $.0001 per share. 1.2 The term "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 1.3 The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 1.4 The term "NYSE" shall mean the New York Stock Exchange. 1.5 The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. 1.6 The term "Registrable Securities" means (i) the Preferred Stock, (ii)Common Stock issuable or issued upon conversion of the Preferred Stock and (iii) any Common Stock of the Company issued as a dividend or distribution or issuable upon the conversion or exercise of any warrant, right or other security which is issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, such Preferred Stock or Common Stock; provided, however, that shares of Preferred Stock or such Common Stock or other securities shall not be treated as Registrable Securities (A) if such securities are sold by an entity or person in a transaction in which the registration rights are not assigned, (B) if a registration statement with respect to the sale of such securities shall have become effective under the Securities Act C-1 and such securities have been disposed of in accordance with such registration statement, (c) if such securities have been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction pursuant to an effective registration statement or pursuant to Rule 144 ("Rule 144") under the Securities Act, or (D) if on the date of the proposed sale, in the opinion of counsel to the Company such securities may be sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all other restrictions and legends with respect thereto are removed upon the consummation of such sale. 1.7 The term "Preferred Stock" shall mean the 8.75% Convertible Preferred Stock, Series 1996A of the Company, par value $.0001 per share. 1.8 The term "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 2. Requested Registration 2.1 Requested Registration. As to all but not less than all of the Preferred Stock purchased by the Investor, at any time after the Investor has completed its purchase of Preferred Stock under the Stock Purchase Agreement, and with respect to shares of Common Stock that are Registrable Securities under this Agreement only after the eight-month anniversary of the date of this Agreement, and from time to time thereafter, if the Company shall receive from the Investor on behalf of the Investor and the other holders of Registrable Securities a written request for the Company to effect any registration, qualification or compliance with respect to Registrable Securities with respect to, if a requested registration of Preferred Stock (and underlying Common Stock if necessary to permit the Preferred Stock to be registered in accordance within the rules and regulations of the Commission), all of the Preferred Stock then held by Investor and all other holders of Preferred Stock (but at least $7,000,000 in expected aggregate offering price (as determined based on the number of shares of Common Stock into which such Preferred Stock is convertible and the highest closing price of the Common Stock on a public exchange within five business days of such written request) to the public, net of underwriters' discounts and commissions), and, if a requested registration of Common Stock, no less than 25% of the Registrable Securities (but at least $7,000,000 in expected aggregate offering price (as determined based on the highest closing price of the Common Stock on a public exchange within five business days of such written request) to the public, net of underwriters' discounts and commissions) then held by the Investor, the Company will use its best efforts to effect all such registrations, qualifications and compliances within 120 days of such request (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualification under the applicable blue sky or other state securities laws and appropriate compliance with regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of such Investor's Registrable Securities as are specified in such request; provided that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 2: (a) other than with respect to Registrable Securities; (b) in an particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (c) if the Company has already effected one registration for the Investor pursuant to this Section during the immediately preceding twelve-month period; or (d) if at the time of the request to register Registrable Securities the Company gives notice within 30 days of such request that it is engaged, or has fixed plans to engage within 60 days of the time of the request, in a registered public offering as to which the Investor may include Registrable Securities pursuant to Section 5 and provided that the Company may not exercise this right more than once in any twelve- month period. C-2 2.2 Underwriting. If the Investor intends to distribute the Registrable Securities covered by its request by means of an underwritten public offering, it shall so advise the Company and the Investor shall designate the underwriter to be considered as the lead underwriter to be employed in connection therewith subject to the approval of the Company, which approval shall not be unreasonably withheld or delayed. The Company shall (together with the Investor if legally required) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 2.2, if the underwriter (in an underwritten offering in which such securities are to be distributed by or through one or more underwriters of recognized standing under underwriting terms customary for such transactions) advises the Company and the Investor in writing that, in its belief the amount of securities requested to be included in such registration or offering exceeds the amount which can be sold in (or during the time of) such offering without delaying or jeopardizing the success of the offering (but not including adjustments to the price per share of such securities to be sold, which shall remain in the sole discretion of the Investor) the number of Registrable Securities of the Investor to be included in the registration and underwriting shall be reduced as such underwriter, the Investor and the Company may agree. If the Investor disapproves of the terms of any such underwriting, the Investor may elect to withdraw therefrom by written notice to the Company and the underwriter. The Registrable Securities so withdrawn shall also be withdrawn from registration. If the underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account or the account of others in such registration if the underwriter so agrees and if the number of Registrable Securities which would otherwise have been included in such registration and underwriting will not thereby be limited, and, in the reasonable belief of such underwriter, if the per share sales price for the Registrable Securities will not thereby be materially and adversely affected. 3. Shelf Registration. 3.1 Shelf Registration; Obligation to File and Maintain. As to all but not less than all of the Preferred Stock purchased by the Investor, at any time after the Investor has completed its purchase of Preferred Stock under the Stock Purchase Agreement, and, with respect to any shares of the Common Stock that are Registrable Securities under this Agreement only at any time after the eight-month anniversary of the date of this Agreement, and from time to time thereafter, promptly upon the written request of the Investor, the Company will use its best efforts to file with the Commission a registration statement or statements under the Securities Act for the offering on a continuous or delayed basis in the future of Registrable Securities in such amount and type as aforesaid (collectively, the "Shelf Registration"). The Shelf Registration shall be on an appropriate form and the Shelf Registration and any form of prospectus included therein or prospectus supplement relating thereto shall reflect such plan of distribution or method of sale as the Investor may from time to time notify the Company, including the sale of some or all of the Registrable Securities in a public offering or, if requested by the Investor, subject to receipt by the Company of such information (including information relating to purchasers) as the Company reasonably may require, (i) in a transaction constituting an offering outside the United States which is exempt from the registration requirements of the Securities Act in which the Company undertakes to effect registration of such shares as soon as possible after the completion of such offering in order to permit such shares freely to be tradeable in the United States, (ii) in a transaction constituting a private placement under Section 4(2) of the Securities Act in connection with which the Company undertakes to register such shares after the conclusion of such placement to permit such shares freely to be tradeable by the purchasers thereof, or (iii) in a transaction under Rule 144A of the Securities Act in connection with which the Company undertakes to register such shares after the conclusion of such transaction to permit such shares freely to be tradeable by the purchasers thereof. The Company shall use its best efforts to keep the Shelf Registration continuously effective for the period beginning on the date on which the Shelf Registration is declared effective and ending on the first date that there are no Registrable Securities (provided that the Company may terminate the effectiveness of a Shelf Registration on the second anniversary of the date of effectiveness thereof plus a number of days equal to the number of days in all Registration Suspension Periods relating to such Shelf Registration). During the period during which the Shelf Registration is effective, the Company shall supplement or make C-3 amendments to the Shelf Registration, if required by the Securities Act or if reasonably requested by the Investor or an underwriter of Registrable Securities, including to reflect any specific plan or distribution or method of sale, and shall use its reasonable best efforts to have such supplements and amendments declared effective, if required, as soon as practicable after filing. Once any registration statement filed pursuant to this Section 3 has been declared effective, any period during which the Company fails to keep such registration statement effective and usable for resale of Registrable Securities for the period required by Section 7(b) shall be referred to as a "Registration Suspension Period." A Registration Suspension Period shall commence on and include the date that the Company gives written notice to the Investor of its determination that such registration statement is no longer effective or usable for resale of Registrable Securities (the "Suspension Notice") to and including the date when the Company notifies the Investor that the use of the prospectus included in such registration statement may be resumed for the disposition of Registrable Securities. 3.2 Minimum. The Company shall not be required to comply with a request by the Investor pursuant to Section 3, except to the extent that the Registrable Securities to be included in any such registration statement aggregate at least $7,000,000 in expected offering price to the public as determined based on the highest closing price of the Common Stock on a public exchange within five business days of such written request, net of underwriters' discounts and commissions or are such lesser amount of Registrable Securities as shall constitute all of the Registrable Securities then outstanding. The obligations of the Company under this Section 3 shall terminate if the Investor and its assignees hereunder do not hold at least the lesser of (i) 200,000 shares of Preferred Stock (or such number of shares of Common Stock as shall have resulted from a conversion thereof)(subject to adjustment to give effect to stock splits, stock dividends and other similar transactions occurring after the date hereof) or (ii) 12.5% of the total amount of shares of Preferred Stock that the Investor purchases pursuant to the Stock Purchase Agreement. 3.3 Underwriting. Any and all underwriters or other agents involved in any sale of Registrable Securities pursuant to a registration statement contemplated by this Section 3 shall include such underwriter(s) or other agent(s) as selected by the Investor and approved of by the Company, which approval shall not be unreasonably withheld or delayed. 4. Delay of Registration. If the Company shall furnish to the Investor a certificate signed by the President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for a registration statement required under Section 2 or 3 to be filed on or before the date filing would be required and it is therefore essential to defer the filing of such registration statement, then the Company may direct that such request for registration be delayed for a period not in excess of 60 days, such right to delay a request to be exercised by the Company not more than once in any twelve-month period. 5 Company Registration. 5.1 Notice of Registration. The Investor will have no rights under this Section 5 until the first anniversary of the date of this Agreement. From time to time thereafter, if the Company shall register (or shall determine to issue under a shelf registration statement already on file) any of its Common Stock (or any other security junior to the Preferred Stock), either for its own account or the account of a security holder or holders (other than the Investor), other than a registration (i) relating to employee stock option or purchase plans, (ii) relating to a transaction pursuant to Rule 145 under the Securities Act, (iii) pursuant to a registration form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of Common Stock or (iv) of primary shares of Common Stock by the Company on a form that does not permit both primary and secondary shares to be included in the same registration statement, the Company will: (a) promptly give to the Investor written notice thereof; and C-4 (b) include in such registration and in any underwriting involved therein, all shares of the Common Stock that are Registrable Securities under this Agreement specified in a written request, made within 20 days after receipt of such written notice from the Company, by the Investor. 5.2 Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Investor as a part of the written notice given pursuant to Section 5.1, the right of the Investor to registration pursuant to Section 5 shall be conditioned upon such Investor's participation in such underwriting and the inclusion of such Investor's Registrable Securities in the underwriting to the extent provided herein. The Investor shall (together with the Company and other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Section 5.2, if the underwriter advises the Company in writing that marketing factors require a limitation of the number of shares to be underwritten, the number of Registrable Securities of the Investor to be included in the registration and underwriting shall be reduced provided that the shares of other holders of securities of the Company included in the registration and underwriting shall be reduced prior to any reduction in the number of shares of Registrable Securities of the Investor that may be included in the registration and underwriting. The Registrable Securities so withdrawn shall also be withdrawn from registration. 6. Expenses of Registration. All expenses incurred in connection with any registration, qualification or compliance pursuant to this Agreement, including without limitation, all registration, filing and qualification fees, printing expenses, fees and disbursements of counsel for the Company, expenses of any special audits incidental to or required by such registration, qualification or compliance and the reasonable fees and disbursements of one counsel for the Investor shall be borne by the Company. The Company shall not be required to pay underwriters' discounts, commissions, or stock transfer taxes relating to Registrable Securities. 7. Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Agreement in which the Investor is participating, the Company will keep the Investor advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense (except as otherwise provided in Section 6 above), the Company will: (a) prepare and file with the Commission the requisite registration statement (including a prospectus therein) to effect such registration and use its best efforts to cause such registration statement to become effective, provided that before filing such registration statement or any amendments or supplements thereto, the Company will furnish to Investor and counsel selected by Investor copies of all documents required to be filed, which documents will be subject to review by such counsel before such filing is made, and the Company will comply with any reasonable request made by such counsel to make changes to any information contained in such filing or in such documents relating to Investor; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until, in the case of Section 2, the earlier of such time as all of such securities have been disposed of and the date which is 180 days after the date of initial effectiveness of such registration statement, or in the case of Section 3, the termination of the period during which the Shelf Registration is required to be kept effective; (c) furnish to the Investor and to the underwriters of the securities being registered such number of copies of the registration statement, preliminary prospectus, final prospectus and other documents incident thereto as such underwriters and the investor from time to time may reasonably request; (d) use its best efforts to register or qualify the securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions as such the Investor may reasonably request, and keep such registration or qualification in effect for so long as such registration statement remains in effect; C-5 (e) enter into a written underwriting agreement in customary form and substance reasonably satisfactory to the Company, the Investor and the managing underwriter or underwriters of the public offering of such securities, if the offering is to be underwritten, in whole or in part; (f) notify the Investor, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and, at the request of Investor properly prepare and furnish to Investor a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made; (g) furnish, at the request of the Investor, if the Investor is requesting registration of Registrable Securities pursuant to this Agreement, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Agreement, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statements with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Investor, reasonably satisfactory in form and substance to the Investor, and (ii) a letter dated such date, from the independent certified public accountants of the Company, who have certified the Company's financial statements included in such registration statement; covering substantially the same matters with respect to such registration statement (and the prospectus contained therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, all as are customarily covered as opinions of various counsel and in accountants' "comfort" letters delivered to underwriters in underwritten public securities offerings; (h) list all Registrable Securities covered by such registration statement on the NYSE or such other securities exchange as may be mutually agreed upon by the parties and such securities exchange; (i) provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; (j) comply or continue to comply in all material respects with the Securities Act and the Exchange Act and with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months, but not more than 18 months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and not file any amendment or supplement to such registration statement or prospectus to which the Investor shall have reasonably objected on the grounds that such amendment or supplement to such registration statement or prospectus to which the Investor shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act, having been furnished with a copy thereof at the earliest practicable date; and (k) in connection with preparation and filing of a registration statement under the Securities Act, furnish to the Investor, its underwriters, if any, and their respective counsel, the opportunity to participate in the preparation of such registration statement, each prospectus included therein as filed with the Commission, and each amendment thereof or supplement thereto, and shall give each of them access to its books and records and such opportunities to discuss the business of the Company with its officers, its counsel and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of Investor's and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. C-6 The Company shall also have the obligations with regard to listing of Preferred Stock as specified in the Stock Purchase Agreement. The parties anticipate that any registration pursuant to this Agreement shall be a registration on Form S-3 (or a substantially equivalent registration form under the Securities Act subsequently adopted by the Commission that permits inclusion or incorporation by reference to other documents filed by the Company with the Commission), but agree that should Form S-3 not be available to the Company such unavailability does not alter the rights of the Investor or the obligations of the Company hereunder. 8. Indemnification. 8.1 Indemnification by the Company. In the event of any registration of any Registrable Securities pursuant to this Agreement under the Securities Act, the Company will, and hereby does, indemnify and hold harmless Investor, each other person who participates as an underwriter in the offering or sale of such securities and each other person who controls any such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which Investor or any such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Company will reimburse Investor and each such underwriter and controlling person for any reasonable legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceedings; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by Investor or any other person who participates as an underwriter in the offering or sale of such securities, in either case, specifically stating that it is for use in the preparation thereof, and provided, further, that the Company shall not be liable to any person who participates as an underwriter in the offering or sale of Registrable Securities or any other person, if any, who controls such underwriter within the meaning of the Securities Act in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such person's failure to send or give a copy of the final prospectus or supplement to the persons asserting an untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such person if such statement or omission was corrected in such final prospectus or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of Investor or any such underwriter or controlling person and shall survive the transfer of such securities by Investor. 8.2 Indemnification by Investor. The Company may require, as a condition to including any Registrable Securities in any registration statement, that the Company shall have received an undertaking satisfactory to it from Investor to indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) of this Section 8) the Company, each director of the Company, each officer of the Company and each other person, if any, who controls the Company within the meaning of the Securities Act, and each other person who participates as an underwriter in the offering or sale of such securities and each other person who controls any such underwriter within the meaning of the Securities Act with respect to any untrue statement or alleged untrue statement of a material fact in or omission or alleged omission to state a material fact from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such untrue statement C-7 or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by Investor specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer, or controlling person and shall survive the transfer of such securities by Investor. 8.3 Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the proceeding paragraphs of this Section 8, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligation under the preceding paragraphs of this Section 8, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to the indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. 8.4 Other Indemnification. Indemnification similar to that specified in the preceding paragraphs of this Section 8 (with appropriate modifications) shall be given by the Company and Investor with respect to any required registration or other qualification or securities under any federal or state law or regulation of any governmental authority other than under the Securities Act. 8.5 Indemnification Payments. The indemnification required by this Section 8 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. 8.6 Contribution. If, for any reason, for the foregoing indemnity is unavailable, or is insufficient to hold harmless an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of the expense, loss, damage or liability, (i) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other (determined by reference to, among other things, whether the untrue or alleged statement of a material fact or omission relates to information supplied by the indemnifying party on the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission), or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or provides a lesser sum to the indemnified party than the amount hereinafter calculated, in the proportion as is appropriate to reflect not only the relative fault of the indemnifying party and the indemnified party, but also the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other, as well as any other relevant equitable considerations. No indemnified party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any indemnifying party who was not guilty of such fraudulent misrepresentation. 9. Information by Investor. If the Investor's Registrable Securities are included in any registration, the Investor shall furnish to the Company such information regarding the Investor and the distribution proposed by the Investor as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. C-8 10. Reporting. With a view to making available to the Investor the benefits of certain rules and regulations of the Commission which may permit the sale of Registrable Securities to the public without registration or through short form registration forms the Company agrees to: (a) use its best efforts to make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times; (b) use its best efforts to file with the Commission in a timely manner all reports and other documents required to the Company under the Securities Act and the Securities Exchange Act; and (c) furnish to the Investor, so long as the Investor owns any Registrable Securities, forthwith upon written request a written statement by the Company that it has complied with the reporting requirements of said Rule 144, the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as the Investor may reasonably request in availing itself of any rule or regulation of the Commission permitting the Investor to sell any such securities without registration. 11. Transfer of Registration Rights. The rights to cause the Company to register securities granted by the Company hereunder may be assigned or otherwise conveyed to a transferee or assignee of Registrable Securities; provided that (i) only the Investor may request, on behalf of itself and other holders of Registrable Securities, registration pursuant to this Agreement, (ii) such transfer is effected in accordance with applicable federal and state securities laws, (iii) such transferee or assignee becomes a party to this Agreement or agrees in writing to be subject to the terms hereof to the same extent as if it were the Investor hereunder, and (iv) the Company is given written notice by the Investor of said transfer, stating the name and address of said transferee and identifying the securities with respect to which such registration rights are being assigned. 12. Delivery of Shares. The Company agrees that any time after the Company delivers to the Investor an opinion of counsel to the Company (reasonably satisfactory to Investor) or Investor arranges for the delivery to the Company of an opinion of counsel (reasonably satisfactory to the Company), to the effect that the Registrable Securities may be sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and legends with respect thereto (other than those required by the Charter of the Company in effect on the date hereof) are removed upon the consummation of such sale, the Investor may request that its certificates evidencing such Registrable Securities be exchanged by the Company for certificates free and clear of all transfer restrictions and legends (other than those required by the charter of the Company in effect on the date hereof, unless deleted from the Charter after the date hereof and before any such delivery). The Company agrees to deliver such legend free shares to the Investor within three days of the Investor's request therefor. Should the Company fail to deliver such certificates within such three day period, the Company agrees to indemnify the Investor for all losses sustained by the Investor as a result of any decrease in value of such Registrable Securities from such date beginning on the third day following the Investor's request for exchange and continuing until such date as new certificates, free and clear of all legends, has been delivered to the Investor. 13. Miscellaneous. 13.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 13.2 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California. 13.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed or original, but all of which together shall constitute one and the same instrument. C-9 13.4 Title and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing and interpreting this Agreement. 13.5 Notices. Except as otherwise provided, all notices and other communications required as permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Postal Service, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate for ten (10) days' advance written notice to the other parties. 13.6 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of the Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Investor. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities and the Company. 13.7 Entire Agreement. This Agreement and the other documents and agreements referred to therein constitute the entire understanding and agreement among the parties with regard to the subject matter hereof and thereof. 13.8 Severability. If one or more provisions of this Agreement are determined to be unenforceable under applicable law, such provisions shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 13.9 Attorneys' Fees. If any action of law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and disbursements in addition to any other relief to which such party may be entitled. C-10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ESSEX PROPERTY TRUST, INC. TIGER/WESTBROOK REAL ESTATE FUND, L.P., a Delaware limited partnership By: /s/ Keith Guericke By: Tiger/Westbrook Real Estate Partners ---------------------------- Management, L.L.C., a Delaware limited liability company, General Partner Address: 777 California Avenue Palo Alto, CA 94340 Tel: ----------------- Fax: By: Westbrook Real Estate Fund I, L.L.C., ----------------- a Delaware limited liability company, Managing Member By: /s/ William H. Walton III ------------------------------- William H. Walton III, Managing Member By: /s/ Paul D. Kazilionis ------------------------------- Paul D. Kazilionis Managing Member TIGER/WESTBROOK REAL ESTATE CO-INVESTMENT PARTNERSHIP, L.P., a Delaware limited partnership By: Tiger/Westbrook Real Estate Partners Management, L.L.C., a Delaware limited liability company, General Partner By: Westbrook Real Estate Fund I, L.L.C., a Delaware limited liability company, Managing Member By: /s/ William H. Walton III ------------------------------- William H. Walton III, Managing Member By: /s/ Paul D. Kazilionis ------------------------------- Paul D. Kazilionis Managing Member C-11 EXHIBITS NOT ATTACHED C-12 APPENDIX D ESSEX PROPERTY TRUST, INC. ARTICLES SUPPLEMENTARY Reclassifying 1,600,000 shares of Common Stock as 1,600,000 shares of 8.75% Convertible Preferred Stock, Series 1996A Essex Property Trust, Inc., a corporation organized and existing under the laws of Maryland (the "Corporation"), does hereby certify to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority conferred upon the Board of Directors of the Corporation by Article FIFTH of its Charter (the "Charter") in accordance with Section 2-105 of the Maryland General Corporation Law (the "MGCL"), the Board of Directors of the Corporation, at a meeting held on June 26, 1996, duly adopted a resolution reclassifying 1,600,000 authorized but unissued shares of Common Stock (par value $.0001 per share) as Preferred Stock (par value $.0001 per share), designating such newly reclassified Preferred Stock as 8.75% Convertible Preferred Stock, Series 1996A, the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption as set forth below and authorizing the issuance of such series of Preferred Stock as set forth below. Upon any restatement of the Charter, Sections 1 through 11 of this Article FIRST shall become subsection (e) of Article FIFTH of the Charter. Section 1. Designation and Amount. Of the 670,000,000 authorized shares of Common Stock, 1,600,000 shares are reclassified and designated 8.75% Convertible Preferred Stock, Series 1996A (the "Series 1996A Stock"). Section 2. Dividends and Distributions. (a) Holders of shares of Series 1996A Stock will be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the payment of dividends, cumulative cash dividends equal to the greater of (i) 8.75% of $25.00 per share (such $25.00, the "Stated Value") per annum (rounded up to the nearest whole cent), payable quarterly, in arrears, on the 15th day of January, April, July and October of each year, commencing October 15, 1996 (each a "Dividend Payment Date") or (ii) the dividend (determined as of the most recent dividend payment date for the Common Stock) paid with respect to each share of Common Stock multiplied by a fraction of which the numerator is the Conversion Price in effect as of such Dividend Payment Date and the denominator of which is the initial Conversion Price. The dividend will accrue daily on the basis of a 360-day year of twelve 30-day months, whether or not the Corporation has earnings or surplus, and the dividend payable to the holder of a share of Series 1996A Stock on the first Dividend Payment Date after the share is issued will be the accrued dividend calculated from the day the share is issued to the Dividend Payment Date. If any Dividend Payment Date is not a Business Day, the dividend due on that Dividend Payment Date will be paid on the Business Day immediately succeeding that Dividend Payment Date. As used with regard to the Series 1996A Stock, the term "Business Day" means a day on which both state and federally chartered banks in New York, New York are required to be open for general banking business. (b) Each dividend will be payable to holders of record of the Series 1996A Stock on a date (a "Record Date") selected by the Board of Directors which is not less than ten nor more than forty-five days before the Dividend Payment Date on which the dividend is to be paid. No Record Date will precede the close of business on the date the Record Date is fixed. (c) Unless and until all accrued dividends on the Series 1996A Stock under Section 2(a) through the last preceding Dividend Payment Date have been paid, the Corporation may not (i) declare or pay any dividend, make any distribution (other than a distribution payable solely in shares of Common Stock), or set aside D-1 any funds or assets for payment or distribution with regard to any Junior Shares (as herein defined), (ii) redeem or purchase (directly or through subsidiaries), or set aside any funds or other assets for the redemption or purchase of, any Junior Shares or (iii) authorize, take or cause to be taken any action as general partner of Essex Portfolio L.P., a California limited partnership (the "Operating Partnership"), that will result in (A) the declaration or payment by the Operating Partnership of any distribution to its partners (other than distributions payable to the Corporation as general partner that will be used by the Corporation to fund the payment of dividends on the Series 1996A Stock (such distributions to the Corporation being referred to as "Authorized GP Distributions")), or set aside any funds or assets for payment of any distributions (other than Authorized GP Distributions) or (B) the redemption or purchase (directly or through subsidiaries), or the setting aside of any funds or other assets for the redemption or purchase of, any partnership interests in the Operating Partnership. As used with regard to the Series 1996A Stock, the term "Junior Shares" means all shares of Common Stock and all shares of any other class or series of stock of the Corporation to which the shares of Series 1996A Stock are prior in rank with regard to payment of dividends. (d) While any shares of Series 1996A Stock are outstanding, the Corporation may not pay any dividend, or set aside any funds for the payment of a dividend, with regard to any shares of any class or series of stock of the Corporation which ranks on a parity with the Series 1996A Stock as to payment of dividends unless at least a proportionate payment is made with regard to all accrued dividends together with all accrued but not yet due dividends (whether or not authorized) (collectively, "Accrued Dividends") on the Series 1996A Stock. A payment of dividends with regard to the Series 1996A Stock will be proportionate to a payment of a dividend with regard to another class or series of stock if the dividend per share of Series 1996A Stock is the same percentage of the Accrued Dividends with regard to a share of Series 1996A Stock that the dividend paid with regard to a share of stock of the other class or series is of the Accrued Dividends with regard to a share of stock of that other class or series. (e) Any dividend paid with regard to shares of Series 1996A Stock will be paid equally with regard to each outstanding share of Series 1996A Stock. Section 3. Voting Rights. The voting rights of the holders of shares of Series 1996A Stock will be only the following: (a) (i) The holders of the Series 1996A Stock, voting as a separate class, shall have the right to elect one director of the Corporation (a "Series 1996A Director"), in addition to the other directors elected by the holders of Common Stock (the "Common Directors") or any holders of any other class or series of stock of the Corporation voting as a separate class with the holders of the Common Stock. (ii) The holders of the Series 1996A Stock, voting as a separate class, shall have the right, as specified below, to elect additional directors (and to fill vacancies occurring with respect to any director, so elected by the holders of the Series 1996A Stock) of the Corporation, in addition to the director elected pursuant to Section 3(a)(i) and in addition to the other directors elected by the holders of Common Stock or any holders of any other class or series of stock of the Corporation voting as a separate class with the holders of the Common Stock. (A) In the event of a Charter Breach, as hereinafter defined, the number of directors shall be increased by three directors, who shall be elected as soon as practicable pursuant to the Charter by the holders of the Series 1996A Stock, to serve until the next annual meeting of stockholders and until such directors' successors are elected and qualify. A Charter Breach shall mean a breach by the Corporation of Sections 3(b) or 3(c) hereof or any successor provisions contained in any amendment to or restatement of the Charter. (B) In the event of a Dividend Default, as hereinafter defined, or in the event of both a Dividend Default and a Charter Breach, the number of directors shall be increased by four directors, who shall be elected as soon as practicable pursuant to the Charter by the holders of the Series 1996A Stock, to serve until the next annual meeting of stockholders and until such directors' successors are elected and qualify. A Dividend Default shall occur if, at any time, dividends are not paid in full with respect to all shares of Series D-2 1996A Stock on any four Dividend Payment Dates such that dividends due on such four dates have not been fully paid and are outstanding in whole or in part at the same time. (C) In the event of a Dividend Default and/or a Charter Breach, the number of Series 1996A Directors elected at each subsequent annual meeting of shareholders shall be increased as provided in subparagraphs A and B above, e.g., if a Charter Breach has occurred, the holders of Series 1996A Stock shall elect four Series 1996A Directors at subsequent annual meetings and, if a Dividend Default has occurred, or if both a Dividend Default and a Charter Breach have occurred, the holders of Series 1996A Stock shall elect five Series 1996A Directors at subsequent annual meetings, subject to the classification required by Section 2.3 of the Bylaws. (iii) The holders of the Series 1996A Stock may exercise any right under Section 3(a)(i) or (ii) to elect a director either at a special meeting of the holders of the Series 1996A Stock or at an annual meeting of the stockholders of the Corporation held for the purpose of electing directors. (iv) Whenever the holders of the Series 1996A Stock have the right under Section 3(a)(i) or (ii) to elect a director, but have not done so, the Secretary of the Corporation will, upon the written request of the holders of record of at least 25% of the outstanding shares of Series 1996A Stock, call a special meeting of the holders of the Series 1996A Stock for the purpose of electing a director or directors, as the case may be. That meeting will be held at the earliest practicable date upon the notice required for annual meetings of stockholders of the Corporation (or such shorter notice as is agreed to in writing by the holders of all the outstanding shares of Series 1996A Stock before or within ten days after the meeting) at the place specified in the request for a meeting, or if there is none, at a place in New York, New York designated by the Secretary of the Corporation. If the meeting has not been called within fifteen days after delivery of the written request to the Secretary of the Corporation, or within twenty days after the request is mailed by registered mail, addressed to the Secretary of the Corporation at the Corporation's principal office, the holders of record of at least 25% of the outstanding shares of Series 1996A Stock may designate in writing one holder to call the meeting at the expense of the Corporation, and the meeting may be called by that person upon the notice required for annual meetings of stockholders (or such shorter notice as is agreed to in writing by the holders of all the outstanding Series 1996A Stock before or within ten days after the meeting). Any holder of Series 1996A Stock or its representatives will have access to the stock ledger of the Corporation relating to the Series 1996A Stock for the purpose of causing a meeting of stockholders to be called in accordance with this Section 3(a)(iv). (v) A director elected in accordance with Section 3(a)(i) or (ii) will serve until the next annual meeting of stockholders of the Corporation and until his or her successor is elected and qualified by the holders of the Series 1996A Stock, except as otherwise provided in the Charter or Bylaws. (b) While any shares of Series 1996A Stock are outstanding, the Corporation will not, directly or indirectly, including through a merger or consolidation with any other corporation or otherwise, without approval of holders of at least 66 2/3% of the outstanding shares of Series 1996A Stock, voting separately as a class, (i) increase the number of authorized shares of Series 1996A Stock or authorize the issuance or issue of any shares of Series 1996A Stock other than to existing holders of Series 1996A Stock, (ii) increase the authorized number of shares of or create, reclassify or issue any class or series of stock ranking prior to or on a parity with the Series 1996A Stock either as to dividends or upon liquidation, (iii) amend, alter or repeal any of the provisions of the Charter so as to affect adversely the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the Series 1996A Stock, (iv) amend, alter or repeal (a) the final paragraph of Section 1.11, the final paragraph of Section 1.12, Section 2.2, Section 3.1, Section 6.7 or Section 8.6 of the Bylaws of the Corporation, (b) any other provision of the Bylaws relating to nomination, election, classification, qualification or removal of directors elected by the holders of Series 1996A Stock or size of the Board or (c) any other provision of the Bylaws in a manner which would adversely affect the rights of the holders of the Series 1996A Stock, (v) authorize any reclassification of the Series 1996A Stock, (vi) except as otherwise provided herein, require the exchange of Series 1996A Stock for other securities, or (vii) effect a voluntary liquidation, dissolution or winding up of the Corporation, the sale of substantially D-3 all of the assets of the Corporation, the merger or consolidation of the Corporation or the Operating Partnership or recapitalization (except a merger of a wholly-owned subsidiary of the Corporation into the Corporation in which the Corporation's capitalization is unchanged as a result of such merger) of more than 40% of the Corporation's total market capitalization (market value of the Corporation's equity plus total indebtedness) in a single transaction or a series of related transactions, provided that successive offerings of the Corporation's equity or debt to the public shall not be considered related transactions. (c) While any shares of the Series 1996A Stock are outstanding, the Corporation and the Operating Partnership will not, directly or indirectly, including through a merger or consolidation with any other corporation or otherwise, without the approval of the holders of a majority of the outstanding shares of Series 1996A Stock, voting separately as a class, propose, authorize, take, or cause to be taken or allow to occur any of the following actions: (I) the sale, transfer or assignment, in a single transaction or series of transactions, of beneficial interests in or voting rights with respect to assets of the Corporation or the Operating Partnership or any other person (except that with respect to any such other person in which the Corporation or Operating Partnership has a minority interest such that a sale, transfer or assignment is not within the Corporation's or Operating Partnership's control, this prohibition shall not apply) owned directly or indirectly by the Corporation to the extent of the Corporation's attributed interest in such other person, having a fair market value (based on the value of the total consideration of each such transaction, including, without limitation, any debt assumed by any purchaser in connection therewith) in excess of $45,000,000 within any 90- day period or $125,000,000 within any 360-day period; (ii) the Corporation's termination of the election, or the taking of any action by the Corporation which would cause termination other than by election, of the Corporation as a real estate investment trust under the Internal Revenue Code of 1986, as amended; (iii) any alteration in the Corporation's or the Operating Partnership's business such that (A) less than 65% of the Corporation's or the Operating Partnership's assets (in terms of book value plus accumulated depreciation) are located in the States of California, Oregon and Washington, (B) less than 80% of the Corporation's or the Operating Partnership's assets (in terms of book value plus accumulated depreciation) are located west of the Mississippi River or (c) less than 80% of the Corporation's or the Operating Partnership's assets (in terms of book value plus accumulated depreciation) are classified as multi-family residential properties; or (iv) any Change in Control of the Corporation or the Operating Partnership (as defined below). As used herein, the Corporation shall be deemed to have allowed a "Change of Control" of the Corporation or the Operating Partnership to have occurred if any of the following occur: (i) the Corporation takes or fails to take any action such that it ceases to be required to file reports under Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor to that Section; (ii) any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act) is permitted by the Board or the Corporation to become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of either (a) 30% or more of the outstanding shares of Common Stock, or (b) 30% (by right to vote or grant or withhold any approval) of the outstanding securities of any other class or classes which individually or together have the power to elect a majority of the members of the Board; (iii) the Board determines to recommend the acceptance of any proposal set forth in a tender offer statement or proxy statement filed by any person with the Securities and Exchange Commission which indicates the intention on the part of that person to acquire, or acceptance of which would otherwise have the effect of that person acquiring, control of the Corporation; (iv) other than as a result of the death or disability of one or more of the directors within a three-month period, a majority of the members of the Board for any period of three consecutive months are not persons who (a) had been directors of the Corporation for at least the preceding 24 consecutive months or were elected by the holders of the Series 1996A Stock, voting separately as a class, or (b) when they initially were elected to the Board, (x) were nominated (if they were elected by the stockholders) or elected (if they were elected by the directors) with the affirmative concurrence of 66-2/3% of the directors who were Continuing Directors at the time of the nomination or election by the Board and (y) were not elected as a result of an actual or threatened solicitation of proxies or consents by a person other than the Board or an agreement intended to avoid or settle such a proxy solicitation (the directors described in clauses (a) and (b) of this subsection (iv) being "Continuing Directors"); (v) the Corporation ceases to be the sole General Partner of the Operating Partnership or grants or sells to any third party the power to D-4 control or direct the actions of the Operating Partnership as if such third party were a general partner of the Operating Partnership; or (vi) the Operating Partnership is a party to any entity conversion or any merger or consolidation in which the Operating Partnership is not the surviving entity in such merger or consolidation. Section 4. Liquidation. Upon the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, the holders of the Series 1996A Stock will be entitled to receive out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, before any distribution is made to holders of any Junior Shares, an amount per share (the "Liquidation Preference") equal to 105% of the sum of (I) Stated Value plus (ii) all Accrued Dividends with regard to the Series 1996A Stock to the date of final distribution (whether or not declared). If, upon any liquidation, dissolution or winding-up of the Corporation, the assets of the Corporation, or proceeds of those assets, available for distribution to the holders of Series 1996A Stock and of shares of all other classes or series which are on a parity as to distributions on liquidation with the Series 1996A Stock are not sufficient to pay in full the Liquidation Preference to the holders of the Series 1996A Stock and any liquidation preference of all other classes or series which are on a parity as to distributions on liquidation with the Series 1996A Stock, then the assets, or the proceeds of those assets, which are available for distribution to the holders of Series 1996A Stock and of the shares of all other classes or series which are on a parity as to distributions on liquidation with the Series 1996A Stock will be distributed to the holders of the Series 1996A Stock and of the shares of all other classes or series which are on a parity as to distributions on liquidation with the Series 1996A Stock ratably in accordance with the respective amounts of the liquidation preferences of the shares held by each of them. After payment of the full amount of the Liquidation Preference, the holders of Series 1996A Stock will not be entitled to any further distribution of assets of the Corporation. For the purposes of this Section, neither a consolidation or merger of the Corporation with another corporation, nor a sale or transfer of all or any part of the Corporation's assets for cash or securities, will be considered a liquidation, dissolution or winding-up of the Corporation. Section 5. Conversion Into Common Stock. (a) Optional Conversion. (i) Each holder of shares of Series 1996A Stock will have the right, at the holder's option, to convert all or any of the shares of Series 1996A Stock held of record by the holder into (A) a number of fully paid and non-assessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) equal to Stated Value plus the amount, if any, of Accrued Dividends as of the effective date of the conversion, divided by the Conversion Price then in effect, or (B) such other securities or assets as the holder is entitled to receive in accordance with Section 5(e). (ii) Notwithstanding the provisions of Section 5(a)(i), the shares of Series 1996A Stock shall not be convertible into Common Stock until June 20, 1997, and beginning on such date a number of shares of Series 1996A Stock equal to 25% of the authorized shares of Series 1996A Stock, and then at the beginning of each of the next three three-month periods thereafter, an additional number of shares equal to 25% of such authorized shares shall become convertible into Common Stock as provided herein; provided, further, however, that, in the case of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, shares of Series 1996A Stock shall, at the option of the holder thereof, immediately become convertible into Common Stock as provided herein. (iii) The holder of each share of Series 1996A Stock to be converted must surrender the certificate representing that share to the conversion agent for the Series 1996A Stock appointed by the Corporation (which may be the Corporation itself), with the Notice of Election to Convert on the back of that certificate duly completed and signed, at the principal office of the conversion agent. If the shares issuable on conversion are to be issued in a name other than the name in which the Series 1996A Stock is registered, each share surrendered for conversion must be accompanied by an instrument of transfer, in form reasonably satisfactory to the Corporation, duly executed by the holder or the holder's duly authorized attorney and by funds in an amount sufficient to pay any transfer or similar tax which is required to be paid in connection with the transfer or evidence that such tax has been paid. (b) Mandatory Conversion. If after June 20, 2001, the closing price of the Common Stock on each of at least 20 Trading Days (as herein defined) (including the trading day immediately before the Notice of Mandatory Conversion) out of the preceding period of 30 consecutive Trading Days immediately prior to D-5 the Notice of Mandatory Conversion shall be greater than the Conversion Price in effect on each of such 20 Trading Days, the Corporation shall have the right, subject to the right of the holders under Section 7, to convert all, but not less than all, of the outstanding shares of Series 1996A Stock into a number of fully paid and non-assessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) equal to Stated Value plus the amount, if any, of Accrued Dividends as of the effective date of the conversion, divided by the Conversion Price then in effect. In order to effect the mandatory conversion of the Series 1996A Stock, the Corporation shall mail a notice (the "Notice of Mandatory Conversion") to all holders of outstanding shares of Series 1996A Stock on a date (the "Mandatory Conversion Notice Date") at least 90 but not more than 120 days prior to the conversion date specified in the Notice of Mandatory Conversion (the "Mandatory Conversion Date"). If the Corporation gives a Notice of Mandatory Conversion, the outstanding shares of Series 1996A Stock will be automatically converted into shares of Common Stock at the close of business on the Mandatory Conversion Date regardless of whether the holders of shares of Series 1996A Stock actually surrender the certificates representing their shares of Series 1996A Stock for conversion. At the close of business on the Mandatory Conversion Date, (i) the certificates representing the shares of Series 1996A Stock will cease to represent anything other than the right to receive the shares of Common Stock into which the shares of the Series 1996A Stock were automatically converted and (ii) the Corporation may, at its option (the exercise of which will be described in the Notice of Mandatory Conversion), either (A) deliver certificates representing the shares of Common Stock to which the holders of the Series 1996A Stock are entitled without requiring the surrender of the certificates which formerly represented shares of Series 1996A Stock, or (B) deliver certificates representing the shares of Common Stock when the holder surrenders the certificates which formerly represented the Series 1996A Stock and complies with the other requirements of subparagraph 5(a)(iii). (c) Conversion Procedures. (i) The effective time of the conversion under Section 5(a) shall be immediately prior to the close of business on the day when all the conditions in Section 5(a)(iii) have been satisfied. The effective time of the conversion under Section 5(b) shall, subject to the rights of holders under Section 5(a) and Section 7, be immediately prior to the close of business on the Mandatory Conversion Date. (ii) If shares are surrendered between the close of business on a dividend payment Record Date and the opening of business on the corresponding Dividend Payment Date ("Ex Record Date Shares"), the dividend with respect to those shares will be payable on the Dividend Payment Date to the holder of record of the Ex Record Date Shares on the dividend payment Record Date notwithstanding the surrender of the Ex Record Date Shares for conversion after the dividend payment Record Date and prior to the Dividend Payment Date. The Corporation will make no payment or adjustment for Accrued Dividends on Ex Record Date Shares, whether or not in arrears, or for dividends on the shares of Common Stock issued upon conversion of the Ex Record Date Shares, other than to make payment to the holder of record thereof on the Record Date. The provisions of this Section 5(c)(ii) shall not limit the obligation of the Corporation to issue shares of Common Stock in conversion of shares of Series 1996A Stock, including Ex Record Date Shares, at Stated Value plus Accrued Dividends, as elsewhere provided in these Articles. (iii) Except as otherwise permitted in clause (ii)(B) of the last sentence of Section 5(b), as promptly as practicable after the effective time for conversion of shares of Series 1996A Stock, the Corporation will issue and will deliver to the holder at the office of the conversion agent, or on the holder's written order, a certificate or certificates representing the number of full shares of Common Stock issuable upon the conversion of the shares of Series 1996A Stock. Any fractional interest in respect of a share of Common Stock arising upon a conversion will be settled as provided in Section 5(d). (iv) Each conversion will be deemed to have been effected at the effective time provided in Section 5(c)(i), and the person in whose name a certificate for shares of Common Stock is to be issued upon a conversion will be deemed to have become the holder of record of the shares of Common Stock represented by that certificate at such effective time. All shares of Common Stock delivered upon conversion of Series 1996A Stock will upon delivery be duly and validly issued and fully paid and nonassessable, free of all liens and charges and not subject to any preemptive rights. The shares of Series 1996A Stock so converted will no longer be deemed to be outstanding and all rights of the holder with respect to those shares will immediately D-6 terminate, except the right to receive the shares of Common Stock or, if applicable, other securities, cash or other assets to be issued or distributed as a result of the conversion. (d) Fractional Shares. No fractional shares of Common Stock will be issued upon conversion of shares of Series 1996A Stock. Any fractional interest in a share of Common Stock resulting from conversion of shares of Series 1996A Stock will be paid in cash (computed to the nearest cent) based on the Current Market Price (as herein defined) of the Common Stock on the Trading Day next preceding the day of conversion. If more than one share of Series 1996A Stock is surrendered for conversion at substantially the same time by the same holder, the number of full shares of Common Stock issuable upon the conversion will be computed on the basis of all the shares of Series 1996A Stock surrendered at that time by that holder. (e) Conversion Price. The "Conversion Price" per share of Series 1996A Stock will initially be $21.875, and will be adjusted as follows from time to time if any of the events described below occurs: (i) If the Corporation (A) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock, (B) subdivides its outstanding Common Stock into a greater number of shares, or (c) combines its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to that event will be reduced so that the holder of a share of Series 1996A Stock surrendered for conversion after that event will receive the number of shares of Common Stock which the holder would have received if the share of Series 1996A Stock had been converted immediately before the happening of the event (or, if there is more than one such event, if the share of Series 1996A Stock had been converted immediately before the first of those events and the holder had retained all the Common Stock or other securities or assets received after the conversion). An adjustment made pursuant to this Section 5(e)(i) will become effective immediately after the record date in the case of a dividend or distribution, and will become effective immediately after the effective date in the case of a subdivision or combination. If such dividend or distribution is declared but is not paid or made, the Conversion Price then in effect will be appropriately readjusted. However, a readjustment of the Conversion Price will not affect any conversion which takes place before the readjustment. (ii) If the Corporation issues rights or warrants to the holders of its Common Stock as a class entitling them to subscribe for or purchase Common Stock at a price per share less than the Conversion Price at the record date for the determination of stockholders entitled to receive the rights or warrants, the Conversion Price in effect immediately before the issuance of the rights or warrants will be reduced in accordance with the equation set forth on Exhibit A hereto, which is hereby incorporated by reference herein. The adjustment provided for in this Section 5(e)(ii) will be made successively whenever any rights or warrants are issued, and will become effective immediately after each record date. In determining whether any rights or warrants entitle the holders of the Common Stock to subscribe for or purchase shares of Common Stock at less than the Conversion Price, and in determining the aggregate sale price of the shares of Common Stock issuable on the exercise of rights or warrants, there will be taken into account any consideration received by the Corporation for the rights or warrants, with the value of that consideration, if other than cash, to be determined by the Board of Directors of the Corporation (whose determination, if made in good faith, will be conclusive). If any rights or warrants which lead to an adjustment of the Conversion Price expire or terminate without having been exercised, the Conversion Price then in effect will be appropriately readjusted. However, a readjustment of the Conversion Price will not affect any conversions which take place before the readjustment. (iii) If the Corporation distributes to the holders of its Common Stock as a class any shares of stock of the Corporation (other than Common Stock) or evidences of indebtedness or assets (other than cash dividends or distributions) or rights or warrants (other than those referred to in Section 5(e)(ii)) to subscribe for or purchase any of its securities, then, in each such case, the Conversion Price will be reduced so that it will equal the price determined by multiplying the Conversion Price in effect immediately prior to the record date for the distribution by a fraction of which the numerator is the Current Market Price of the Common Stock on the record date for the distribution less the then fair market value (as determined by the Board of Directors, whose determination, if made in good faith, will be conclusive) of the stock, evidences of indebtedness, assets, rights or warrants which are distributed with respect to one share of Common Stock, D-7 and of which the denominator is the Current Market Price of the Common Stock on that record date. Each adjustment will become effective immediately after the record date for the determination of the stockholders entitled to receive the distribution. If any distribution is declared but not made, or if any rights or warrants expire or terminate without having been exercised, effective immediately after the decision is made not to make the distribution or the rights or warrants expire or terminate, the Conversion Price then in effect will be appropriately readjusted. However, a readjustment will not affect any conversions which take place before the readjustment. (iv) If the Corporation issues or sells (or the Operating Partnership issues or sells) any equity or debt securities which are convertible, directly or indirectly, into or exchangeable for shares of Common Stock ("Convertible Securities") or any rights, options (other than the issuance or exercise after the date hereof of stock options covering no more than 715,400 shares of Common Stock, subject to appropriate adjustment to the extent that the Corporation (A) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock, (B) subdivides its outstanding Common Stock into a greater number of shares, or (c) combines its outstanding Common Stock into a smaller number of shares, issued to employees or directors of the Corporation or its subsidiaries under the Corporation's existing employee stock incentive plans) or warrants to purchase Common Stock at a conversion, exchange or exercise price per share which is less than the Conversion Price, unless the provisions of Section 5(e)(ii) or (iii) are applicable, the Corporation will be deemed to have issued or sold, on the later of the date on which the Convertible Securities, rights, options or warrants are issued or the date on which they first may be converted, exchanged or exercised, the maximum number of shares of Common Stock into or for which the Convertible Securities may then be converted or exchanged or which are then issuable upon the exercise of the rights, options or warrants immediately prior to the close of business on the later of the date on which the Convertible Securities, rights, options or warrants are issued or the date on which they may first be converted, exchanged or exercised, and the Conversion Price shall be adjusted downward as if it were an event covered by Section 5(e)(v). However, no further adjustment of the Conversion Price will be made as a result of the actual issuance of shares of Common Stock upon conversion, exchange or exercise of the Convertible Securities, rights, options or warrants. If any Convertible Securities, rights, options or warrants to which this Section applies are redeemed, retired or otherwise extinguished or expire without any shares of Common Stock having been issued upon conversion, exchange or exercise thereof, effective immediately after the Convertible Securities, rights, options or warrants expire, the Conversion Price then in effect will be readjusted to what it would have been if those Convertible Securities, rights, options or warrants had not been issued. However, a readjustment will not affect any conversion which takes place before the readjustment. For the purposes of this Section 5(e)(iv), (x) the price of shares of Common Stock issued or sold upon conversion or exchange of Convertible Securities or upon exercise of rights, options or warrants will be (A) the consideration paid to the Corporation for the Convertible Securities, rights, options or warrants, plus (B) the consideration paid to the Corporation upon conversion, exchange or exercise of the Convertible Securities, rights, options or warrants, with the value of the consideration, if other than cash, to be determined by the Board of Directors of the Corporation (whose determination, if made in good faith, will be conclusive) and (y) any change in the conversion or exchange price of Convertible Securities or the exercise price of rights, options or warrants will be treated as an extinguishment, when the change becomes effective, of the Convertible Securities, rights, options or warrants which had the old conversion, exchange or exercise price and an immediate issuance of new Convertible Securities, rights, options or warrants with the new conversion, exchange or exercise price. (v) If the Corporation issues or sells any Common Stock (other than on conversion or exchange of Convertible Securities or exercise of rights, options or warrants to which Section 5(e)(ii), (iii) or (iv) applies) for a consideration per share less than the Conversion Price on the date of the issuance or sale (or on exercise of options or warrants, for less than the Conversion Price on the day the options or warrants are issued), upon consummation of the issuance or sale, the Conversion Price in effect immediately prior to the issuance or sale will be reduced in accordance with the equation set forth on Exhibit A hereto, which is hereby incorporated by reference herein. D-8 (vi) If there is a reclassification or change of outstanding shares of Common Stock (other than a change in par value, or as a result of a subdivision or combination), or a merger or consolidation of the Corporation with any other entity that results in a reclassification, change, conversion, exchange or cancellation of outstanding shares of Common Stock, or a sale or transfer of all or substantially all of the assets of the Corporation, upon any subsequent conversion of Series 1996A Stock, each holder of the Series 1996A Stock will be entitled to receive the kind and amount of securities, cash and other property which the holder would have received if the holder had converted the shares of Series 1996A Stock into Common Stock immediately before the first of those events and had retained all the securities, cash and other assets received as a result of all those events. In the event that a transaction may be viewed as causing this Section 5(e)(vi) to be applicable and 5(e)(iii) is also applicable, then Section 5(e)(iii) will be applied and this Section 5(e)(vi) will not be applied. (vii) For the purpose of any computation under this Section 5(e), the "Current Market Price" of the Common Stock on any date will be the average of the last reported sale prices per share of the Common Stock on each of the twenty consecutive Trading Days (as defined below) preceding the date of the computation. The last reported sale price of the Common Stock on each day will be (A) the last reported sale price of the Common Stock on the principal stock exchange on which the Common Stock is listed, or (B) if the Common Stock is not listed on a stock exchange, the last reported sale price of the Common Stock on the principal automated securities price quotation system on which sale prices of the Common Stock are reported, or (c) if the Common Stock is not listed on a stock exchange and sale prices of the Common Stock are not reported on an automated quotation system, the mean of the high bid and low asked price quotations for the Common Stock as reported by National Quotation Bureau Incorporated if at least two securities dealers have inserted both bid and asked quotations for the Common Stock on at least five of the ten preceding Trading Days. If the Common Stock is not traded or quoted as described in any of clause (A), (B) or (c), the Current Market Price of the Common Stock on a day will be the fair market value of the Common Stock on that day as determined by a member firm of the New York Stock Exchange, Inc. selected by the Board of Directors. As used with regard to the Series 1996A Stock, the term "Trading Day" means (x) if the Common Stock is listed on at least one stock exchange, a day on which there is trading on the principal stock exchange on which the Common Stock is listed, (y) if the Common Stock is not listed on a stock exchange, but sale prices of the Common Stock are reported on an automated quotation system, a day on which trading is reported on the principal automated quotation system on which sales of the Common Stock are reported, or (z) if the Common Stock is not listed on a stock exchange and sale prices of the Common Stock are not reported on an automated quotation system, a day on which quotations are reported by National Quotation Bureau Incorporated. (viii) No adjustment in the Conversion Price will be required unless the adjustment would require a change of at least 1% in the Conversion Price; provided, however, that any adjustments which are not made because of this Section 5(e)(viii) will be carried forward and taken into account in any subsequent adjustment; and provided, further, that any adjustment must be made in accordance with this Section 5 (without regard to this Section 5(e)(viii)) not later than the time the adjustment may be required in order to preserve the tax-free nature of a distribution to the holders of shares of Common Stock. All calculations under this Section 5 will be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. (ix) Whenever the Conversion Price is adjusted, the Corporation will promptly send each holder of record of Series 1996A Stock a notice of the adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which the adjustment becomes effective and containing a brief description of the events which caused the adjustment. (f) If any one of the events in Sections 5(e)(i) through 5(e)(vi) occurs, then the Corporation will mail to the holders of record of the Series 1996A Stock, at least 15 days before the applicable date specified below, a notice stating the applicable one of (i) the date on which a record is to be taken for the purpose of the dividend, distribution or grant of rights or warrants, or, if no record is to be taken, the date as of which the holders of Common Stock of record who will be entitled to the dividend, distribution or rights or D-9 warrants will be determined, (ii) the date on which it is expected the Convertible Securities will be issued or the date on which the change in the conversion, exchange or exercise price of the Convertible Securities, rights, options or warrants will be effective, (iii) the date on which the Corporation anticipates selling Common Stock for less than the Conversion Price on the date of the sale (except that no notice need be given of the anticipated date of sale of Common Stock upon exercise of options or warrants which have been described in a notice to the holders of record of the Series 1996A Stock given at least 15 days before the options or warrants are exercised), or (iv) the date on which the reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of record of Common Stock will be entitled to exchange their shares of Common Stock for securities or other property deliverable upon the reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up. Failure to give any such notice or any defect in the notice will not affect the legality or validity of the reclassification, consolidation, merger, share exchange, sale, transfer, dissolution, liquidation or winding up. (g) (i) The Corporation will at all times reserve and keep available, free from preemptive rights, out of the authorized but unissued shares of Common Stock, for the purpose of effecting conversion of the Series 1996A Stock, the maximum number of shares of Common Stock which the Corporation would be required to deliver upon the conversion of all the outstanding shares of Series 1996A Stock. For the purposes of this Section 5(g)(i), the number of shares of Common Stock which the Corporation would be required to deliver upon the conversion of all the outstanding shares of Series 1996A Stock will be computed as if at the time of the computation all the outstanding shares of Series 1996A Stock were held by a single holder. (ii) Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value (if any) of the shares of Common Stock deliverable upon conversion of the Series 1996A Stock, the Corporation will take all corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at the adjusted Conversion Price. (iii) The Corporation will seek to list the shares of Common Stock required to be delivered upon conversion of the Series 1996A Stock, prior to the delivery, upon each national securities exchange, if any, upon which the outstanding shares of Common Stock are listed at the time of delivery. (h) The Corporation will pay any documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversion of Series 1996A Stock; provided, however, that the Corporation will not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of record of the Series 1996A Stock to be converted and no such issue or delivery will be made unless and until the person requesting the issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that the tax has been paid. Section 12. Status. Upon any conversion, exchange or redemption of shares of Series 1996A Stock, the shares of Series 1996A Stock which are converted, exchanged or redeemed will be reclassified as authorized and unissued shares of Common Stock, and the number of shares of Series 1996A Stock which the Corporation will have authority to issue will be decreased by the conversion, exchange or redemption of shares of Series 1996A Stock, so that the shares of Series 1996A Stock which were converted, exchanged or redeemed may not be re-issued. Section 13. Redemption after Notice of Mandatory Conversion. (a) Notwithstanding anything to the contrary contained in Section 5(b), each holder of Series 1996A Stock will have the right, exercisable at any time after the Mandatory Conversion Notice Date but prior to the Mandatory Conversion Date, to require the Corporation to redeem any or all the shares of Series 1996A Stock owned of record by the holder, at a redemption price per share (the "Redemption Price") equal to the Redemption Percentage as defined below, multiplied by the sum of (i) Stated Value plus (ii) the sum of all Accrued Dividends with regard to the Series 1996A Stock through the Redemption Date, as herein D-10 defined. As used herein, the "Redemption Percentage" shall mean the percentage specified in the following table:
REDEMPTION REDEMPTION DATE PERCENTAGE ------------------------------ ---------- Section 7. June 20, 2001 to June 19, 2002 105 Section 8. June 20, 2002 to June 19, 2003 104 Section 9. June 20, 2003 to June 19, 2004 103 Section 10. June 20, 2004 to June 19, 2005 102 Section 11. June 20, 2005 to June 19, 2006 101 Section 12. June 20, 2006 and thereafter 100
- -------- (a) In order to exercise a right to require the Corporation to redeem a holder's Series 1996A Stock, the holder must deliver a request for redemption, accompanied by the certificates representing the shares to be redeemed, to the Corporation at any time prior to the Mandatory Conversion Date. If a request for redemption is given with regard to shares of Series 1996A Stock, promptly (but in no event more than five Business Days) after the request for redemption is given to the Corporation, the Corporation will pay the holder cash equal to the Redemption Price of the shares. The date of such payment is referred to herein as the "Redemption Date." (b) (i) If a request for redemption accompanied by the certificates representing the shares to be redeemed is delivered to the Corporation, on the Redemption Date dividends will cease to accrue with regard to the shares of Series 1996A Stock to be redeemed, and at the close of business on that date the holders of those shares will cease to be stockholders with respect to those shares, will have no interest in or claims against the Corporation by virtue of the shares and will have no voting or other rights with respect to the shares. (ii) The dividend with respect to a share of Series 1996A Stock which is the subject of a request for redemption delivered on a day which falls between the close of business on a dividend payment Record Date and the opening of business on the corresponding Dividend Payment Date will be payable on the Dividend Payment Date to the holder of record of the share of Series 1996A Stock on the dividend payment Record Date notwithstanding the redemption of the share of Series 1996A Stock after the dividend payment Record Date and prior to the Dividend Payment Date. (c) At such time as there ceases to be in excess of 40,000 shares of Series 1996A Stock outstanding, the Corporation may at its option purchase all of the outstanding shares of the Series 1996A Stock from the holders thereof at a price equal to the greater of (a) 110% of the sum of the Stated Value of such shares together with all Accrued Dividends thereon and (b) the fair market value of such shares, which shall be equal to the fair market value of the Common Stock, as of such date, issuable upon conversion of such shares, together with all Accrued Dividends thereon. Section 8. Ranking. Subject to Section 3(b), the shares of Series 1996A Preferred Stock will, with respect to the payment of dividends and the distribution of assets on liquidation, dissolution or winding-up of the Corporation, rank prior to any other class or series of preferred stock or Common Stock issued by the Corporation. Section 9. Miscellaneous. (a) Except as otherwise expressly provided in these Articles Supplementary, whenever a notice or other communication is required or permitted to be given to holders of shares of Series 1996A Stock, the notice or other communication will be deemed properly given if deposited in the United States mail, postage prepaid, addressed to the persons shown on the books of the Corporation as the holders of the shares at the addresses as they appear in the books of the Corporation, as of the record date or dates determined in accordance with applicable law and with the Charter and Bylaws, as in effect from time to time. (b) Shares of Series 1996A Stock will not have any designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications or terms and conditions of redemption, other than those specifically set forth herein, in the Charter, and as may be provided under applicable law insofar as any such provision does not conflict with the terms hereof. D-11 (c) The headings of the various subdivisions herein are for convenience only and will not affect the meaning or interpretation of any of the provisions herein. (d) Provided that the Corporation's Board of Directors determines that it is appropriate to submit to a vote of the holders of Series 1996A Stock, the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the Series 1996A Stock may be waived, and any of such provisions of the Series 1996A Stock may be amended, by the approval of holders of at least 66 2/3% of the outstanding shares of Series 1996A Stock, voting separately as a class. (e) Notwithstanding anything to the contrary contained in Section 3, Section 5 or Section 7 hereof, each holder of Series 1996A Stock hereby agrees that, in determining whether any holder of Series 1996A Stock has (i) voted to elect any director of the Corporation under Section 3(a), (ii) approved any action of the Corporation under Sections 3(b) or 3(c), (iii) elected to cause the conversion of holder's Series 1996A Stock into Common Stock or other securities or assets under Section 5, (iv) received any notice of the Corporation required by these Articles Supplementary, including without limitation notices required by Section (5)(e)(ix) and Section 5(f), or (v) elected to cause the redemption by the Corporation of such holder's Series 1996A Stock in the circumstances provided in Section 7, Tiger/Westbrook Real Estate Fund, L.P., and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P., each a Delaware limited partnership (together with their respective successors, collectively the "Fund"), shall jointly but not severally have the right to grant or deny any such approvals, make or decline any such elections or receive any such notices with regard to all of the Series 1996A Stock held of record by each such holder and a notice received by the Fund and a document executed by the Fund causing the election of any director under Section 3(a), granting or denying approval to any action by the Corporation under Section 3(c), or electing or declining to the Corporation to effect the redemption of Series 1996A Stock in the circumstances provided in Section 7 shall determine the matter for all holders. Upon written notice by the Fund to the Company, the Fund may, or upon the effectiveness of a registration statement filed with the Securities and Exchange Commission registering the sale of Series 1996A Stock pursuant to which all Series 1996A Stock has been disposed of, the Fund shall relinquish such powers over any or all of the shares of Series 1996A Stock. The foregoing provisions shall be implemented by execution by each holder of Series 1996A Stock of a proxy in favor of WBP I Holding Corp. and WBP II Holding Corp. acting as nominees for the Fund. Section 10. Permissible Distributions. In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition of shares or otherwise, is permitted under the Maryland General Corporation Law, amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of Series 1996A Stock whose preferential rights upon dissolution are superior to those receiving the distribution shall not be added to the Corporation's total liabilities. Section 11. Severability of Provisions. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof. If a court of competent jurisdiction should determine that a provision hereof would be valid or enforceable if a period of time were extended or shortened or a particular percentage were increased or decreased, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law. SECOND: The Series 1996A Stock has been reclassified by the Board of Directors under a power contained in the Charter. THIRD: These Articles Supplementary have been approved by the Board of Directors in the manner and by the vote required by law. D-12 FOURTH: The undersigned acknowledges these Articles Supplementary to be the act of the Corporation and states as to all matters and facts required to be verified under the oath that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and such statement is made under penalties for perjury. IN WITNESS WHEREOF, these Articles Supplementary are executed on behalf of the Corporation by its President and attested by its Secretary this 1st day of July, 1996. Essex Property Trust, Inc. /s/ Keith Guericke By___________________________________ Name: Keith Guericke Title: President [SEAL] Attest: /s/ Michael Schall _____________________________________ Name: Michael Schall Title: Secretary D-13 EXHIBIT A TO ESSEX PROPERTY TRUST, INC. ARTICLES SUPPLEMENTARY ESSEX PROPERTY TRUST--SERIES 1996A PREFERRED STOCK ANTI-DILUTION CONVERSION PRICE ADJUSTMENT FORMULA PURSUANT TO SECTIONS 5(E)(II) AND 5(E)(V) ("ADJUSTMENT FORMULA") OBJECTIVE: TO KEEP THE SERIES 1996A PREFERRED STOCK HOLDERS' RELATIVE OWNERSHIP PERCENTAGE OF SHARES CONSTANT (AS COMPARED TO A TRANSACTION CONSUMMATED AT THE CONVERSION PRICE), UPON THE ISSUANCE OF A "NEW DILUTIVE SECURITY" (SEE DEFINITION BELOW), THE THEN-APPLICABLE CONVERSION PRICE OF THE SERIES 1996A PREFERRED STOCK WILL BE ADJUSTED AS FOLLOWS:
PRIOR ADJUSTED CONVERSION ANTI-DILUTION CONVERSION PRICE ADJUSTMENT FORMULA PRICE - ---------- ------------------ ---------- X X (A + B + C) + EX = X* ---------------------------------- (A + B + C*) + EX*
(UP ARROW . . . MUST BE SOLVED FOR PER APPEARS CALCULATION INCLUDED IN EXAMPLE HERE) BELOW DEFINITIONS: X -- Conversion Price of Series 1996A Preferred Stock prior to issuance of "New Dilutive Security". "New Dilutive Security"--A common stock or common stock equivalent issuance at a price below X. X -- Conversion Price of Series 1996A Preferred Stock adjusted for issuance of "New Dilutive Security". A -- The number of common stock equivalent shares outstanding which includes: (i) Common Stock issued and outstanding, (ii) all Dilutive (defined below) convertible securities outstanding, excluding Operating Partnership Units and the Series 1996A Stock and (iii) all Dilutive options issued and outstanding on an as-exercised basis (excluding stock options covering 715,400 shares of Common Stock) prior to issuance of "New Dilutive Security". For purposes of this definition, a security described under (ii) or (iii) will be considered "Dilutive" in all subsequent applications of the Adjustment Formula if it triggers the Adjustment Formula upon issuance. Moreover, a security described under (ii) will be considered "Dilutive" if at issuance the security is issued at a premium of 10% or less to the current Market Price of the Common Stock and a security described under (iii) will be considered "Dilutive" if at the time of a calculation under the Adjustment Formula the Common Stock equivalent price of the security reflects a premium of 10% or less to the Current Market Price of the common stock. The Current Market Price is defined herein. B -- Shares of Common Stock issuable upon conversion of all convertible Operating Partnership Units outstanding prior to issuance of "New Dilutive Security". C -- Shares of Common Stock issuable upon conversion of all outstanding Series 1996A Stock, assuming the prior Conversion Price, (or X). C -- Shares of Common Stock issuable upon conversion of all outstanding Series 1996A Preferred Stock, assuming the adjusted Conversion Price for the New Dilutive Security issuance (or X ). EX -- "New Dilutive Security" equivalent common shares, assuming the prior Conversion Price, or X EX -- "New Dilutive Security" equivalent common shares, based on actual conversion of security For purposes of any calculation pursuant to this Exhibit A, common stock equivalent shares will be deemed to include the shares of Series 1996A Stock purchased pursuant to the certain Stock Purchase Agreement between the Corporation and the Buyer (as defined therein), dated June 20, 1996, as amended. Any calculation performed prior to the final purchase of shares of Series 1996A Stock pursuant to such Stock Purchase Agreement will be recalculated giving effect to all shares of Series 1996A Stock sold under such agreement as if such shares had been issued and outstanding at all times for purposes of the Adjustment Formula. D-14 EXAMPLE: Assume a 2.5 million share common stock issuance at $20/share (the "New Dilutive Security") following an investment of $40 million in Series 1996A Stock at a $21.875 Conversion Price. SOLUTION: . Prior to solving for C , the following table must be created:
POST-NEW DILUTIVE POST-NEW DILUTIVE SECURITY ISSUANCE SECURITY ISSUANCE AS AS PRE-NEW DILUTIVE ISSUED AT $20 PER IF ISSUED AT SECURITY ISSUANCE SHARE AND UNADJUSTED $21.875 PER SHARE -------------------- --------------------- ----------------- # OF # OF # OF SHARES PERCENTAGE SHARES PERCENTAGE SHARES % --------- ---------- ---------- ---------- ---------- ------ SHARE CAPITALIZATION OF COMPANY Common Stock Equivalent Shares(A).............. 6,275,000 63.0% 6,275,000 50.4% 6,275,000 51.2% Convertible OP Units Outstanding(B)......... 1,855,000 18.6% 1,855,000 14.9% 1,855,000 15.1% 1996A Equivalent Common Stock(C)............... 1,828,571 18.4% 1,828,571 14.7% 1,828,571 14.9% New Dilutive Security Shares (EX /EX)........ 0 0.0% 2,500,000 20.1% 2,285,714 18.7% --------- ------ ---------- ------ ---------- ------ Total................. 9,958,571 100.0% 12,458,571 100.0% 12,244,285 100.0% ========= ====== ========== ====== ========== ======
- - C is the number of shares of Common Stock into which the outstanding shares of Series 1996A Stock must convert in order to maintain the Series 1996A Preferred Stock holders' ownership percentage at 14.9% (i.e., as if the issuance were done at the Conversion Price prior to the issuance (or X)) given the New Dilutive Security issuance at $20 per common share. To solve for C , the following calculations must be made:
# OF COMMON EQUIVALENT SHARES ----------------- Share Capitalization, post New Dilutive Security Issuance as issued at $20 per share and unadjusted...................... 12,458,571 - - (C)........................................................ (1,828,571) ---------- = Share Capitalization less 1996A equivalent Common Stock.... 10,630,000 / (100% - 14.9%) or 100% less ownership holders of Series 1996A....................................................... 85.1% Preferred Stock are to maintain = Total Share Capitalization Required for holders of Series 1996A Preferred Stock to maintain ownership percentage at 14.9%.... 12,495,592 X Required Buyer ownership percentage pursuant to above...... 14.9% = C ......................................................... 1,865,592
Given C , one solves for X as follows:
PRIOR ADJUSTED CONVERSION CONVERSION PRICE OR X ADJUSTMENT FORMULA PRICE OR X - ---------- ------------------ ----------- $21.875 X (6,275,000 + 1,855,000 + 1,828,571) + ($50,000,000 / $21,875) = X ----------------------------------------------------------------------------- (6,275,000 + 1,855,000 + 1,865,592) + ($50,000,000 / $20) $21.875 X 98.0% = X $21.44 = X
D-15
POST-NEW DILUTIVE SECURITY ISSUANCE AS ISSUED AT $20 PER SHARE AND AS ADJUSTED ----------------- # OF PROOF OF CALCULATION: SHARES % - --------------------- ---------- ------ Common Stock Equivalent Shares (A)............................ 6,275,000 50.2% Convertible OP Units Outstanding (B).......................... 1,855,000 14.8% 1996A Equivalent Common Stock (C /C).......................... 1,865,592 14.9% New Dilutive Security Shares (EX /EX)......................... 2,500,000 20.0% ---------- ------ TOTAL......................................................... 12,495,592 100.0%
D-16 [FORM ON FRONT OF PROXY CARD] PROXY ESSEX PROPERTY TRUST, INC. 777 CALIFORNIA AVENUE PALO ALTO, CALIFORNIA 94304 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING ON ________, 1996 Keith R. Guericke, Michael J. Schall and Jordan E. Ritter (the "Proxyholders"), or any of them, each with the power of substitution, are hereby authorized to represent and vote the shares of the undersigned, with all the powers which the undersigned would possess if personally present, at the Special Meeting of Stockholders of Essex Property Trust, Inc. (the "Company"), to be held on_____, ______, 1996, at 10:00 a.m., local time, and any adjournments or postponements thereof. SEE REVERSE SIDE: If you wish to vote in accordance with the Board of Directors' recommendations, just sign and date on the reverse side. You need not mark any boxes. --------------- CONTINUED AND TO BE SIGNED ON REVERSE SIDE | SEE REVERSE | | SIDE | --------------- [FORM OF BACK OF PROXY CARD] PROXY [_] Please mark vote as in this example. The Board of Directors recommends a vote FOR each of Proposal 1, Proposal 2 and Proposal 3. Shares represented by this proxy will be voted as directed by the stockholder. If no such directions are indicated, the Proxyholders will have authority to vote FOR each of Proposal 1, Proposal 2 and Proposal 3. In their discretion, the Proxyholders are authorized to vote upon such other business as may properly come before the Annual Meeting. 1. To approve the terms of a Stock Purchase Agreement among the Company, Tiger/Westbrook Real Estate Fund, L.P. and Tiger/Westbrook Real Estate Co-Investment Partnership, L.P. (collectively, "TREP Investor") and the transactions comtemplated thereby, including the investment by TREP Investor of up to $40 million in the Company through the purchase by TREP Investor up to 1,600,000 shares of the Company's 8.75% Convertible Preferred Stock, Series 1996A (the "Preferred Stock") for a purchase price of $25.00 per share (Proposal 1): FOR AGAINST ABSTAIN * * * 2. To approve the proposed amendments to the charter of the Company (the "Charter") to amend the limitations on ownership of the Company's stock to facilitate the acquisition of the Company's stock by TREP Investor and to provide the Board of Directors with increased flexibility to waive the Charter ownership limitations in certain circumstances (Proposal 2): FOR AGAINST ABSTAIN * * * MARK HERE FOR Address: ADDRESS __________________________________ CHANGE AND * __________________________________ NOTE AT RIGHT __________________________________ Please sign exactly as your name appears herein. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. Signature:______________________ Date_______________ Signature:______________________ Date_______________ 3. To approve the proposed amendments to the Charter to provide for certain changes in the membership of the Board of Directors in the event of the breach of certain protective provisions of the Charter relating to the Preferred Stock (Proposal 3): FOR AGAINST ABSTAIN * * * PLEASE COMPLETE, SIGN DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE. -----END PRIVACY-ENHANCED MESSAGE-----