EXHIBIT 10.1
SIXTH AMENDMENT TO THE
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
ESSEX PORTFOLIO, L.P.
Dated as of June 28, 2001
This Sixth Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P., as amended (as amended, the "Partnership
Agreement"), dated as of the date shown above (the "Amendment"), is executed by
Essex Property Trust, Inc., a Maryland corporation (the "General Partner"), as
the General Partner and on behalf of the existing Limited Partners of Essex
Portfolio, L.P. (the "Partnership"), and the individuals whose names are set
forth on Exhibit Q as holders of Series Z Incentive Units issued pursuant to
this Amendment (the "Series Z Partners").
RECITALS
WHEREAS, the Partnership was formed pursuant to the Partnership Agreement;
WHEREAS, the Partnership desires to issue as of the date hereof an
aggregate amount of 200,000 Series Z Incentive Units (the "Series Z Incentive
Units") of limited partnership interests in the Partnership with rights, terms
and conditions as set forth herein, in exchange for a capital commitment (the
"Capital Commitment") in the amount of $1.00 per unit;
WHEREAS, as of the date hereof, each of the Series Z Partners has made a
capital commitment to the Partnership in the amount set forth on Exhibit Q, in
exchange for which such Partner is entitled to receive the number Series Z
Incentive Units set forth on Exhibit Q;
WHEREAS, pursuant to the authority granted to the General Partner under the
Partnership Agreement, the General Partner desires to amend the Partnership
Agreement to reflect (i) the issuance of the Series Z Incentive Units, (ii) the
admission of the Series Z Partners as Additional Limited Partners and holders of
a certain number of Series Z Incentive Units and (iii) certain other matters
described herein; and
WHEREAS, the Series Z Partners desire to become parties to the Partnership
Agreement as Limited Partners and to be bound by all terms, conditions and other
provisions of this Amendment and the Partnership Agreement.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement as
follows:
1. Definitions. Capitalized terms used herein, unless otherwise defined
herein, shall have the same meanings as set forth in the Partnership Agreement.
2. Amended Definitions. Section 1.1 of the Partnership Agreement is hereby
amended to delete the definition of "Percentage Interest" in its entirety and
substituting the following definition of "Percentage Interest," in its place:
"Percentage Interest" shall mean (i) with respect to any Partner other
than holders of Series B Preferred Units, Series C Preferred Units, Series
D Preferred Units, Series E Preferred Units or Series Z Incentive Units,
the undivided percentage ownership interest of such Partner in the
Partnership, as determined by dividing (A) the number of Partnership Units
owned by such Partner by (B) the sum of (x) the total number of Partnership
Units then outstanding (excluding the Series A Preferred Interest, the
Series B Preferred Interest, the Series B Partnership Units, the Series C
Preferred Interest, the Series C Preferred Units, the Series D Preferred
Interest, the Series D Preferred Units, the Series E Preferred Interest,
the Series E Preferred Units and the Series Z Incentive Units) and (y) the
total number of outstanding Series Z Incentive Units multiplied by the
Distribution Ratchet Percentage with respect to each such Series Z
Incentive Unit, calculated on a unit-by-unit basis, and (ii) with respect
to any holder of Series Z Incentive Units, the undivided percentage
ownership interest of such Partner in the Partnership as determined by
dividing (A) the product resulting from multiplying the total number of
outstanding Series Z Incentive Units owned by such Partner by the
Distribution Ratchet Percentage attributable to such holder's Series Z
Incentive Units, by (B) the sum of (x) the total number of Partnership
Units then outstanding (excluding the Series A Preferred Interest, the
Series B Preferred Interest, the Series B Partnership Units, the Series C
Preferred Interest, the Series C Preferred Units, the Series D Preferred
Interest, the Series D Preferred Units, the Series E Preferred Interest,
the Series E Preferred Units and the Series Z Incentive Units) and (y) the
total number of outstanding Series Z Incentive Units multiplied by the
Distribution Ratchet Percentage with respect to each such Series Z
Incentive Unit, calculated on a unit-by-unit basis. If any Partner holds
both Common Units and Series Z Incentive Units, then such Partner's
Percentage Interest shall equal the sum of the amounts calculated under
clauses (i) and (ii) of this definition of "Percentage Interest",
determined by assuming for purposes of clause (i) that such Partner holds
only Common Units and for purposes of clause (ii) that such Partner holds
only Series Z Incentive Units.
3. Definitions. Section 1.1 of the Partnership Agreement is hereby amended
to include the following definitions, to be inserted in alphabetical order in
such Section 1.1:
"Actual FFO" shall mean with respect to any fiscal period "funds from
operations" of the General Partner as determined with respect to such
fiscal period by the Board of Directors of the General Partner using a
consistently applied methodology that conforms with the standards for
computation of "funds from operations" established by the National
Association of Real Estate Investment Trusts, Inc. (or successor
organizations) from time to time; it being understood that, to the extent
that the General Partner discloses "funds from operations" for any fiscal
period in any of its periodic reports publicly filed with the Securities
and Exchange Commission, Actual FFO for
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such fiscal period for the purposes of this Agreement will conform to such
publicly disclosed "funds from operations."
"Actual FFO Per Share" shall mean with respect to any fiscal period
the Actual FFO for such period divided by the number of Common Equivalent
Shares.
"Change in Control" shall mean the earliest to occur of any of the
following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") other
than any trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of any of the General Partner or
any of its subsidiaries or affiliates), together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the Exchange
Act) of such person, shall become the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the General Partner representing thirty percent (30%) or more
of the combined voting power of the General Partner's then outstanding
securities having the right to vote in an election of the General Partner's
Board of Directors ("Voting Securities") (other than as a result of an
acquisition of securities directly from the General Partner).
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred for purposes of this clause (i) solely as the result of an
acquisition of securities by the General Partner which, by reducing the
number of shares of Voting Securities outstanding, increases the
proportionate number of shares of Voting Securities beneficially owned by
any person (as defined in the foregoing clause) to thirty percent (30%) or
more of the combined voting power of all then outstanding Voting
Securities; provided, however, that if such person shall thereafter become
the beneficial owner of any additional shares of Voting Securities (other
than pursuant to a stock split, stock dividend, or similar transaction or
as a result of an acquisition of securities directly from the General
Partner) and immediately thereafter beneficially owns thirty percent (30%)
or more of the combined voting power of all then outstanding Voting
Securities, then a "Change in Control" shall be deemed to have occurred for
purposes of this clause (i).
(ii) the moment immediately prior to the consummation of a merger,
reorganization or consolidation of the General Partner or the occurrence of
any other event (including without limitation a tender or exchange offer),
the result of which is that the "beneficial owners" (as such term is
defined in Rule 13d-3 of the Exchange Act) of the Voting Securities of the
General Partner before the merger, reorganization, consolidation or other
transaction are not the "beneficial owners", directly or indirectly, of a
majority of the voting power of the surviving or resulting entity upon
completion of such merger, reorganization, consolidation or other
transaction;
(iii) the moment immediately prior to the consummation of a merger,
reorganization or consolidation of the Partnership, unless the General
Partner immediately prior to such merger, reorganization or consolidation
remains the sole general partner of the Partnership after such merger;
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(iv) the moment immediately prior to the consummation of a change
(whether by removal, withdrawal, transfer or otherwise) in the general
partner of the Partnership;
(v) persons who, as of June 1, 2001, constitute the General Partner's
Board of Directors (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender or exchange offer,
proxy contest, merger or similar transaction, to constitute at least a
majority of the Board of Directors of the General Partner (rounded up to
the next whole number), provided that any person becoming a director of the
General Partner subsequent to such date shall be considered an Incumbent
Director if such person's election was approved by or such person was
nominated for election by a vote of a majority of the Incumbent Directors;
provided, however, that any person whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of members of the Board of Directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a "person" other
than the Board of Directors, including by reason of agreement intended to
avoid or settle any such actual or threatened contest or solicitation,
shall not be considered an Incumbent Director; or
(vi) the moment immediately prior to the consummation of a sale of all
or substantially all of the assets of the General Partner and/or the
Partnership.
"Clawback Amount" shall mean at any time with respect to each Series Z
Incentive Unit, an amount equal to the positive difference, if any, between
(i) the then unpaid Capital Commitment with respect to such Series Z
Incentive Unit, and (ii) the sum of any distributions deemed to offset the
Clawback Amount in accordance with Section 6 below. The unpaid Capital
Commitment of a Series Z Partner with respect to a Series Z Incentive Unit
shall never be greater than the Clawback Amount with respect to such Series
Z Incentive Unit, as adjusted from time to time.
"Common Equivalent Shares" shall mean the total number of shares of
Common Stock outstanding on a fully diluted basis, calculated in a manner
consistent with the manner used by the General Partner for reporting
diluted earnings or loss per share under generally accepted accounting
principles, it being understood that, to the extent that the General
Partner discloses diluted earnings or loss per share in any of its periodic
reports publicly filed with the Securities and Exchange Commission, Common
Equivalent Shares for such period for the purposes of this Agreement shall
be calculated in a manner consistent with such public disclosure.
"Common Unit" shall mean a Partnership Unit representing an interest
in the Partnership, other than a Series A Preferred Interest, Series B
Preferred Unit, Series B Preferred Interest, Series C Preferred Unit,
Series C Preferred Interest, Series D Preferred Unit, Series D Preferred
Interest, Series E Preferred Unit, Series E Preferred Interest, Series Z
Incentive Unit or any other Preferred Interest or Preferred Partnership
Units.
"Compensation Committee" shall mean the Compensation Committee of the
Board of Directors of the General Partner or, if no such committee exists,
the full Board of Directors of the General Partner.
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"Conversion Ratchet Percentage" with respect to any Series Z Incentive
Unit (i) shall equal 0% on the date hereof, (ii) shall increase by twenty
percentage points on January 1 of the first calendar year after the date
hereof on which (x) the holder of such Series Z Incentive Unit is an
employee of the General Partner and/or the Partnership and/or any
subsidiary or affiliate thereof as of such January 1, (y) the Actual FFO
Per Share of the General Partner for the calendar year preceding such
January 1 is greater than or equal to the Target FFO for such year, and (z)
the Conversion Ratchet Percentage prior to such increase is less than 100%,
and (iii) shall increase ten percentage points on January 1 of every
calendar year thereafter on which the conditions in clauses (x), (y) and
(z) of the immediately preceding clause (ii) are met; provided, however,
that if the Compensation Committee determines that Actual FFO Per Share is
no longer an appropriate corporate performance parameter for establishing
management objectives or that the applicable target levels are no longer
feasible in light of factors or circumstances outside of the Partnership's
or the General Partner's control (such as general economic conditions,
legal/regulatory changes, war or similar events), it may, in its reasonable
good faith discretion without any consent or other action on the part of
the Series Z Partners or any other Partners of the Partnership, revise and
amend the requirement in (y) above (and any definitions involved therein)
to reflect one or more different or additional parameters, objectives or
performance measures, so long as the Compensation Committee, in its
reasonable good faith discretion, determines that the revised or amended
clause (y) is, considered as a whole, comparable or more effective as a
means for analyzing the performance of the Partnership and incentivizing
the Series Z Partners (it being understood that such amended or restated
clause (y) shall not be more difficult to achieve than the present
requirements of clause (y)).
"Distribution Ratchet Percentage" with respect to any Series Z
Incentive Unit (i) shall equal 10% on the date hereof, (ii) shall increase
on January 1, 2002, to (a) twenty-five percent (25%) if the Conversion
Ratchet Percentage with respect to such Series Z Incentive Units also
increases to 20%, or (b) fifteen percent (15%) if the Conversion Ratchet
Percentage with respect to such Series Z Incentive Units remains at 0%,
(iii) shall increase, to the extent it has not already done so, to
twenty-five percent (25%) at such time as such Conversion Ratchet
Percentage is equal to 20%, and (iv) after such time as the Conversion
Ratchet Percentage with respect to such Series Z Incentive Units is equal
to or greater than 30%, the Distribution Ratchet Percentage shall be equal
to the Conversion Ratchet Percentage with respect to such Series Z
Incentive Units.
"Forfeited Capital Account" shall mean that portion of the Capital
Account attributable to a Series Z Incentive Unit equal to the product of
(a) the excess of (i) the Adjusted Capital Account Balance (as defined in
Section 10.9(a)) allocable to such Series Z Incentive Unit over (ii) the
sum of (A) the capital contribution made with respect to such Series Z
Incentive Unit and (B) the excess of the sum of the net allocations of
operating income made with respect to such Series Z Incentive Unit for all
fiscal years (taking into account allocations of Net Operating Loss made
with respect to such Series Z Incentive Unit for all fiscal years) over the
distributions of operating cash flow made to such Series Z Unit (except to
the extent such allocations have reduced the Clawback Amount) multiplied by
(b) 100% minus the Conversion Ratchet Percentage applicable to such Series
Z Incentive Unit.
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"Net Operating Income" shall mean, for any fiscal year or portion
thereof, the excess of the items of income and gain over the items of
deduction and loss, excluding, in each case, items of gain or loss realized
in connection with the sale or disposition of real property and other
capital assets.
"Net Operating Loss" shall mean, for any fiscal year or portion
thereof, the excess the items of deduction and loss over the items of
income and gain, excluding, in each case, items of gain or loss realized
in connection with the sale or disposition of real property and other
capital assets.
"Net Property Gain" shall mean, for any fiscal year or portion
thereof, the excess of gains realized from the sale or disposition of real
property and other capital assets over the losses realized in connection
with the sale or disposition of real property and other capital assets.
"Net Property Loss" shall mean, for any fiscal year or portion
thereof, the excess of losses realized from the sale or disposition of real
property and other capital assets over the gains realized in connection
with the sale or disposition of real property and other capital assets.
"Series Z Incentive Unit" shall mean a Series Z Incentive Unit of
limited partnership interest in the Partnership with the rights set forth
in this Agreement.
"Target FFO" shall mean Actual FFO Per Share equal to $4.29 with
respect to fiscal year 2001 and, with respect to each fiscal year
thereafter, shall mean Actual FFO Per Share equal to the lesser of (x) the
product of $4.29 times 1.1N, where "N" is equal to 1 with respect to fiscal
year 2002 plus an additional 1 for each fiscal year thereafter, and (y)
110% of the Actual FFO Per Share applicable to the immediately preceding
fiscal year; provided, however, that if the Compensation Committee
determines that Actual FFO Per Share is no longer an appropriate corporate
performance parameter for establishing management objectives or that the
applicable target levels are no longer feasible in light of factors or
circumstances outside of the Partnership's or the General Partner's control
(such as general economic conditions, legal/regulatory changes, war or
similar events), it may, in its reasonable good faith discretion without
any consent or other action on the part of the Series Z Partners or any
other Partners of the Partnership, revise and amend this definition of
Target FFO (and any definitions involved herein) to reflect one or more
different or additional parameters, objectives or performance measures, so
long as the Compensation Committee, in its reasonable good faith
discretion, determines that the revised or amended definition is,
considered as a whole, comparable as a means for analyzing the performance
of the Partnership and incentivizing the Series Z Partners (it being
understood that such amended or restated definition shall not be more
difficult to achieve than the present requirements of this definition).
"Trigger Event" shall mean the earliest to occur of any of the
following events:
(i) such time as a plan of dissolution or liquidation (but not
including a deemed liquidation for tax purposes in connection with one or
more transfers of interest
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in the Partnership) of the General Partner and/or the Partnership is duly
adopted by appropriate corporate or partnership action;
(ii) the date on which the Conversion Ratchet Percentage applicable to
all Series Z Incentive Units held by then current employees of the General
Partner and/or the Partnership (i.e., other than holders of Series Z
Incentive Units whose employment with the General Partner and/or the
Partnership has terminated) reaches 100%;
(iii) the earliest date on which the employment of all holders of
Series Z Incentive Units has been terminated; and
(iv) January 1, 2016.
"Weighted Number of Series Z Incentive Units" as determined from time
to time shall mean the total number of outstanding Series Z Incentive
Units, multiplied by the Conversion Ratchet Percentage with respect to each
such Series Z Incentive Unit, calculated on a unit-by-unit basis.
4. Restatement of Exhibit A, Exhibit E and Exhibit M. Exhibit A to the
Partnership Agreement is amended and restated by replacing such Exhibit A with
Exhibit A attached to this Amendment. Exhibit E to the Partnership Agreement is
amended and restated by replacing such Exhibit E with Exhibit E attached to this
Amendment. Exhibit M to the Partnership Agreement is amended and restated by
replacing such Exhibit M with Exhibit M attached to this Amendment.
5. Admission of Series Z Partners. Effective immediately prior to the
effectiveness of the next succeeding sentence, the capital accounts of the
Partnership shall be adjusted to reflect each Partner's share of the net fair
market value of the Partnership's assets (a "book-up") by adjusting the Gross
Asset Values of all Partnership assets to their respective gross fair market
values and allocating the amount of such adjustment as Net Property Gain or Net
Property Loss pursuant to Section 2(b) or 2(c) of Exhibit E hereof. Each of the
Series Z Partners is hereby admitted as an Additional Limited Partner in
accordance with Section 4.6 of the Partnership Agreement holding that number of
Series Z Incentive Units as is set forth next to his or her name on Exhibit Q.
Each of the Series Z Partners hereby agrees to become a party to the Partnership
Agreement as a Limited Partner and to be bound by all the terms, conditions and
other provisions of the Partnership Agreement, as amended by this Amendment.
Pursuant to Section 4.6(b) of the Partnership Agreement, the General Partner
hereby consents to the admission of each of the Series Z Partners as an
Additional Limited Partner of the Partnership. The admission of the Series Z
Partners shall become effective as of the date of this Amendment, which shall
also be the date on which the name of each Series Z Partner is recorded on the
books and records of the Partnership.
6. Distributions to Series Z Partners. The Partnership Agreement is hereby
amended by adding the following language after Section 6.2(c) thereof:
"(d) Notwithstanding the foregoing, at any time that the Clawback
Amount with respect to a Series Z Incentive Unit is greater than zero, then, to
the extent of such Clawback Amount, the distributions otherwise provided for by
this Section with respect to such
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Series Z Incentive Unit shall not be paid in cash and shall instead be deemed to
offset the applicable Series Z Partners' unpaid Capital Commitment and thereby
reduce the then existing Clawback Amount with respect to such Series Z Incentive
Unit in an amount equal to the distributions that would have otherwise been paid
with respect to such Series Z Incentive Unit."
7. Transfer Restrictions. Section 9.2A of the Partnership Agreement shall
be amended by inserting the following as the last sentence thereof:
"In addition, the Partners hereby acknowledge and agree that the
Series Z Incentive Units shall not be Transferred, other than (a) by
operation of law to the estate of a Series Z Partner or (b) to the
Partnership or the General Partner."
8. Conversion Rights of Series Z Partners.
(a) Section 10.8 of the Partnership Agreement is hereby amended by
deleting the first sentence thereof and replacing it with the following:
"So long as Code Section 1014 or a successor provision remains in
effect and provides for the "step-up" in basis of an asset upon death, as
determined by the Partnership's counsel, upon the death of a Limited
Partner, all of such Limited Partner's Partnership Units shall, without the
taking of any action by the General Partner or any heir, representative,
administrator or executor of or for such Limited Partner, automatically
convert as of the date of such death into shares of Common Stock in the
amount of the Common Stock Amount; provided that the General Partner, in
its sole and absolute discretion, shall have the option, instead of issuing
the Common Stock Amount to the estate of the decedent Limited Partner, of
paying to such estate the Cash Amount or any combination of cash and Common
Stock equal to the Cash Amount; provided, however, that, notwithstanding
the foregoing, the provisions of this Section shall not apply to any Series
Z Incentive Units held by such Limited Partner."
(b) The Partnership Agreement is hereby amended by adding the
following language after Section 10.8 thereof:
"10.9 Conversion and Redemption of Series Z Incentive Units.
(a) Upon the occurrence of any Trigger Event with respect to the
Series Z Incentive Units, the Forfeited Capital Account with respect to
such Series Z Incentive Units shall be forfeited and each such Series Z
Incentive Unit shall, without the taking of any action by the General
Partner or any Series Z Partners, automatically convert into that number of
Common Units calculated by dividing (i) the remainder resulting from (x)
the portion of the adjusted Capital Account balance properly allocable to
each such Series Z Incentive Unit at the time of conversion, as determined
by the General Partner, taking into account all allocations made pursuant
to Exhibit E hereof (including Section 2(d) thereof) through and including
the date of the conversion (as so adjusted, the "Adjusted Capital Account
Balance"), minus (y) the Forfeited Capital Account as of the time of
conversion minus (z) the Clawback Amount, if any, with respect to such
Series Z Incentive Unit, by (ii) the adjusted Capital Account balance
properly allocable to one Common Unit determined immediately prior to such
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conversion, after taking into account any adjustments made pursuant to
Exhibit E hereof (including Section 2(d) thereof) through and including the
date of conversion.
(b) In the event of a Change in Control, (1) the Partnership
shall give each Series Z Partner notice as required by Section 10.9(d) and
otherwise comply with the procedures set forth in such section and (2) upon
or at any time (except as expressly provided in clause (ii) below)
following the occurrence of such Change in Control, each Series Z Partner
shall have the right to elect, in accordance with the procedures set forth
in Section 10.9(d), to forfeit the Forfeited Capital Account with respect
to all of the Series Z Incentive Units held by such Series Z Partner and
convert each such Series Z Incentive Unit into either:
(i) that number of Common Units calculated by dividing (I) the
remainder resulting from (x) the Adjusted Capital Account balance properly
allocable to each such Series Z Incentive Unit at the time of an election
pursuant to this Section 10.9(b), as determined by the General Partner
after taking into account all allocations required to be made pursuant to
Exhibit E hereof, including Section 2(d) thereof) minus (y) the Forfeited
Capital Account as of the time of conversion, minus (z) the Clawback
Amount, if any, with respect to such Series Z Incentive Unit, by (II) the
adjusted Capital Account balance properly allocable to one Common Unit
determined immediately prior to such conversion, after taking into account
any adjustments made pursuant to Exhibit E hereof (including Section 2(d)
thereof) through and including the date of conversion; provided, however,
that, if applicable, references to "Common Units" in this clause shall be
deemed to refer to the class or series of equity interests in the
Substitute Umbrella Partnership (as defined in Section 10.9(c)) most
comparable to the Common Units, after taking into account all relevant
rights, benefits, terms and conditions and economic factors and all
references to capital account balances and numbers of Common Units shall be
equitably adjusted, as nearly as may be practicable, to give effect to the
rights and obligations of the Series Z Incentive Units or, if applicable,
the Substitute Incentive Units; or
(ii) that amount and type of cash, securities or other property
as such holder would have received in connection with such Change in
Control if he, she or it had elected to convert such Series Z Incentive
Units into Common Units in accordance with the immediately preceding clause
(i) prior to the consummation of the Change in Control and received (or had
the right to elect to receive) such consideration in connection with the
Change in Control as the Holder of the number of Common Units into which
such Series Z Incentive Units would have converted as of the date of
occurrence of such Change of Control without any increase in the Conversion
Ratchet Percentage that may have occurred after such date; provided,
however, that any election pursuant to this clause (ii) must be made within
the twelve (12) month period immediately following the occurrence of such
Change in Control. For the avoidance of doubt, it is the intent of the
parties hereto that a holder's right to make the election provided in this
clause (ii) shall continue notwithstanding that, within such twelve (12)
month period, another Change in Control occurs, such holder's employment is
terminated as referred to in clause (e) below, or such holder dies as
referred to in clause (f) below; provided, further, that if a Trigger Event
occurs, such holder's right to make the election
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provided in this clause (ii) shall continue only until the moment
immediately prior to the occurrence of such Trigger Event.
For the avoidance of doubt, the Series Z Incentive Units of any
Series Z Partner who has not made the election contemplated by this Section
10.9(b) shall remain outstanding until such election is made or another
clause of this Section 10.9 becomes applicable, and thereafter shall
continue to be entitled to all the rights and benefits of the Series Z
Incentive Units, including without limitation the right to make an election
pursuant to this Section 10.9(b) with respect to any subsequent Change in
Control and the potential for continued increase in the Conversion Ratchet
Percentage.
(c) Notwithstanding anything in this Agreement to the contrary,
in connection with any Change in Control following which the Partnership
will not continue to exist as a separate legal entity or following which
the Partnership, despite continuing in legal existence, will no longer
conduct its business in a fashion substantially similar to the fashion in
which it conducted its business immediately prior to such Change of Control
(e.g., owning similar properties and operating in a comparable fashion),
the General Partner shall use commercially reasonable efforts (after taking
into account the fiduciary duties owed by the General Partner to the other
Partners in the Partnership in connection with negotiating the Change in
Controltransaction as a whole) to cause the resulting or surviving entity
and/or the entity primarily succeeding to the business of the Partnership,
as the case may be, to be a partnership, limited liability company or other
pass-through entity organized under the laws of any state of the United
States or the District of Columbia (a "Substitute Umbrella Partnership"),
and, in the event the Change in Control does result in a Substitute
Umbrella Partnership, shall use commercially reasonable efforts to (1)
cause the Substitute Umbrella Partnership to issue in connection with such
Change in Control in substitution for any Series Z Incentive Units
remaining outstanding as of the effective time thereof other interests in
the Substitute Umbrella Partnership having substantially the same terms and
rights as the Series Z Incentive Units, including with respect to
distributions, conversions, ratcheting, voting rights and rights upon
liquidation, dissolution or winding-up (the "Substitute Incentive Units"),
(2) make equitable and appropriate provisions for adjustments to the terms
of the Substitute Incentive Units such that the rights and obligations of
the Series Z Partners after such Change in Control as holders of Substitute
Incentive Units of the Substitute Umbrella Partnership shall be equivalent,
as nearly as may be practicable, to their rights and obligations as holders
of Series Z Incentive Units of the Partnership, and (3) secure a commitment
of the general partner or other controlling person of the Substitute
Umbrella Partnership to undertake to perform the obligations and covenants
of the General Partner with respect to the Series Z Partners.
(d) As promptly as possible prior to the consummation of a Change
of Control (but in any event not later than ten (10) days following
consummation of such Change in Control), the Partnership shall deliver a
written notice of such Change of Control to each Series Z Partner at their
addresses as shown on the records of the Partnership, containing all
instructions and materials necessary to enable such Series Z Partners to
make an election pursuant to Section 10.9(b) hereof and describing the
circumstances and relevant facts regarding such Change of Control,
including without
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limitation the expected date of consummation. Failure to give or receive
such notice or any defect therein shall not affect the legality or validity
of any proceedings in connection with such Change of Control or otherwise
as contemplated by this Agreement. Each Series Z Partner may exercise his
or her right to convert in accordance with Section 10.9(b) by delivering
written notice of such intent (and specifying whether he or she is electing
to convert pursuant to Section 10.9(b)(i) or Section 10.9(b)(ii)) to the
Partnership, Attn: Chief Financial Officer, with a copy to Goodwin Procter
LLP, Attn: Ettore A. Santucci, P.C. (such notice, an "Election Notice") On
or before the later of (i) the effective date of such Change in Control and
(ii) the tenth (10th) business day following the date of such Election
Notice, the Partnership shall issue the consideration required by Section
10.9(b) to the Series Z Partner making the election in exchange for his or
her Series Z Incentive Units (or, if applicable, Substitute Incentive
Units).
(e) Effective as of such time as (other than by reason of death,
as provided in Section 10.9(f)) a holder of Series Z Incentive Units is no
longer an employee of the Partnership, the General Partner or any of their
subsidiaries or affiliates, the Forfeited Capital Account with respect to
such holder's Series Z Incentive Units shall be forfeited and the
Partnership shall have the right, for 90 days following the date of
termination of such holder's employment, to redeem each Series Z Incentive
Unit held by such holder in exchange for, at the Partnership's option,
either (1) a number of shares of Common Stock then owned by the Partnership
calculated by dividing (i) the remainder resulting from (x) the Adjusted
Capital Account Balance properly allocable to each such Series Z Incentive
Unit as determined by the General Partner after taking into account all
allocations required to be made pursuant to Exhibit E hereto (including
Section 2(d) thereof) and, in the event the provisions of Section 2(f)
thereof are inapplicable, in a manner consistent with the provisions of
Treasury Regulation Section 1.704-1(b)(2)(iv)(f) minus (y) the Forfeited
Capital Account as of the time of redemption minus (z) the Clawback Amount,
if any, with respect to such Series Z Incentive Unit, by (ii) the Closing
Price of Common Stock determined as of such date; or (2) a number of Common
Units calculated by dividing (i) the remainder resulting from (x) the
Adjusted Capital Account Balance which would be allocable to each such
Series Z Incentive Unit as determined by the General Partner after taking
into account all allocations required to be made pursuant to Exhibit E
hereof (including Section 2(d) thereof) and assuming that the Capital
Accounts of the Partners were adjusted at such time as provided in Section
2(f) of Exhibit E hereto minus (y) the Forfeited Capital Account minus (z)
the Clawback Amount, if any, with respect to such Series Z Incentive Unit,
by (ii) the adjusted Capital Account balance properly allocable to one
Common Unit determined immediately prior to such redemption, after taking
into account any adjustments made pursuant to Exhibit E hereof (including
Section 2(d) thereof) and assuming that the Capital Accounts of the
Partners were adjusted at such time as provided in Section 2(f) of Exhibit
E hereto through and including the date of redemption. The Partnership may
exercise its rights under this Section 10.9(e) by providing written notice
to the terminated Series Z Partner within 90 days of such termination and
consummating the redemption promptly thereafter.
(f) Upon the death of a holder of Series Z Incentive Units, the
Forfeited Capital Account with respect to such Series Z Incentive Units
shall be forfeited
11
and each such Series Z Incentive Unit held by such holder shall be redeemed
by the Partnership for, at its option, either (1) a number of shares of
Common Stock then owned by the Partnership calculated by dividing (i) the
remainder resulting from (x) the Adjusted Capital Account Balance properly
allocable to each such Series Z Incentive Unit as determined by the General
Partner after taking into account all allocations required to be made by
Exhibit E hereto (including Section 2(d) thereof) and in the event that the
provisions of Section 2(f) are inapplicable, in a manner consistent with
the provisions of Treasury Regulation Section 1.704-1(b)(2)(iv)(f) minus
(y) the Forfeited Capital Account as of the time of redemption minus (z)
the Clawback Amount, if any, with respect to such Series Z Incentive Unit,
by (ii) the Closing Price of Common Stock determined immediately prior to
such redemption; or (2) a number of Common Units calculated by dividing (i)
the remainder resulting from (x) the Adjusted Capital Account Balance which
would be allocable to each such Series Z Incentive Unit as determined by
the General Partner after taking into account all allocations required to
be made by Exhibit E hereto (including Section 2(d) thereof) and in the
event that the provisions of Section 2(f) are inapplicable, in a manner
consistent with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f) minus (y) the Forfeited Capital Account as of the time
of redemption minus (z) the Clawback Amount, if any, with respect to such
Series Z Incentive Unit, by (ii) the average adjusted Capital Account
balance properly allocable to one Common Unit determined immediately prior
to such redemption, as determined by the General Partner after taking into
account all allocations required to be made by Exhibit E hereto (including
Section 2(d) thereof) and in the event that the provisions of Section 2(f)
are inapplicable in a manner consistent with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(iv)(f). The Partnership shall effect the
redemption required by this Section 10.9(f) within 60 days follow its
receipt of written notification of the death of a Series Z Partner.
(g) In lieu of delivering a fractional share of Common Stock
pursuant to this Section 10.9, the Partnership may deliver cash equal to
the Closing Price attributable to such fractional share. In lieu of issuing
a fractional Common Unit pursuant to this Section 10.9, the Partnership may
deliver cash equal to the product of (i) the Closing Price multiplied by
the Conversion Factor, and (ii) such fractional Common Unit. For the
avoidance of doubt, as to any fractional Common Unit or fraction of a share
of Common Stock which would otherwise be delivered, the Partnership shall
pay a cash adjustment in respect of such final fraction (which for each
holder of Series Z Incentive Units shall be deemed to be a fraction of the
last fractional Common Unit or fraction of a share of Common Stock after
taking into account all Series Z Incentive Units held by such holder, not
on a unit-by-unit basis) in the amount provided for in this clause (g).
(h) The holder of any Common Units received upon a conversion or
redemption of Series Z Incentive Units pursuant to this Section 10.9 shall
have an aggregate Capital Account balance with respect to such Common Units
equal to the remainder resulting from (x) the Adjusted Capital Account
Balance of such holder's Series Z Incentive Units (determined pursuant to
the applicable sub-section of this Section 10.9) immediately prior to
conversion or redemption minus (y) the Forfeited Capital Account minus (z)
the Clawback Amount, if any, with respect to such Series Z
12
Incentive Unit, and such holder of Common Units shall have all of the
rights of holders of Common Units as set forth in this Agreement.
Immediately upon conversion or redemption of any Series Z Incentive Units
pursuant to this Section 10, the aggregate Forfeited Capital Accounts with
respect to all Series Z Incentive Units being converted or redeemed shall
be reallocated among the Capital Accounts of the holders of Common Units
immediately subsequent to such conversion or redemption on a pro rata
basis, in proportion to the Capital Account balances of all such units
immediately subsequent to such conversion or redemption. Any Common Units
received upon the conversion or redemption of Series Z Incentive Units
pursuant to this Section 10.9 may thereafter be converted into Common Stock
pursuant to Section 10.8 and the holder of such Common Units shall have the
Rights provided in Article XI; provided, however, that, notwithstanding
anything to the contrary contained in Section 10.8, Article XI or Exhibit
I, (i) the General Partner may, in its sole discretion, choose to assign
its obligation pursuant to Section 10.8, Article XI or Exhibit I, as the
case may be, to the Partnership, in which case the Partnership will deliver
shares of Common Stock that it holds on such date in exchange for the
Common Units to be converted or redeemed, in lieu of the General Partner
issuing new shares of Common Stock to the holder of such Common Units and
(ii) neither the General Partner nor the Partnership shall pay cash (in
whole or in part) with respect to the conversion of Common Units received
upon conversion or redemption of Series Z Incentive Units."
9. Restatement of Exhibit E. Exhibit E to the Partnership Agreement is
hereby amended and restated in its entirety by replacing such Exhibit E with
Exhibit E attached to this Amendment.
10. Voting Rights.
(a) Holders of the Series Z Incentive Units will not have any voting
rights or rights to consent to any matters, except as set forth in Section 10(b)
below.
(b) So long as any Series Z Incentive Units remains outstanding, the
Partnership shall not, without the affirmative vote of the holders of at least
two-thirds (2/3) of the Weighted Number of Series Z Incentive Units (i) amend,
alter or repeal any provisions of the Partnership Agreement, including without
limitation as a result of or in connection with a merger, consolidation or
otherwise, in a manner that would materially and adversely affect the powers,
special rights, preferences, privileges or voting power of the Series Z
Incentive Units or the holders thereof; provided, however, that the following
shall be deemed not to materially and adversely affect such powers, special
rights, preferences, privileges or voting power of the Series Z Incentive Units:
(a) any revision or amendment of the definition of "Conversion Ratchet
Percentage" or "Target FFO" in accordance with the proviso contained in each
such definition; (b) any increase in the amount of Partnership Interests or the
creation or issuance of any other class or series of Partnership Interests or
obligation or security convertible into or evidencing the right to purchase any
such Partnership Interests ranking senior to, junior to or on a parity with the
Series Z Incentive Units with respect to payment of distributions or the
distribution of assets upon liquidation, dissolution or winding up; or (c) any
amendment, alteration or repeal of any provision(s) of the Partnership Agreement
that also materially and adversely affects the Common Units or the holders
thereof in a comparable and proportionate fashion; provided, further, that
13
with respect to the occurrence of a merger, consolidation or comparable
transaction, so long as (l) the Partnership is the surviving entity and the
Series Z Incentive Units remain outstanding with the terms thereof unchanged, or
(2) the resulting, surviving or transferee entity is a partnership, limited
liability company or other pass-through entity organized under the laws of any
state and substitutes the Series Z Incentive Units for other interests in such
entity having substantially the same terms and rights as the Series Z Incentive
Units, including with respect to distributions, conversions, voting rights and
rights upon liquidation, dissolution or winding-up, then the occurrence of any
such event shall not be deemed to materially and adversely affect such rights,
privileges or voting powers of the holders of the Series Z Incentive Units.
Notwithstanding anything in this Section 10 to the contrary, the holders of
Series Z Incentive Units shall have no right to vote or consent with respect to
any transaction that constitutes a Trigger Event or that constitutes a Change in
Control so long as the provisions of Section 10.9(b) remain in effect.
11. Exhibit Q. The Partnership Agreement is hereby amended by adding
Exhibit Q, a copy of which is attached hereto. Exhibit Q is hereby inserted into
the Partnership Agreement following Exhibit P.
12. Ranking. The Series Z Incentive Units shall rank (i) junior to any and
all presently outstanding or subsequently issued Preferred Interests and
preferred Partnership Units of the Partnership, unless the terms of such
Preferred Interests and/or preferred Partnership Units expressly provide that
they shall rank junior to or pari passu with the Series Z Incentive Units or
Common Units, and (ii) pari passu with the Common Units and with any other class
or series of presently existing or subsequently issued Partnership Units of the
Partnership, the terms of which do not expressly provide that such Partnership
Units shall rank senior to the Series Z Incentive Units or the Common Units with
respect to the receipt of distributions and of amounts distributable upon
liquidation, dissolution or winding up.
13. Continuing Effect of Partnership Agreement. Except as modified herein,
the Partnership Agreement is hereby ratified and confirmed in its entirety and
shall remain and continue in full force and effect, provided, however, that to
the extent there shall be a conflict between the provisions of the Partnership
Agreement and this Amendment, the provisions in this Amendment will prevail. All
references in any document to the Partnership Agreement shall mean the
Partnership Agreement, as amended hereby.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same agreement. Facsimile signatures shall be
deemed effective execution of this Agreement and may be relied upon as such by
the other party. In the event facsimile signatures are delivered, originals of
such signatures shall be delivered to the other party within three business days
after execution.
14
IN WITNESS WHEREOF, the General Partner and the Series Z Partners have
executed this Amendment as of the date indicated above.
GENERAL PARTNER
ESSEX PROPERTY TRUST, INC.,
a Maryland corporation as General Partner
of Essex Portfolio, L.P. and on behalf of the
existing Limited Partners
By: /s/ Keith R. Guericke
----------------------------------------
Keith R. Guericke
Chief Executive Officer & President
S-1
SERIES Z PARTNERS:
By: /s/ Keith R. Guericke
------------------------------------
Keith R. Guericke
By: /s/ Michael J. Schall
------------------------------------
Michael J. Schall
By: /s/ John D. Eudy
------------------------------------
John D. Eudy
By: /s/ Craig K. Zimmerman
------------------------------------
Craig K. Zimmerman
By: /s/ Robert C. Talbott
------------------------------------
Robert C. Talbott
By: /s/ Jordan E. Ritter
------------------------------------
Jordan E. Ritter
By: /s/ Gerald E. Kelly
------------------------------------
Gerald E. Kelly
By: /s/ Mark J. Mikl
------------------------------------
Mark J. Mikl
By: /s/ John F. Burkart
------------------------------------
John F. Burkart
S-2
By: /s/ Bryan W. Meyer
------------------------------------
Bryan W. Meyer
By: /s/ Bruce Knoblock
------------------------------------
Bruce Knoblo
S-3
EXHIBIT E
ALLOCATIONS
1. Allocation of Net Operating Income and Net Operating Loss.
(a) Net Operating Income. Except as otherwise provided herein, Net
Operating Income for any fiscal year or other applicable period shall be
allocated in the following order and priority:
(1) First, to the Partners, until the cumulative Net Operating Income
allocated pursuant to this subparagraph 1(a)(1) for the current and all prior
periods equals the cumulative Net Operating Loss allocated pursuant to
subparagraph 1(b)(2) hereof for all prior periods, among the Partners in the
same ratio and reverse order that such Net Operating Loss was allocated to the
Partners pursuant to subparagraph 1(b)(2) hereof (and, in the event of a shift
of a Partner's interest in the Partnership, to the Partners in a manner that
most equitably reflects the successors in interest to the Partners).
(2) Thereafter, the balance of the Net Operating Income, if any, shall
be allocated to the Partners in accordance with their respective Percentage
Interests.
(b) Net Operating Loss. Except as otherwise provided herein, Net Operating
Loss of the Partnership for each fiscal year or other applicable period shall be
allocated as follows:
(1) To the Partners in accordance with their respective Percentage
Interests.
(2) Notwithstanding subparagraph 1(b)(1) hereof, to the extent any Net
Operating Loss allocated to a Partner under subparagraph 1(b)(1) hereof or this
subparagraph 1(b)(2) would cause such Partner (hereinafter, a "Restricted
Partner") to have an Adjusted Capital Account Deficit as of the end of the
fiscal year to which such Net Operating Loss relates, such Net Operating Loss
shall not be allocated to such Restricted Partner and instead shall be allocated
to the other Partner(s) (hereinafter, the "Permitted Partners") pro rata in
accordance with their relative Percentage Interests.
(c) Notwithstanding Sections 1(a) and (b) above, on any date on which any
Series A Preferred Stock, any Series B Preferred Stock, any Series C Preferred
Stock, any Series D Preferred Stock, any Series E Preferred Stock, or any Series
B Preferred Unit, any Series C Preferred Unit, any Series D Preferred Unit or
any Series E Preferred Unit (or other Preferred Stock or other Preferred Units)
is outstanding, Net Operating Income and Net Operating Loss shall be allocated
as follows:
(1) Net Operating Income for any fiscal year or other applicable
period shall be allocated in the following order and priority:
(i) First, to the Partners, until the cumulative Net Operating
Income allocated pursuant to this subparagraph 1(c)(l)(i) for the current and
all prior periods equals the cumulative Net Operating Loss allocated pursuant to
subparagraphs 1(c)(2)(iii) and
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(iv) hereof for all prior periods, among the Partners in the same ratio and
reverse order that such Net Operating Loss was allocated (and, in the event of a
shift of a Partner's interest in the Partnership, to the Partners in a manner
that most equitably reflects the successors in interest to such Partners);
(ii) Second, to the General Partner, until the cumulative Net
Operating Income allocated pursuant to this subparagraph 1(c)(1)(ii) for the
current and all prior periods equals the cumulative Net Operating Loss allocated
pursuant to subparagraph 1(c)(2)(ii) hereof for all prior periods;
(iii) Third, on a pari passu basis, to (A) the General Partner
until the cumulative amount of Net Operating Income allocated pursuant to this
subparagraph 1(c)(1)(iii) equals the total amount of dividends paid on the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock and the Series E Preferred Stock (and other
Preferred Stock) as of or prior to the date of such allocation plus the total
amount of accrued but unpaid dividends on the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock (and other Preferred Stock) as of such
date; (B) to the holders of Series B Preferred Units until the cumulative amount
of Net Operating Income allocated pursuant to this subparagraph 1(c)(i)(iii)
equals the total amount of Priority Return paid on the Series B Preferred Units
as of or prior to the date of such allocation plus the total amount of accrued
but unpaid Priority Return on the Series B Preferred Units; (C) to the holders
of Series C Preferred Units until the cumulative amount of Net Operating Income
allocated pursuant to this subparagraph 1(c)(i)(iii) equals the total amount of
Priority Return paid on the Series C Preferred Units as of or prior to the date
of such allocation plus the total amount of accrued but unpaid Priority Return
on the Series C Preferred Units; (D) to the holders of Series D Preferred Units
until the cumulative amount of Net Operating Income allocated pursuant to this
subparagraph 1(c)(i)(iii) equals the total amount of Priority Return paid on the
Series D Preferred Units as of or prior to the date of such allocation plus the
total amount of accrued but unpaid Priority Return on the Series D Preferred
Units; and (E) to the holders of Series E Preferred Units until the cumulative
amount of Net Operating Income allocated pursuant to this subparagraph
1(c)(i)(iii) equals the total amount of Priority Return paid on the Series E
Preferred Units as of or prior to the date of such allocation plus the total
amount of accrued but unpaid Priority Return on the Series E Preferred Units.
(iv) Thereafter, the balance of the Net Operating Income, if any,
shall be allocated to the Partners in accordance with their respective
Percentage Interests.
(2) Net Operating Loss of the Partnership for each fiscal year or
other applicable period shall be allocated as follows:
(i) First, to the Partners in accordance with their respective
Percentage Interests until the Capital Account balances of the Limited Partners
(not including the holders of the Series B Preferred Units, the Series C
Preferred Units, the Series D Preferred Units and the Series E Preferred Units)
are reduced to zero (for purposes of this calculation, each Partner's Capital
Account balance shall be credited with the amount such Partner is obligated to
restore pursuant to the provisions of Section 1.704-1(b)(2)(ii)(c) of the
Regulations, or is deemed to be obligated to restore with respect to any deficit
balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Regulations);
E-2
(ii) Second, on a pari passu basis, to (A) the General Partner
until its Capital Account balance has been reduced to zero; (B) to the holders
of Series B Preferred Units until their Capital Account balances have been
reduced to zero (for purposes of this calculation, such Partners' share of
Partnership Minimum Gain shall be added back to their Capital Accounts); (C) to
the holders of Series C Preferred Units until their Capital Account balances
have been reduced to zero; (D) to the holders of Series D Preferred Units until
their Capital Account balances have been reduced to zero; and (E) to the holders
of Series E Preferred Units until their Capital Account balances have been
reduced to zero (for purposes of each such calculation, each Partner's Capital
Account balance shall be credited with the amount such Partner is obligated to
restore pursuant to the provisions of Section 1.704-1(b)(2)(ii)(c) of the
Regulations, or is deemed to be obligated to restore with respect to any deficit
balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and
1.704-2(i)(5) of the Regulations);
(iii) Thereafter, to the Partners in accordance with their then
Percentage Interests;
(iv) Notwithstanding subparagraph 2(c)(2)(iii) hereof, to the
extent any Net Operating Loss allocated to a Partner under subparagraph 2(c)(2)
would cause such Partner (hereinafter, a "Restricted Partner") to have an
Adjusted Capital Account Deficit as of the end of the fiscal year to which such
Net Operating Loss relates, such Net Operating Loss shall not be allocated to
such Restricted Partner and instead shall be allocated to the other Partner(s)
(hereinafter, the "Permitted Partners") pro rata in accordance with their
relative Percentage Interests.
(d) Adjustment of Percentage Interests Upon Conversion of Convertible
Preferred Stock to Common Stock. Upon the conversion of any Series A Preferred
Stock to Common Stock of the General Partner, the Percentage Interests of the
Partners shall be adjusted in accordance with the provisions of Article 4 of the
Partnership Agreement as if, on the date of such conversion, the General Partner
had made an additional Capital Contribution to the Partnership in an amount
equal to the number of shares of Common Stock issued as a result of such
conversion multiplied by the fair market value of such shares on the date of
conversion, and provided that in calculating such adjustments, the General
Partner shall be deemed not to have incurred any expenses in connection with
raising the funds used to make such additional Capital Contribution.
2. Allocation of Net Property Gain and Net Property Loss.
After the allocation of Net Operating Income or Net Operating Loss has been
made pursuant to Section 1 above, Net Property Gain and Net Property Loss shall
be allocated as follows:
(a) Net Property Gain. Except as otherwise provided herein, Net Property
Gain for any fiscal year or other applicable period shall be allocated in the
following order and priority:
(1) First, to the Partners, until the cumulative Net Property Gain
allocated pursuant to this subparagraph 2(a)(1) for the current and all prior
periods equals the cumulative Net Property Loss allocated pursuant to
subparagraph 2(b)(2) hereof for all prior periods, among the Partners in the
same ratio and reverse order that such Net Property Loss was allocated to the
E-3
Partners pursuant to subparagraph 2(b)(2) hereof (and, in the event of a shift
of a Partner's interest in the Partnership, to the Partners in a manner that
most equitably reflects the successors in interest to the Partners).
(2) Thereafter, the balance of the Net Property Gain, if any, shall be
allocated to the Partners in accordance with their respective Percentage
Interests.
(b) Net Property Loss. Except as otherwise provided herein, Net Property
Loss of the Partnership for each fiscal year or other applicable period shall be
allocated as follows:
(1) To the Partners in accordance with their respective Percentage
Interests.
(2) Notwithstanding subparagraph 2(b)(1) hereof, to the extent any Net
Property Loss allocated to a Partner under subparagraph 2(b)(1) hereof or this
subparagraph 2(b)(2) would cause such Partner (hereinafter, a "Restricted
Partner") to have an Adjusted Capital Account Deficit as of the end of the
fiscal year to which such Net Property Loss relates, such Net Property Loss
shall not be allocated to such Restricted Partner and instead shall be allocated
to the other Partner(s) (hereinafter, the "Permitted Partners") pro rata in
accordance with their relative Percentage Interests.
(c) Notwithstanding Sections 2(a) and (b) above, on any date on which any
Series A Preferred Stock, any Series B Preferred Stock, any Series C Preferred
Stock, any Series D Preferred Stock, any Series E Preferred Stock or any Series
B Preferred Unit, any Series C Preferred Unit, any Series D Preferred Unit or
any Series E Preferred Unit (or other Preferred Stock or other Preferred Units)
is outstanding, Net Property Gain and Net Property Loss shall be allocated as
follows:
(1) Net Property Gain for any fiscal year or other applicable period
shall be allocated in the following order and priority:
(i) First, to the Partners, until the cumulative Net Property
Gain allocated pursuant to this subparagraph 2(c)(l)(i) for the current and all
prior periods equals the cumulative Net Property Loss allocated pursuant to
subparagraphs 2(c)(2)(iii) and (iv) hereof for all prior periods, among the
Partners in the same ratio and reverse order that such Net Property Loss was
allocated (and, in the event of a shift of a Partner's interest in the
Partnership, to the Partners in a manner that most equitably reflects the
successors in interest to such Partners);
(ii) Second, to the General Partner, until the cumulative Net
Property Gain allocated pursuant to this subparagraph 2(c)(1)(ii) for the
current and all prior periods equals the cumulative Net Property Loss allocated
pursuant to subparagraph 2(c)(2)(ii) hereof for all prior periods;
(iii) Third, on a pari passu basis, to (A) the General Partner
until the sum of (x) the total cumulative amount of Net Operating Income
allocated to the General Partner under Section 1(c)(1)(iii) for the current and
all prior periods plus (y) the total cumulative amount of Net Property Gain
allocated pursuant to this subparagraph 2(c)(1)(iii) equals the total amount of
dividends paid on the Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock, the Series D Preferred Stock and the Series E
Preferred Stock (and
E-4
other Preferred Stock) as of or prior to the date of such allocation plus the
total amount of accrued but unpaid dividends on the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and the Series E Preferred Stock (and other Preferred Stock) as
of such date; (B) to the holders of Series B Preferred Units until the sum of
(x) the total cumulative amount of Net Operating Income allocated to the holders
of the Series B Preferred Units under Section 1(c)(1)(iii) for the current and
all prior periods plus (y) the total cumulative amount of Net Property Gain
allocated pursuant to this subparagraph 2(c)(i)(iii) to the holders of the
Series B Preferred Units equals the total amount of Priority Return paid on the
Series B Preferred Units as of or prior to the date of such allocation plus the
total amount of accrued but unpaid Priority Return on the Series B Preferred
Units; (C) to the holders of Series C Preferred Units until the sum of (x) the
total cumulative amount of Net Operating Income allocated to the holders of the
Series C Preferred Units under Section 1(c)(1)(iii) for the current and all
prior periods plus (y) the total cumulative amount of Net Property Gain
allocated pursuant to this subparagraph 2(c)(i)(iii) to the holders of the
Series C Preferred Units equals the total amount of Priority Return paid on the
Series C Preferred Units as of or prior to the date of such allocation plus the
total amount of accrued but unpaid Priority Return on the Series C Preferred
Units; (D) to the holders of Series D Preferred Units until the sum of (x) the
total cumulative amount of Net Operating Income allocated under Section
1(c)(1)(iii) for the current and all prior periods plus (y) the cumulative
amount of Net Property Gain allocated pursuant to this subparagraph 2(c)(i)(iii)
to the holders of the Series D Preferred Units equals the total amount of
Priority Return paid on the Series D Preferred Units as of or prior to the date
of such allocation plus the total amount of accrued but unpaid Priority Return
on the Series D Preferred Units; (E) to the holders of Series E Preferred Units
until the sum of (x) the total cumulative amount of Net Operating Income
allocated under Section 1(c)(1)(iii) for the current and all prior periods plus
(y) the cumulative amount of Net Property Gain allocated pursuant to this
subparagraph 2(c)(i)(iii) to the holders of the Series E Preferred Units equals
the total amount of Priority Return paid on the Series E Preferred Units as of
or prior to the date of such allocation plus the total amount of accrued but
unpaid Priority Return on the Series E Preferred Units.
(iv) Thereafter, the balance of the Net Property Gain, if any,
shall be allocated to the Partners in accordance with their respective
Percentage Interests.
(2) Net Property Loss of the Partnership for each fiscal year or other
applicable period shall be allocated as follows:
(i) First, to the Partners in accordance with their respective
Percentage Interests until the Capital Account balances of the Limited Partners
(not including the holders of the Series B Preferred Units, the Series C
Preferred Units, the Series D Preferred Units and the Series E Preferred Units)
are reduced to zero (for purposes of this calculation, such Partners' share of
Partnership Minimum Gain shall be added back to their Capital Accounts);
(ii) Second, on a pari passu basis, to (A) the General Partner
until its Capital Account balance has been reduced to zero (for purposes of this
calculation, such Partner's share of Partnership Minimum Gain shall be added
back to its Capital Account); (B) to the holders of Series B Preferred Units
until their Capital Account balances have been reduced to zero (for purposes of
this calculation, such Partners' share of Partnership Minimum Gain shall be
added back to their Capital Accounts); (C) to the holders of Series C Preferred
Units until their
E-5
Capital Account balances have been reduced to zero (for purposes of this
calculation, such Partners' share of Partnership Minimum Gain shall be added
back to their Capital Accounts); (D) to the holders of Series D Preferred Units
until their Capital Account balances have been reduced to zero (for purposes of
this calculation, such Partners' share of Partnership Minimum Gain shall be
added back to their Capital Accounts); and (E) to the holders of Series E
Preferred Units until their Capital Account balances have been reduced to zero
(for purposes of this calculation, such Partners' share of Partnership Minimum
Gain shall be added back to their Capital Accounts);
(iii) Thereafter, to the Partners in accordance with their then
Percentage Interests;
(iv) Notwithstanding subparagraph 2(c)(2)(iii) hereof, to the
extent any Net Property Loss allocated to a Partner under subparagraph
2(c)(2) would cause such Partner (hereinafter, a "Restricted Partner") to
have an Adjusted Capital Account Deficit as of the end of the fiscal year
to which such Net Property Loss relates, such Net Property Loss shall not
be allocated to such Restricted Partner and instead shall be allocated to
the other Partner(s) (hereinafter, the "Permitted Partners") pro rata in
accordance with their relative Percentage Interests.
(d) Special Allocation to Holders of Series Z Incentive Units.
(1) Subject only to the provisions of Section 2(c)(iii) but
notwithstanding any other provision of this Section 2, in the year in which the
Partnership sells or otherwise disposes of all or substantially all of its
assets in a single transaction or a series of related transactions, Net Property
Gain shall first be allocated to the holders of the Series Z Incentive Units pro
rata in proportion to the number of such Series Z Incentive Units outstanding,
until the Capital Account balance attributable to each such Series Z Incentive
Unit is equal to (A) the aggregate Capital Account balance attributable to the
Common Units outstanding (including any other Partnership Units convertible into
Common Units) divided by (B) the number of such Common Units outstanding. If Net
Property Gain is insufficient to make the full allocation provided in the
preceding sentence, then, in lieu of such special allocation of Net Property
Gain provided in the preceding sentence, items of gross capital gain shall be
allocated to the holders of Series Z Incentive Units, and, if such gross items
are insufficient to make the full required allocation, items of gross capital
loss shall be allocated pro rata with respect to such Common Units. The
allocations pursuant to this paragraph (d) shall be made after the allocation of
Net Operating Income or Net Operating Loss for the applicable period in which
such sale or other disposition occurs. For purposes of this clause (i) of this
Section 2(d) "all or substantially all" means assets representing not less than
95% of the aggregate fair market value of the Partnership's assets.
(2) Notwithstanding anything herein to the contrary, for the 12-month
period following the occurrence of a Change of Control (A) Net Operating Loss
and Net Property Loss, if any, shall be allocated pursuant to Section 1(b) or
1(c)(2), as applicable, or Section 2(b) or 2(c)(2), as applicable, as if the
Percentage Interest of each Series Z Partner were zero, and (B) with respect to
each Series Z Partner at the earlier of (x) the date such Partner makes the
election to convert his Series Z Incentive Units pursuant to Section 10.9(b)(i)
or (y) the expiration of a period of twelve (12) months after such Change in
Control, items of income, gain, deduction and loss shall be allocated so as to
cause the Capital Account balance of each
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such Series Z Partner, and, as soon as possible after the end of such twelve
month period, the Capital Account balances of all Partners, to be in the same
ratio and amounts as if the allocations required by clause (A) of this Section
2(d)(2) had not been made.
(e) Definition of Percentage Interest. Solely for purposes of allocating
Net Property Gain and Net Property Loss under this Section 2, the Percentage
Interest of a Series Z Incentive Unit holder attributable to such Units shall be
deemed to be the undivided percentage ownership interest of such holder in the
Partnership as determined by dividing (A) the total number of outstanding Series
Z Incentive Units owned by such holder by (B) the total number of Partnership
Units then outstanding (excluding the Series A Preferred Interest, the Series B
Preferred Interest, the Series B Preferred Units, the Series C Preferred
Interest, the Series C Preferred Units, the Series D Preferred Interest, the
Series D Preferred Units, the Series E Preferred Interest, and the Series E
Preferred Units).
(f) Book-Up and Capital Account Adjustments. On any day on which (i) Series
A Preferred Stock (or other Preferred Stock), any series of Preferred Units or
Incentive Units are redeemed or converted into Common Stock or Common Units,
(ii) Percentage Interests are adjusted in the manner required in subparagraph
1(d), or (iii) in connection with the issuance of the Series Z Incentive Units
the Partnership shall adjust the Gross Asset Values of all Partnership assets to
equal their respective gross fair market values and shall allocate the amount of
such adjustment as Net Property Gain or Net Property Loss pursuant to Section
2(c) hereof, provided, however, that if no Series A Preferred Stock (or other
Preferred Stock) is outstanding after such redemption or conversion, such Net
Property Gain or Net Property Loss shall be allocated in such a manner that
after such allocation the Capital Accounts of the Partners are in proportion to
their Percentage Interests.
3. Special Allocations.
Notwithstanding any provision of sections 1 and 2 of this Exhibit E, the
following special allocations shall be made in the following order:
(a) Minimum Gain Chargeback (Nonrecourse Liabilities). If there is a net
decrease in Partnership Minimum Gain for any Partnership fiscal year (except as
a result of conversion or refinancing of Partnership indebtedness, certain
capital contributions or revaluation of the Partnership property as further
outlined in Regulation Sections 1.704-2(d)(4), (f)(2) or (f)(3)), each Partner
shall be specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to that Partner's share
of the net decrease in Partnership Minimum Gain. The items to be so allocated
shall be determined in accordance with Regulation Section 1.704-2(f). This
paragraph 3(a) is intended to comply with the minimum gain chargeback
requirement in said section of the Regulations and shall be interpreted
consistently therewith. Allocations pursuant to this paragraph 3(a) shall be
made in proportion to the respective amounts required to be allocated to each
Partner pursuant hereto.
(b) Minimum Gain Attributable to Partner Nonrecourse Debt. If there is a
net decrease in Minimum Gain Attributable to Partner Nonrecourse Debt during any
fiscal year (other than due to the conversion, refinancing or other change in
the debt instrument causing it to become partially or wholly nonrecourse,
certain capital contributions, or certain revaluations of Partnership property
as further outlined in Regulations Sections 1.704-2(i)(4), each Partner shall
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be specially allocated Partnership income and gain for such year (and, if
necessary, subsequent years) in an amount equal to that Partner's share of the
net decrease in the Minimum Gain Attributable to Partner Nonrecourse Debt. The
items to be so allocated shall be determined in accordance with Regulation
Section 1.704-2(i)(4) and (j)(2). This paragraph 3(b) is intended to comply with
the minimum gain chargeback requirement with respect to Partner Nonrecourse Debt
contained in said section of the Regulations and shall be interpreted
consistently therewith. Allocations pursuant to this paragraph 3(b) shall be
made in proportion to the respective amounts required to be allocated to each
Partner pursuant hereto.
(c) Qualified Income Offset. In the event a Limited Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulation
Section 1.704-1(b)(2)(ii)(d)(4), (5),or (6), and such Limited Partner has an
Adjusted Capital Account Deficit, items of Partnership income and gain shall be
specially allocated to such Partner in an amount and manner sufficient to
eliminate the Adjusted Capital Account Deficit as quickly as possible. This
paragraph 3(c) is intended to constitute a "qualified income offset" under
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any fiscal year or
other applicable period shall be allocated to the Partners in accordance with
their respective Percentage Interests.
(e) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for any
fiscal year or other applicable period shall be specially allocated to the
Partner that bears the economic risk of loss for the debt (i.e., the Partner
Nonrecourse Debt) in respect of which such Partner Nonrecourse Deductions are
attributable (as determined under Regulation Section 1.704-2(b)(4) and (i)(1)).
(f) Curative Allocations. The allocations set forth in paragraphs (a)-(e)
and Section 1(b)(2), Section 1(c)(2)(iv), Section 2(b)(2) and Section
2(c)(2)(iv), (the "Regulatory Allocations") are intended to comply with the
requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2.
Notwithstanding any other provisions of Sections 1 and 2, the Regulatory
Allocations shall be taken into account in allocating other items of income,
gain, deduction and loss among the Partners so that, to the extent possible, the
net amount of such allocations of other items and the Regulatory Allocations to
each Partner shall be equal to the net amount that would have been allocated to
each such Partner if the Regulatory Allocations had not occurred. This paragraph
(f) shall be interpreted and applied in such a manner and to such extent as is
reasonably necessary to eliminate, as quickly as possible, permanent economic
distortions that would otherwise occur as a consequence of the Regulatory
Allocations in the absence of this paragraph (f).
4. Tax Allocations.
(a) Generally. Subject to paragraphs 4(b) and (c) hereof, items of income,
gain, loss, deduction and credit to be allocated for income tax purposes
(collectively, "Tax Items") shall be allocated among the Partners on the same
basis as their respective book items.
(b) Sections 1245/1250 Recapture. If any portion of gain form the sale of
property is treated as gain which is ordinary income by virtue of the
application of Code Section 1245 or
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1250 ("Affected Gain"), then (A) such Affected Gain shall be allocated among the
Partners in the same proportion that the depreciation and amortization
deductions giving rise to the Affected Gain were allocated and (B) other Tax
Items of gain of the same character that would have been recognized, but for the
application of Code Sections 1245 and/or 1250, shall be allocated away from
those Partners who are allocated Affected Gain pursuant to Clause (A) so that,
to the extent possible, the other Partners are allocated the same amount, and
type, of capital gain that would have been allocated to them had Code Sections
1245 and/or 1250 not applied; provided, however, that the net amount of Tax
Items allocated to each Partner shall be the same as if this paragraph 4(b) did
not exist. For purposes hereof, in order to determine the proportionate
allocations of depreciation and amortization deductions for each fiscal year or
other applicable period, such deductions shall be deemed allocated on the same
basis as Net Property Gain and Net Property Loss for such respective period.
(c) Allocations Respecting Section 704(c) and Revaluations. If any
Partnership property is subject to Code Section 704(c) or is reflected in the
Capital Accounts of the Partners and on the books of the Partnership at a book
value that differs from the adjusted tax basis of such property, then the tax
items with respect to such property shall, in accordance with the requirements
of Regulations Section 1.704-1(b)(4)(i), be shared among the Partners in a
manner that takes account of the variation between the adjusted tax basis of the
applicable property and its book value in the same manner as variations between
the adjusted tax basis and fair market value of property contributed to the
Partnership are taken into account in determining the Partners' share of tax
items under Code Section 704(c). The General Partner is authorized to choose any
reasonable method permitted by the Regulations pursuant to Code Section 704(c),
including the "remedial allocation" method, the "curative allocation" method and
the traditional method; provided that the General Partner agrees to use
reasonable efforts to minimize the amount of taxable income in excess of book
income allocated to the holders of the Series B Preferred Units, the Series C
Preferred Units, the Series D Preferred Units and the Series E Preferred Units.
(d) Code Section 752 Specification. Pursuant to Regulations Section
1.752-3, the Partners' interest in Partnership profits for purposes of
determining the Partners' shares of excess nonrecourse liabilities shall be
their Percentage Interests.
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