AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ESSEX PROPERTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 77-0369576
(STATE OR OTHER JURISDICTION (IRS EMPLOYER INDEMNIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
777 CALIFORNIA AVENUE
PALO ALTO, CALIFORNIA 94304
(415) 494-3700
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KEITH R. GUERICKE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
777 CALIFORNIA AVENUE
PALO ALTO, CALIFORNIA 94304
(415) 494-3700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies to:
WILLIAM D. SHERMAN, ESQ.
STEPHEN J. SCHRADER, ESQ.
CHRISTOPHER S. DEWEES, ESQ.
MORRISON & FOERSTER LLP
755 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(415) 813-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
=======================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED(1) REGISTERED(2) PER SHARE OFFERING PRICE(2)(3) FEE
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Common Stock(4)......................
Preferred Stock(5)...................
Warrants(6).......................... $60,000,000 (2) $60,000,000 $20,690(8)
Depositary Shares representing
Preferred Stock(7)..................
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(1) This Registration Statement also covers contracts which may be issued by
the Registrant under which the counterparty may be required to purchase
Common Stock, Preferred Stock or Depositary Shares.
(2) In no event will the aggregate maximum offering price of all securities to
this Registration Statement exceed $60,000,000. Any securities registered
hereunder may be sold separately or as units with other securities
registered hereunder.
(3) The proposed maximum offering price per unit (a) has been omitted pursuant
to Instruction II.D. of Form S-3 and (b) will be determined, from time to
time, by the Registrant in connection with the issuance by the Registrant
of the securities registered hereunder.
(4) Subject to footnote 2, there is being registered hereunder an
indeterminate number of shares of Common Stock as may be sold, from time
to time, by Essex Property Trust, Inc. (the "Company"). There is also
being registered hereunder an indeterminate number of shares of Common
Stock that may be issued upon conversion of Preferred Stock or Depositary
Shares registered hereunder or upon exercise of Warrants registered
hereunder, as the case may be.
(5) Subject to footnote 2, there is being registered hereunder an
indeterminate number of shares of Preferred Stock as may be sold, from
time to time, by the Company, or may be issued upon exercise of Warrants
registered hereunder.
(6) Subject to footnote 2, there is being registered hereunder an
indeterminate number of Warrants representing rights to purchase Preferred
Stock or Common Stock registered hereunder.
(7) To be represented by Depositary Receipts representing an interest in all
or a specified portion of a share of Preferred Stock.
(8) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, THE PROSPECTUS
INCLUDED IN THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS AND RELATED
TO REGISTRATION STATEMENT NO. 333-2054 PREVIOUSLY FILED BY THE COMPANY ON
FORM S-3 AND DECLARED EFFECTIVE ON JUNE 6, 1996. THE REGISTRANT HEREBY AMENDS
THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY
ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE AN AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR
UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a) MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 14, 1996
PROSPECTUS
$102,442,500
ESSEX PROPERTY TRUST, INC.
COMMON STOCK, PREFERRED STOCK,
DEPOSITARY SHARES AND WARRANTS
Essex Property Trust, Inc. ("Essex" or the "Company") may from time to time
offer in one or more series or classes (i) shares of its common stock, par
value $0.0001 per share (the "Common Stock"), (ii) shares or fractional shares
of its preferred stock (the "Preferred Stock"), (iii) shares of Preferred Stock
represented by Depositary Shares (the "Depositary Shares"), and (iv) warrants
to purchase Preferred Stock or Common Stock (the "Warrants"), in amounts, at
prices and on terms to be determined at the time of offering, with an aggregate
public offering price of up to $102,442,500. The Common Stock, Preferred Stock,
Depositary Shares and Warrants (collectively, the "Offered Securities") may be
offered, separately or together, in separate series in amounts, at prices and
on terms to be set forth in one or more supplements to this Prospectus (each a
"Prospectus Supplement"). To ensure that the Company maintains its
qualification as a real estate investment trust ("REIT"), the Charter of the
Company (the "Charter") provides that no person, with certain exceptions, may
own more than 6.0% of the value of the outstanding shares of the Company's
stock.
The specific terms of the Offered Securities in respect to which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable (i) in the case of Common Stock,
the specific title and stated value and any initial public offering price; (ii)
in the case of Preferred Stock, the specific title and stated value, any
dividend, liquidation, redemption, conversion, voting and other rights, and any
initial public offering price; (iii) in the case of Depositary Shares, the
fractional share of Preferred Stock represented by each such Depositary Share;
and (iv) in the case of Warrants, the duration, offering price, exercise price
and detachability. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Offered
Securities, in each case as may be appropriate to preserve the status of the
Company as a REIT for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE OFFERED SECURITIES, SEE
"RISK FACTORS," COMMENCING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS PROSPECTUS IS , 1996.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed can be inspected and copied at
the Commission's Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C., 20549, and at the following regional offices of the Commission: Seven
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. In addition, the
Common Stock is listed on the New York Stock Exchange and similar information
concerning the Company can be inspected and copied at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement"), of which this Prospectus is a part, under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Offered Securities. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference and the exhibits and schedules thereto. For further
information regarding the Company and the Offered Securities, reference is
hereby made to the Registration Statement and such exhibits and schedules
which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended December
31, 1995 (including relevant portions of the Company's definitive proxy
statement for the 1996 annual meeting of stockholders specifically
incorporated by reference in Part III of such Form 10-K), Annual Report on
Form 10-K/A (Amendment No. 1) filed with the Commission on May 2, 1996 for
the year ended December 31, 1995 (including relevant portions of the
Company's definite proxy statement for the 1996 annual meeting of
stockholders specifically incorporated by reference in Part III of such
Form 10-K/A) and Annual Report on Form 10-K/A (Amendment No. 2) filed with
the Commission on June 5, 1996 for the year ended December 31, 1995
(including relevant portions of the Company's definitive proxy statement
for the 1996 annual meeting of stockholders specifically incorporated by
reference in Part III of such Form 10-K/A);
b. The Company's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1996;
c. The Company's Quarterly Report on Form 10-Q for the Quarter ended June
30, 1996;
d. The Company's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1996;
e. Report on Form 8-K filed with respect to the Company dated March 31,
1996;
f. Report on Form 8-K filed with respect to the Company dated August 13,
1996;
g. Report on Form 8-K filed with respect to the Company dated August 30,
1996, as amended by Report on Form 8-K/A filed with respect to the Company
dated October 17, 1996;
h. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-13106).
2
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of all Offered Securities to which this
Prospectus relates shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in the applicable Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to the Investor Service Manager of the Company at 777 California
Avenue, Palo Alto, California 94304, telephone number: (415) 494-3700.
THE COMPANY
The Company is a self-administered and self-managed equity REIT that was
formed in 1994 to continue and expand the real estate investment and
management operations conducted by Essex Property Corporation since 1971. As
of September 30, 1996, the Company's multi-family residential portfolio
consisted of 26 properties comprising 5,876 apartment units, twelve of which
are located in the San Francisco Bay Area, nine of which are located in the
Seattle metropolitan area, three of which are located in Southern California,
and two of which are located in the Portland, Oregon, metropolitan area. The
Company also owns six retail properties, which are located in the Portland,
Oregon, 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 26
multi-family residential properties, the "Properties").
The Company conducts substantially all of its activities through Essex
Portfolio, L.P. (the "Operating Partnership") in which the Company owns an
approximate 82.6% general partnership interest. An approximate 17.4% limited
partnership interest in the Operating Partnership is owned by senior members
of the Company's management and certain outside investors. 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 Common Stock is listed on the New York Stock Exchange under
the Symbol "ESS." The Company is a Maryland corporation. The Company's
executive offices are located at 777 California Avenue, Palo Alto, California
94304, and its telephone number is (415) 494-3700.
3
USE OF PROCEEDS
The Company intends to invest the net proceeds of any sale of Offered
Securities in the Operating Partnership. Unless otherwise indicated in the
applicable Prospectus Supplement, the Operating Partnership intends to use
such net proceeds for general corporate purposes including, without
limitation, the acquisition and development of multi-family residential
properties and the repayment of debt. Net proceeds from the sale of the
Offered Securities initially may be temporarily invested in short-term
securities.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to combined fixed charges and preferred
stock dividends for the nine months ended September 30, 1996 was approximately
2.07x and the Company's ratio of earnings to fixed charges for the fiscal
years ended December 31, 1995, and the period of June 13, 1994 through
December 31, 1994, was approximately 1.67x and 1.87x, respectively. Prior to
1996, the Company did not have any outstanding preferred stock. The ratio of
earnings to fixed charges of the Company's predecessor for the period of
January 1, 1994 through June 12, 1994 and for the fiscal years ended December
31, 1993, December 31, 1992 and December 31, 1991, was approximately 1.06x,
1.03x, 0.83x and 0.76x, respectively. For purposes of computing these ratios,
earnings have been calculated by adding fixed charges (excluding capitalized
interest) to income (loss) from operations, before gains on sales and
extraordinary items. Fixed charges consist of interest costs, whether expensed
or capitalized, and amortization of debt discounts and deferred financing
fees, whether expensed or capitalized.
RISK FACTORS
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus and the
applicable Prospectus Supplement before purchasing Offered Securities.
DEBT FINANCING; RISK OF RISING INTEREST RATES
The Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest, that the Company will not be able
to refinance existing indebtedness on the encumbered Properties or that the
terms of such refinancing will not be as favorable as the terms of existing
indebtedness. As of September 30, 1996, the Company had outstanding
approximately $136.7 million of indebtedness secured by certain of the
Properties.
As of September 30, 1996, the Company had approximately $43.4 million of
variable rate mortgage indebtedness, which bears interest at a floating rate
tied to either (i) the London InterBank Offered Rates ("LIBOR"), (ii) the rate
of short-term tax exempt securities or (iii) the 11th District Cost of Funds.
Although, approximately $9.8 million of such variable rate indebtedness is
subject to an interest rate protection agreement which may reduce the risks
associated with fluctuations in interest rates, an increase in interest rates
will have an adverse effect on the Company's net income and results of
operations.
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES
The Company intends to actively continue to acquire multi-family residential
properties. Acquisitions of such properties entail risks that investments will
fail to perform in accordance with expectations. Estimates of the costs of
improvements to bring an acquired property up to standards established for the
market position intended for that property may prove inaccurate. In addition,
there are general real estate investment risks associated with any new real
estate investment.
The Company may also pursue multi-family residential property development
projects. Such projects generally require various governmental and other
approvals, the receipt of which cannot be assured. The Company's development
activities will entail certain risks, including the expenditure of funds on
and devotion
4
of management's time to projects which may not come to fruition; the risk that
construction costs of a project may exceed original estimates, possibly making
the project not economical; the risk that occupancy rates and rents at a
completed project will be less than anticipated; and the risk that expenses at
a completed development will be higher than anticipated. These risks may
result in a development project causing a reduction in the funds available for
distribution.
DEBT FINANCING; UNCERTAINTY OF ABILITY TO REFINANCE BALLOON PAYMENTS
The Company is subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest, that the Company will not be able
to refinance existing indebtedness on the encumbered Properties or that the
terms of such refinancing will not be as favorable as the terms of existing
indebtedness. As of September 30, 1996, the Company had outstanding
approximately $136.7 million of indebtedness secured by certain of the
Properties.
The Company is not expected to have sufficient cash flows from operations to
make all of the balloon payments of principal when due under its mortgage
indebtedness and lines of credit, which are an aggregate of approximately
$136.7 million. As of September 30, 1996, such mortgage indebtedness and lines
of credit had the following scheduled maturity dates: 1996--$0.7 million;
1997--$5.4 million; 1998--$5.7 million; 1999--$5.9 million; 2000--$3.7
million; 2001 and thereafter--$115.3 million. As a result, the Company will be
subject to risks that it will not be able to refinance such mortgage
indebtedness and the mortgaged properties could be foreclosed upon by or
otherwise transferred to the mortgagee with a consequent loss of income and
asset value to the Company, or, that the indebtedness, if any, refinanced will
have higher interest rates. An inability to make such payments when due could
cause the mortgage lender to foreclose on the Properties securing the
mortgage, which would have a material adverse effect on the Company.
RISK OF RISING INTEREST RATES
As of September 30, 1996, the Company had approximately $43.4 million of
variable rate mortgage indebtedness, which bears interest at a floating rate
tied to either (i) the London InterBank Offered Rates ("LIBOR"), (ii) the rate
of short-term tax exempt securities or (iii) the 11th District Cost of Funds.
Essex has entered into an interest rate protection agreement which extends
through August 2003 (covering approximately $9.8 million) and caps the short-
term tax exempt securities rate at an all-in rate of 7.1% for mortgage notes
payable. Although approximately $9.8 million of such variable rate
indebtedness is subject to the interest rate protection agreement, an increase
in interest rates will have an adverse effect on the Company's net income and
results of operations.
GEOGRAPHIC CONCENTRATION
Approximately 49%, 30%, 15%, and 6% of the Company's rental revenues for the
three months ended September 30, 1996, were derived from Properties located in
the San Francisco Bay, the Seattle metropolitan area, Southern California and
the Portland metropolitan area (including Eugene, Oregon), respectively. As a
result of this geographic concentration, if a local property market performs
poorly, the income from the Properties in that market could decrease and, in
turn, the ability of the Company to make expected dividends to stockholders
could be adversely affected. The performance of the economy in each of these
areas affects occupancy, market rental rates and expenses and, consequently,
has an impact on the income from the Properties and their underlying values.
The financial results of major local employers may have an impact on the cash
flow and value of certain of the properties.
RISKS ASSOCIATED WITH CONVERTIBLE PREFERRED STOCK
Increase in Dividend Requirements as a Result of Convertible Preferred
Stock; Possible Inability to Sustain Dividends. On June 20, 1996, the Company
entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") to
sell up to $40.0 million of the Company's 8.75% Convertible Preferred Stock,
Series 1996A
5
(the "Convertible Preferred Stock") at $25.00 per share to Tiger/Westbrook
Real Estate Fund, L.P., and Tiger/Westbrook Real Estate Co-Investment
Partnership, L.P. (collectively, "Tiger/Westbrook"). Pursuant to the Stock
Purchase Agreement, Tiger/Westbrook has purchased 800,000 shares of
Convertible Preferred Stock for an aggregate purchase price of $20.0 million.
Tiger/Westbrook is obligated to purchase up to an additional $20.0 million of
Convertible Preferred Stock as requested by the Company on or prior to June
20, 1997. For a summary of the terms and conditions of the Convertible
Preferred Stock see "Description of Preferred Stock--Convertible Preferred
Stock."
The cash dividends payable on the Convertible Preferred Stock will
substantially increase the cash required to continue to pay cash dividends on
the Common Stock at current levels. The terms and conditions of the
Convertible 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 Convertible Preferred Stock in the annual
amount equal to the greater of (i) $2.1875 per share (8.75% of the $25.00 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 Convertible Preferred Stock. See "Description of Preferred Stock--
Convertible Preferred Stock--Dividends."
Under certain circumstances, if, after June 20, 2001, the Company requires a
mandatory conversion of all of the Convertible Preferred Stock, but under no
other circumstances, each of the holders of the Convertible Preferred Stock
may cause the Company to redeem any or all of such holder's shares of
Convertible Preferred Stock. Such a redemption would decrease the amount of
cash available to pay cash dividends on the Common Stock. At such time as
there ceases to be in excess of 40,000 shares of Convertible Preferred Stock
outstanding, the Company may at its option purchase all of the outstanding
shares of Convertible Preferred Stock from the holders thereof. See
"Description of Preferred Stock--Convertible Preferred Stock--Redemption at
Holder's Option After Notice of Mandatory Conversion." If the Company is
unable to pay dividends on the Common Stock, the Company's status as a REIT
may be jeopardized. See "Federal Income Tax Considerations--Requirements for
Qualification--Annual Distribution Requirements."
Any Common Stock or other Offered Securities that may in the future be
issued pursuant to this Prospectus, upon exercise of stock options or
otherwise, will further substantially increase the costs required to continue
to pay cash dividends at current levels. The Company's ability to pay
dividends will depend in large part on the performance of its Properties and
other properties that it may acquire in the future.
The Company's ability to pay dividends on its stock is further limited by
the Maryland General Corporation Law ("MGCL"). Under the MGCL, the Company may
not make a distribution on its stock if, after giving effect to such
distribution, either (i) the Company would not be able to pay its indebtedness
as such indebtedness becomes due in the usual course of business or (ii) the
Company's total assets would be less than its total liabilities (which, in
accordance with the Articles Supplementary (as hereinafter defined), will not
include amounts required to satisfy the preferential rights of the Convertible
Preferred Stock upon dissolution of the Company). See "Description of
Preferred Stock--Convertible Preferred Stock--Liquidation Preference." If the
Company is unable to pay dividends on its stock, the Company's status as a
REIT may be jeopardized. See "Federal Income Tax Considerations--Requirements
for Qualification--Annual Distribution Requirements."
Risk of Adverse Effect on Market Price Due to Registration Rights and
Preemptive Rights Associated with Convertible Preferred Stock. Holders of the
Convertible Preferred Stock have certain registration rights with respect to
the Convertible Preferred Stock or shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock for sale to the public. See
"Description of Preferred Stock--Convertible Preferred Stock--Registration
Rights." Registration rights are also held by the senior members of the
Company's management and certain outside investors (collectively, the
"Founders") who own an approximate 17.4% limited partnership interest in the
Operating Partnership, and have certain "demand" and "piggyback" registration
rights with respect to shares of Common Stock issuable in connection with the
exchange of their limited partnership interests in the Operating Partnership.
The aggregate 17.4% limited partnership interest held by the Founders is
exchangeable for an aggregate of 1,855,000 shares of Common Stock. The
registration rights
6
of the holders of the Convertible Preferred Stock and the Founders could have
a material adverse effect on the market price for the Offered Securities. In
addition, the Stock Purchase Agreement provides Tiger/Westbrook with
preemptive rights to purchase a pro rata share of the Company's equity
offerings. The preemptive rights could have a material adverse effect on the
market price for the Offered Securities. See "Description of Preferred Stock--
Convertible Preferred Stock--Right of Tiger/Westbrook to Participate in
Offerings."
Risk of Substantial Dilution to the Holders of Common Stock. At any time
after June 20, 1997, subject to certain quantity limitations, the shares of
Convertible Preferred Stock will be convertible, at the option of the holders,
into such number of shares of Common Stock as is determined by dividing $25.00
(plus accrued and unpaid dividends) by the conversion price then in effect.
The current conversion price is $21.875 per share and, therefore, each share
of Convertible Preferred Stock is currently convertible into approximately
1.14 shares of Common Stock. In order to provide certain antidilution
protection to the holders of the Convertible Preferred Stock, the conversion
price is subject to reduction in certain circumstances, including in the event
that the Company issues Common Stock at a price below the conversion price.
Such reduction in the conversion price could increase the dilution to holders
of Common Stock that would arise if and when the Convertible Preferred Stock
is converted into Common Stock. Holders of Common Stock could experience
substantial dilution in their proportionate ownership, voting power and
earnings per share in the event that the Company issues a substantial number
of additional shares of Common Stock and/or Preferred Stock, either upon
conversion of the Convertible Preferred Stock, in connection with future
acquisitions or otherwise, which issuances could adversely affect the market
price of the Offered Securities. See "Description of Preferred Stock--
Convertible Preferred Stock--Conversion Rights."
Concentration of Voting Power and Consent Requirements of the Holders of the
Convertible Preferred Stock. The holders of the Convertible Preferred Stock
have significant direct and indirect influence over the Company's affairs. The
approval of holders of two-thirds of the outstanding shares of Convertible
Preferred Stock, voting as a separate class, is required to, among other
things, make certain revisions to the corporate structure of the Company,
including such revisions that would affect the rights, priority and
preferences of the Convertible Preferred Stock, and for the Company or the
Operating Partnership to merge or consolidate with another entity or for the
Company to sell all or substantially all of its assets. In addition, the
approval of holders of a majority of the outstanding shares of Convertible
Preferred Stock, voting as a separate class, is required for the Company to,
among other things, make substantial sales of its assets, change the
geographic concentration of its portfolio of Properties, or undergo a change
in control affecting the Company or the Operating Partnership. See
"Description of Preferred Stock--Convertible Preferred Stock--Voting Rights."
In addition, the holders of the Convertible Preferred Stock as a class
currently have the right to elect one director to the Company's Board of
Directors. Under certain circumstances, the holders of the Convertible
Preferred Stock will be entitled to elect up to four additional directors.
Such circumstances include the Company's failure to pay quarterly dividends on
the Convertible Preferred Stock for four quarters and the Company's breach of
certain provisions of the Charter and the Company's bylaws (the "Bylaws")
affecting the holders of the Convertible Preferred Stock. See "Description of
Preferred Stock--Convertible Preferred Stock--Voting Rights." Moreover, the
Company may not authorize or create any class or series of stock that ranks
equal or senior to the Convertible Preferred Stock with respect to the payment
of dividends or amounts upon liquidation, dissolution or winding up without
the consent of the holders of two-thirds of the outstanding shares of
Convertible Preferred Stock, voting separately as a single class. There can be
no assurance that the interests of Tiger/Westbrook, and indirectly the
director or directors elected by the holders of the Convertible Preferred
Stock, would not differ from or conflict with the interests of the holders of
Common Stock or other Offered Securities.
In addition, upon conversion of the Convertible Preferred Stock into shares
of Common Stock, the holders of the Convertible Preferred Stock would have
considerable influence with respect to the election of directors and the
approval or disapproval of significant corporate actions, since they would
hold approximately 14.6% of all outstanding shares of Common Stock (assuming
exchange of all partnership interests in the Operating
7
Partnership into shares of Common Stock), assuming that such conversion took
place on the date of this Prospectus and all of the authorized shares of
Convertible Preferred Stock were issued.
As of the date of this Prospectus, Tiger/Westbrook was the sole holder of
all outstanding shares of the Convertible Preferred Stock. In view of the
substantial influence of the holders of the Convertible Preferred Stock over
the Company's affairs, it should be noted that Tiger/Westbrook's interests do
not necessarily coincide with those of the holders of the Common Stock and
therefore its actions with respect to the Company will not necessarily be in
the best interests of the holders of Common Stock or other Offered Securities.
In addition, as of September 30, 1996, Mr. Marcus' beneficial ownership of
1,746,563 shares of Common Stock (including shares issuable upon exchange of
partnership interests in the Operating Partnership) represented approximately
16.4% of the outstanding shares of Common Stock (including shares issuable
upon exchange of partnership interests in the Operating Partnership). While,
as of the date of this Prospectus, Mr. Marcus does not have majority control
of the Company, he currently has, and likely will continue to have,
significant influence with respect to the election of directors and approval
or disapproval of significant corporate actions.
Exemption from the Maryland Business Combination Law. Under the MGCL,
certain "business combinations" (including certain issuances of equity
securities) between a Maryland corporation and any Interested Stockholder or
an affiliate thereof are prohibited for five years after the date on which the
Interested Stockholder becomes an Interested Stockholder unless approved by
super-majority votes of the stockholders. Under the MGCL, an Interested
Stockholder includes any individual or entity which is the beneficial owner of
10% or more of a corporation's outstanding stock which is entitled to vote
generally in the election of directors. However, as permitted by the statute,
the Board of Directors irrevocably has elected to exempt any business
combination by the Company with Tiger/Westbrook and its affiliates from the
"business combination" provision of the MGCL. Consequently, the five-year
prohibition and the super-majority vote requirements described above will not
apply to any business combination between Tiger/Westbrook (or affiliates
thereof) and the Company. As a result, the Company may in the future enter
into business combinations with Tiger/Westbrook (or affiliates thereof),
without compliance by the Company with the super-majority vote requirements
and other provisions of the statute.
Anti-Takeover Effect of the Charter, the Bylaws, the Convertible Preferred
Stock and Certain Provisions of Maryland Law. The Company's Charter authorizes
the Board of Directors to cause the Company to issue additional shares of
Common Stock or preferred stock and to set the preferences, rights and other
terms of such preferred stock without the approval of the holders of the
Common Stock, provided that the Company must obtain the consent of the holders
of two-thirds of the outstanding shares of Convertible Preferred Stock in
order to authorize or create any class or series of stock that ranks equal or
senior to the Convertible Preferred Stock. See "Description of Preferred
Stock--Convertible Preferred Stock--Voting Rights." Although the Board of
Directors has no intention to issue any shares of Convertible Preferred Stock
or other preferred stock at the present time, other than pursuant to the Stock
Purchase Agreement, subject to the consent of the requisite holders of
Convertible Preferred Stock, it may establish one or more series of preferred
stock that could, depending on the terms of such series, delay, defer or
prevent a transaction or a change in control of the Company that might involve
a premium price for the Company's stock or otherwise be in the best interests
of the holders of Offered Securities, or that could have dividend, voting or
other rights that could adversely affect the interest of holders of Offered
Securities.
The Charter of the Company also contains other provisions that may delay,
defer or prevent a transaction or a change in control of the Company that
might involve a premium price for the stock or otherwise be in the best
interest of the stockholders or that could otherwise adversely affect the
interests of the stockholders, and the Bylaws may be amended by the Board of
Directors (subject to the consent of the holders of the Convertible Preferred
Stock in certain circumstances) to include provisions that would have a
similar effect, although the Board presently has no such intention. The
Charter provides that the Company must seek the consent of the holders of the
Convertible Preferred Stock holding two-thirds of the outstanding shares of
Convertible Preferred Stock before it or the Operating Partnership may merge
or consolidate with any other entity or sell all or
8
substantially all of its assets. Also, the terms of the Convertible Preferred
Stock require that the Company must
obtain the consent of the holders of the Convertible Preferred Stock holding
more than 50% of the outstanding shares of Convertible Preferred Stock before
it may undergo a change in control. Additionally, the Charter contains
ownership provisions limiting the transferability and ownership of shares of
the capital stock of the Company, which may have the effect of delaying,
deferring or preventing a transaction or a change in control of the Company.
For example, subject to receiving an exemption from the Board of Directors
(see "Description of Common Stock--Restrictions on Transfer") these ownership
provisions preclude any potential acquiror from purchasing more than 6%
percent in value of the Company's stock (other than qualified pension trusts
which can acquire 9.9%), thereby discouraging any tender offer which may be
attractive to the holders of the Common Stock and limiting the opportunity for
stockholders to receive a premium for their Common Stock that might otherwise
exist if an investor were attempting to assemble a block of shares in excess
of 6% of the Company's stock, or to otherwise effect a change in control of
the Company. See "Description of Common Stock--Restrictions on Transfer."
In addition, the MGCL restricts the voting rights of shares deemed to be
"control shares." Under the MGCL, "control shares" are those which, when
aggregated with any other shares held by the acquiror, entitle the acquiror to
exercise voting power within specified ranges. Although the Bylaws provide
that the control share provisions of the MGCL shall not apply to any
acquisition by any person of shares of stock of the Company, the provisions of
the Bylaws may be amended or eliminated by the Board of Directors at any time
in the future, provided that it obtains any required consent from the holders
of the Convertible Preferred Stock. Moreover, any such amendment or
elimination of such provision of the Bylaws may result in the application of
the control share provisions of the MGCL not only to control shares which may
be acquired in the future, but also to control shares previously acquired. If
the provisions of the Bylaws are amended or eliminated, the control share
provisions of the MGCL could delay, defer or prevent a transaction or change
in control of the Company that might involve a premium price for the Company's
stock or otherwise be in the best interests of the stockholders or that could
otherwise adversely affect the interests of the stockholders.
BOND COMPLIANCE REQUIREMENTS.
As of September 30, 1996 the Company had approximately $23.4 million of tax-
exempt financing relating to its Inglenook Court Apartments, Wandering Creek
Apartments and Treetops Apartments. The tax-exempt financing subjects these
Properties to certain deed restrictions and restrictive covenants. In
addition, the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations promulgated thereunder impose various restrictions, conditions and
requirements relating to the exclusion from gross income for federal income
tax purposes of interest on qualified bond obligations, including requirements
that at least 20% of apartment units be made available to residents with gross
incomes that do not exceed 50% of the median income for the applicable family
size as determined by the Housing and Urban Development Department of the
federal government. In addition to federal requirements, certain state and
local authorities may impose additional rental restrictions. The bond
compliance requirements and the requirements of any future tax-exempt bond
financing utilized by the Company may have the effect of limiting the
Company's income from the tax-exempt financed properties if the Company is
required to lower its rental rates to attract residents who satisfy the median
income test. If the required number of apartment homes are not reserved for
residents satisfying these income requirements, the tax-exempt status of the
bonds may be terminated, the obligations of the Company under the bond
documents may be accelerated and other contractual remedies against the
Company may be available.
GENERAL REAL ESTATE INVESTMENT RISKS
Real property investments are subject to a variety of risks. The yields
available from equity investments in real estate depend on the amount of
income generated and expenses incurred. If the Properties do not generate
sufficient income to meet operating expenses, including debt service and
capital expenditures, the Company's cash flow and ability to make
distributions to its stockholders will be adversely affected. The performance
of the economy in each of the areas in which the Properties are located
affects occupancy, market rental rates and expenses and, consequently, has an
impact on the income from the Properties and their underlying values. The
financial results of major local employers may have an impact on the cash flow
and value of certain of the Properties.
9
Income from the Properties may be further adversely affected by, among other
things, the general economic climate, local economic conditions in which the
Properties are located, such as oversupply of space or a reduction in demand
for rental space, the attractiveness of the Properties to tenants, competition
from other available space, the ability of the Company to provide for adequate
maintenance and insurance and increased operating expenses. There is also the
risk that as leases on the Properties expire, tenants will enter into new
leases on terms that are less favorable to the Company. Income and real estate
values may also be adversely affected by such factors as applicable laws
(e.g., the Americans With Disabilities Act of 1990 and tax laws), interest
rate levels and the availability and terms of financing. In addition, real
estate investments are relatively illiquid and, therefore, will tend to limit
the ability of the Company to vary its portfolio promptly in response to
changes in economic or other conditions. The Code also limits the Company's
ability to sell properties held for less than four years, which may effect the
Company's ability to sell properties without adverse tax effects on holders of
Offered Securities.
RISKS INVOLVED IN INVESTMENTS IN MORTGAGES
The Company may invest in mortgages, in part as a strategy for ultimately
acquiring the underlying property. In general, investments in mortgages
include the risk that the value of mortgaged property may be less than the
amounts owed, the risk that interest rates payable on the mortgages may be
lower than the Company's cost of funds, and, in the case of junior mortgages,
the risk that foreclosure of a senior mortgage would eliminate the junior
mortgage. If any of the above were to occur, cash flows from operations and
the Company's ability to make expected dividends to stockholders could be
adversely affected.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs or removal or remediation of
such substances at a disposal or treatment facility, whether or not such
facility is owned or operated by such person. Certain environmental laws
impose liability for release of asbestos-containing materials into the air,
and third parties may seek recovery from owners or operators of real
properties for personal injuries associated with asbestos-containing
materials. In connection with the ownership (direct or indirect), operation,
financing, management and development of real properties, the Company may be
considered an owner or operator of such properties or as having arranged for
the disposal or treatment of hazardous or toxic substances and, therefore, may
be potentially liable for removal or remediation costs, as well as certain
other costs, including governmental fines and costs related to injuries to
persons and property.
GENERAL UNINSURED LOSSES
The Company carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance for each of the Properties, with policy
specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses which
are either uninsurable or not economically insurable. Further, certain of the
Properties are located in areas that are subject to earthquake activity.
Although the Company has obtained certain limited earthquake insurance
policies, should a Property sustain damage as a result of an earthquake, the
Company may sustain losses due to insurance deductibles, co-payments on
insured losses or uninsured losses.
CHANGES IN REAL ESTATE TAX AND OTHER LAWS
Costs resulting from changes in real estate tax laws generally are not
directly passed through to residential property tenants and increases in
income, service or other taxes, generally are also not passed through to
tenants
10
under leases and may adversely affect the Company's funds from operations and
its ability to make distributions to stockholders. Similarly, compliance with
changes in (i) laws increasing the potential liability for environmental
conditions existing on properties or the restrictions on discharges or other
conditions or (ii) rent control or rent stabilization laws or other laws
regulating housing may result in significant unanticipated expenditures, which
would adversely affect the Company's Funds from Operations and its ability to
make distributions to stockholders.
CHANGES IN FINANCING POLICY
The Company has adopted a policy of maintaining a debt-to-total-market-
capitalization ratio of less than 50%. The Company calculates debt-to-total-
market capitalization based on the ratio of the total property indebtedness to
the sum of (i) the aggregate market value of the outstanding shares of Common
Stock (based on the greater of current market price or the gross proceeds per
share from public offerings of its shares plus any undistributed net cash
flow), assuming the conversion of all limited partnership interests in the
Operating Partnership into shares of Common Stock and the conversion of all
shares of Convertible Preferred Stock into shares of Common Stock and (ii) the
total property indebtedness. Based on this calculation, the Company's debt-to-
total-market-capitalization ratio was approximately 32% as of September 30,
1996.
The organizational documents of the Company and the Operating Partnership do
not limit the amount or percentage of indebtedness that they may incur. The
Company may from time to time modify its debt policy in light of then current
economic conditions, relative costs of debt and equity securities,
fluctuations in the fair market price of the Common Stock, growth and
acquisition opportunities and other factors. Accordingly, the Company may
increase its debt-to-total-market-capitalization ratio beyond the limits
described above. If the Board of Directors determines that additional funding
is required, the Company or the Operating Partnership may raise such funds
through additional equity offerings, debt financing or retention of cash flow
(subject to provisions in the Code concerning taxability of undistributed real
estate investment trust income), or a combination of these methods.
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company has operated so as to qualify as a REIT under the Code,
commencing with its taxable year ended December 31, 1994. Although the Company
believes that it has operated in a manner which satisfies the REIT
qualification requirements, no assurance can be given that the Company will
continue to do so. A REIT generally is not taxed on income so long as it
distributes to its stockholders at least 95% of its taxable income currently.
Qualification as a REIT involves the satisfaction of numerous requirements
(some on an annual or quarterly basis) established under highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations and involves the determination of various
factual matters and circumstances not entirely within the Company's control.
See "Federal Income Tax Considerations."
If the Company fails to qualify as a REIT in any taxable year, the Company
would generally be subject to Federal income tax (including any applicable
alternative minimum tax) at corporate rates on its taxable income for such
year. Moreover, unless entitled to relief under certain statutory provisions,
the Company would also be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification is lost. This
treatment would reduce the net earnings of the Company available for
investment or distribution to stockholders because of the additional tax
liability of the Company for the years involved. In addition, distributions
would no longer be required to be made. See "Federal Income Tax
Considerations."
The Operating Partnership has received an opinion from Morrison & Foerster
LLP, counsel to the Company, stating that the Operating Partnership is
classified and treated as a partnership for Federal income tax purposes. Such
legal opinion is not binding on the Internal Revenue Service ("IRS"). If the
IRS were to challenge successfully the Operating Partnership's status as a
partnership for Federal income tax purposes, the Company would cease to
qualify as a REIT and the Company and the Operating Partnership would be
subject to Federal income tax (including any alternative minimum tax) on their
net income at corporate rates. See "Federal Income Tax Considerations--Tax
Aspects of the Company's Investment in the Operating Partnership."
11
DESCRIPTION OF COMMON STOCK
STOCK--GENERAL
As of September 30, 1996, the total number of shares of all classes of
capital stock that the Company had authority to issue was 1,000,000,000
shares, consisting of 668,400,000 shares of Common Stock, par value $0.0001
per share, 1,600,000 shares of Convertible Preferred Stock, par value $0.0001
per share, and 330,000,000 shares of excess stock (the "Excess Stock").
As of September 30, 1996, there were 8,805,500 shares of Common Stock issued
and outstanding. Up to 425,400 shares of Common Stock have been reserved for
issuance under the Essex Property Trust, Inc. 1994 Employee Stock Incentive
Plan, up to 70,000 shares of Common Stock have been reserved for issuance
under the Essex Property Trust, Inc. 1994 Non-Employee and Director Stock
Incentive Plan and up to 406,500 shares of Common have been reserved for
issuance under the Essex Property Trust, Inc. 1994 Employee Stock Purchase
Plan. In addition, 220,000 shares of Common Stock have been reserved for
issuance upon the exercise of an option granted to The Marcus & Millichap
Company (the "M&M Stock Option") and an aggregate of 1,855,000 shares of
Common Stock may be issued upon the conversion of limited partnership
interests in the Operating Partnership.
As of September 30, 1996, there were 800,000 shares of Convertible Preferred
Stock issued and outstanding.
COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement
may relate, including a Prospectus Supplement providing that Common Stock will
be issuable upon conversion of Preferred Stock or Depositary Shares or upon
the exercise of Warrants issued by the Company. This description is in all
respects subject to and qualified in its entirety by reference to the
applicable provisions of the Charter and the Company's Bylaws (the "Bylaws").
The Common Stock is listed on the New York Stock Exchange under the symbol
"ESS." Boston EquiServe is the Company's transfer agent.
The holders of the outstanding Common Stock are entitled to one vote per
share on all matters voted on by stockholders, including elections of
directors. The Charter provides that shares of Common Stock do not have
cumulative voting rights.
The shares of Common Stock offered hereby will, when issued, be fully paid
and nonassessable and will not be subject to preemptive or similar rights.
Subject to the preferential rights of any outstanding series of capital stock,
the holders of Common Stock are entitled to such distributions as may be
declared from time to time by the Board of Directors from funds available for
distribution to such holders. The Company currently pays regular quarterly
dividends to holders of Common Stock.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the assets remaining
after satisfaction of all liabilities and payment of liquidation preferences
and accrued dividends, if any, on any series of capital stock that has a
liquidation preference. The rights of holders of Common Stock are subject to
the rights and preferences established by the Board of Directors for any
capital stock that may subsequently be issued by the Company.
Subject to limitations prescribed by Maryland law and the Charter, the Board
of Directors is authorized to reclassify any unissued portion of the
authorized shares of capital stock to provide for the issuance of shares in
other classes or series, including other classes or series of Common Stock, to
establish the number of shares in each class or series and to fix the
designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of such class or series. The rights, preferences,
privileges and restrictions of such class or series will be fixed by the
articles supplementary relating to such class or series. A Prospectus
Supplement will specify the terms of such class or series.
12
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50% of
the value of the outstanding shares of stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code) during the
last half of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year. Shares of Common Stock must be
beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year and certain percentages of the
Company's gross income must be from particular activities (see "Federal Income
Tax Considerations--Requirements for Qualification--Gross Income Tests").
Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the Charter, subject to certain exceptions,
provides that no holder, other than George M. Marcus, may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than 6.0% (the
"Ownership Limit") of the value of the issued and outstanding shares of stock
of the Company (the "Equity Stock"). A qualified trust (as defined in the
Charter) generally may own up to 9.9% of the value of the outstanding shares
of Equity Stock. If George M. Marcus converts his limited partnership
interests in the Operating Partnership into shares of Common Stock, he may
exceed the Ownership Limit. The Ownership Limit provision provides that George
M. Marcus may acquire additional shares (up to 25% of the value of the
outstanding shares of Equity Stock) pursuant to conversion rights or from
other sources so long as the acquisition does not result in the five largest
beneficial owners of Equity Stock holding more than 50% of the value of the
outstanding shares of Equity Stock. The Board of Directors may exempt holders
of Equity Stock from the Ownership Limit if evidence satisfactory to the Board
of Directors is presented that such ownership will not jeopardize the
Company's status as a REIT. As a condition to such exemption, the Board of
Directors must receive an opinion of counsel and representations and
agreements from the applicant with respect to preserving the REIT status of
the Company, provided, however, the Board of Directors may not grant an
exemption from the Ownership Limit whereby the applicant would own above 25%
of the value of the outstanding shares of Equity Stock unless, in addition to
the foregoing, the Board of Directors receives a ruling from the IRS to the
effect that such an exemption will not jeopardize the Company's status as a
REIT. The Board of Directors may also increase the Ownership Limit (to a
maximum of 9.9%) and, in connection therewith, require opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable
in order to preserve the REIT status of the Company. The Ownership Limit will
not apply if the Board of Directors and the stockholders of the Company
determine that it is no longer in the best interests of the Company to attempt
to qualify, or to continue to qualify, as a REIT. Any transfer of shares of
stock that would (i) create a direct ownership of shares of Equity Stock in
excess of the Ownership Limit, (ii) result in the shares of stock being owned
by fewer than 100 persons, or (iii) result in the Company's being "closely
held" under Section 856(h) of the Code, shall be null and void, and the
intended transferee will acquire no rights to the shares.
The Charter also provides that shares involved in a transfer or change in
capital structure that results in a person (other than George M. Marcus)
owning in excess of the Ownership Limit (unless an exemption is provided by
the Board of Directors) or would cause the Company to become "closely held"
within the meaning of Section 856(h) of the Code will automatically be
exchanged for shares of Excess Stock. All Excess Stock will be automatically
transferred, without action by the stockholder, to a person who is
unaffiliated with the Company, or the purported holder, as trustee (the
"Trustee") for the exclusive benefit of one or more organizations described in
Code Sections 170(b), 170(c) or 501(c)(3) as charitable beneficiary (the
"Charitable Beneficiary") and designated by resolution of the Board of
Directors. Such shares of Excess Stock held in trust are considered issued and
outstanding shares of stock of the Company. In general, the Trustee of such
shares is deemed to own the shares of Excess Stock held in trust for the
exclusive benefit of the Charitable Beneficiary on the day prior to the date
of the purported transfer or change in capital structure which resulted in the
automatic transfer.
The Ownership Limit provision will not be automatically removed even if the
real estate investment trust provisions of the Code are changed so as to no
longer contain any ownership concentration limitation or if the ownership
concentration limitation is increased. Except as otherwise described above,
any change in the Ownership Limit would require an amendment to the Charter.
Such amendments to the Charter require the
13
affirmative vote of holders owning a majority of the outstanding shares of
Common Stock. In addition to preserving the Company's status as a real estate
investment trust, the Ownership Limit may have the effect of precluding an
acquisition of control of the Company without the approval of the Board of
Directors.
All certificates representing shares of Equity Stock will bear a legend
referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% of the value of the outstanding shares of Equity Stock
(or 1% if there are fewer than 2,000 stockholders) must file written notice
with the Company containing the information specified in the Charter by
January 31 of each year. In addition, each stockholder shall upon demand be
required to disclose to the Company in writing such information with respect
to the direct, indirect and constructive ownership of shares of stock as the
Board of Directors deems necessary to determine the effect, if any, of such
ownership on the Company's status as a REIT and to ensure compliance with the
Ownership Limit.
The articles supplementary, if applicable, for the Offered Securities may
also contain provisions that further restrict the ownership and transfer of
the Offered Securities. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to the Offered Securities.
DESCRIPTION OF PREFERRED STOCK
GENERAL
Subject to limitations prescribed by Maryland law and the Company's Charter,
the Board of Directors is authorized to issue, from the authorized but
unissued shares of capital stock of the Company, Preferred Stock in such
classes or series as the Board of Directors may determine and to establish
from time to time the number of shares of Preferred Stock to be included in
any such class or series and to fix the designation and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the shares
of any such class or series, and such other subjects or matters as may be
fixed by resolution of the Board of Directors. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control
of the Company.
Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular class or series of Preferred Stock will be described in the
Prospectus Supplement relating to that class or series, including a Prospectus
Supplement providing that Preferred Stock may be issuable upon the exercise of
Warrants issued by the Company. The description of Preferred Stock set forth
below and the description of the terms of a particular class or series of
Preferred Stock set forth in a Prospectus Supplement do not purport to be
complete and are qualified in their entirety by reference to the articles
supplementary relating to that class or series. The preferences and other
terms of the Preferred Stock of each class or series will be fixed by the
articles supplementary relating to such class or series. A Prospectus
Supplement, relating to each class or series, will specify the terms of the
Preferred Stock as follows:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s), and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock;
(4) Whether such Preferred Stock is cumulative or not and, if cumulative,
the date from which dividends on such Preferred Stock shall accumulate;
(5) The provision for a sinking fund, if any, for such Preferred Stock;
(6) The provision for redemption, if applicable, of such Preferred Stock;
14
(7) Any listing of such Preferred Stock on any securities exchange;
(8) The terms and conditions, if applicable, upon which such Preferred
Stock will be converted into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(9) A discussion of any material federal income tax considerations
applicable to such Preferred Stock;
(10) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT;
(11) The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(12) Any limitations on issuance of any class or series of preferred
stock ranking senior to or on a parity with such class or series of
Preferred Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(13) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock; and
(14) Any voting rights of such Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of
Common Stock and Excess Stock of the Company, and to all equity securities
ranking junior to such Preferred Stock with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the Company; (ii) on a
parity with all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank on a parity with the
Preferred Stock with respect to dividends rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank senior to the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any shares of any class or
series of Preferred Stock are convertible into Common Stock will be set forth
in the applicable Prospectus Supplement relating thereto. Such terms will
include the number of shares of Common Stock into which the shares of
Preferred Stock are convertible, the conversion price (or manner of
calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of such class or series of
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such class or series of Preferred Stock.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding stock may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code) during the last half of a
taxable year, the stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year and certain percentages of the
Company's gross income must be from particular activities (see "Federal Income
Tax Considerations--Requirements for Qualification--Gross Income Tests"). To
enable the Company to continue to qualify as a REIT, the Charter restricts the
acquisition of shares of common stock and preferred stock. The Charter
provides that, subject to certain exceptions specified in the Charter, no
stockholder, other than George M. Marcus, may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 6.0% of the value
of the outstanding Equity Stock. See "Description of Common Stock--
Restrictions on Transfer." The applicable Prospectus Supplement will also
specify any additional ownership limitations relating to a series of Preferred
Stock.
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CONVERTIBLE PREFERRED STOCK
Pursuant to the Stock Purchase Agreement, Tiger/Westbrook has purchased
800,000 shares of Convertible Preferred Stock for an aggregate purchase price
of $20.0 million, Tiger/Westbrook is obligated to purchase up to an additional
$20.0 million of Convertible Preferred Stock as requested by the Company on or
prior to June 20, 1997. On July 1, 1996, the Company filed Articles
Supplementary (the "Articles Supplementary") setting forth the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption of the
Convertible Preferred Stock. The following summarizes certain rights of the
holders of the Convertible Preferred Stock, generally, and Tiger/Westbrook,
its affiliates and its transferees, specifically. These rights arise under the
Stock Purchase Agreement and a Registration Rights Agreement as well as the
Articles Supplementary.
Ranking
The Convertible Preferred Stock ranks senior to the Common Stock with
respect to the payment of dividends and amounts upon liquidation, dissolution
or winding up of the Company. The Company may not authorize, create or
increase the authorized amount of any class or series of equity securities
that ranks equal with or senior to the Convertible Preferred Stock with
respect to the payments of dividends or amounts upon liquidation, dissolution
or winding up, without the consent of holders of two-thirds of the outstanding
shares of Convertible Preferred Stock, voting together as a class.
Dividends
Holders of shares of Convertible Preferred Stock are entitled to receive
annual cumulative cash dividends, payable quarterly, in an amount equal to the
greater of (i) $2.1875 per share (8.75% of the $25.00 per share price) or (ii)
the dividend (subject to adjustment) paid with respect to the Common Stock
plus, in both cases, any accumulated but unpaid dividends on the Convertible
Preferred Stock.
Unless and until all accrued dividends on the Convertible 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 Common Stock (or any
other stock junior to the Convertible Preferred Stock, together with Common
Stock ("Junior Shares")), (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 that will be used by the Company to fund the payment of
dividends on the Convertible Preferred Stock (such distributions to the
Company 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.
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 MGCL, amounts that would be needed
if the Company were to be dissolved at the time of the distribution to satisfy
the preferential rights upon dissolution of holders of the Company's
Convertible Preferred Stock whose preferential rights upon dissolution are
superior to those receiving the distribution are not to be included in the
Company's total liabilities.
Liquidation Preference
Upon the liquidation, dissolution or winding-up of the Company the holders
of the Convertible Preferred Stock will be entitled to receive out of the
assets of the Company available for distribution to its stockholders, before
any distribution is made to holders of the Common Stock, an amount per share
(the "Liquidation Preference") equal to 105% of the sum of (i) $25.00 (the
"Stated Value") plus (ii) all accrued dividends with
16
respect to the Convertible Preferred Stock to the date of final distribution
(whether or not declared). After payment of the full amount of the Liquidation
Preference, the holders of Convertible Preferred Stock will not be entitled to
any further distribution of assets of the Company.
Until the holders of the Convertible Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of
Common Stock upon the liquidation, dissolution or winding up of the Company.
If, upon such liquidation, dissolution or winding up, the assets of the
Company, or the proceeds thereof, distributable among the holders of the
shares of the Convertible Preferred Stock are insufficient to pay in full the
Liquidation Preference, then such assets, or the proceeds thereof, will be
distributed pro rata to the holders of shares of the Convertible Preferred
Stock in accordance with their respective holdings thereof.
Neither a consolidation or merger of the Company with another corporation,
nor a sale or transfer of all or any part of the Company's assets for cash or
securities, will be considered a liquidation, dissolution or winding-up of the
Company.
Voting Rights
Except as indicated below with respect to the election of directors of the
Company, certain amendments to the Charter and certain other specified
matters, the holders of shares of Convertible Preferred Stock have no voting
rights. On those matters for which the holders of the Convertible Preferred
Stock have the right to vote, each share of the Convertible Preferred Stock is
entitled to one vote.
Election of Directors
The holders of the Convertible Preferred Stock as a class ordinarily have
the right to elect one director. Under the current Charter, the holders of the
Convertible Preferred Stock, voting as a separate class, have the right, to
elect up to four additional directors, as follows: (i) if the Company breaches
any of the protective provisions discussed in "--Senior Securities;
Amendments; Other Matters" (a "Charter Breach"), the holders of the
Convertible Preferred Stock will be entitled to elect an aggregate of four
directors; and (ii) in the event of a Dividend Default (as hereinafter
defined) or in the event of both a Dividend Default and a Charter Breach, the
holders of the Preferred Stock will be entitled to elect an aggregate of five
directors. All such additional directors will be elected as soon as
practicable after any such default. A "Dividend Default" shall occur if, at
any time, dividends are not paid in full with respect to all shares of
Convertible 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 Convertible Preferred Stock at each
subsequent annual meeting of stockholders shall be increased as provided in
the previous paragraph, e.g., if a Charter Breach has occurred, the holders of
Convertible Preferred Stock shall elect four 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 Convertible
Preferred Stock shall elect five directors at subsequent annual meetings,
subject to classification as provided in the Bylaws.
The Company has submitted to a stockholders' vote a proposed amendment to
its Charter that would replace the provisions described in the two preceding
paragraphs and provide instead that in the event of a Dividend Default or
Charter Breach, the Board of Directors would be reduced or expanded to nine
members, as the case may be, three of which would be elected by holders of
shares of Convertible Preferred Stock, and six of which would be elected by
the holders of shares of Common Stock. As of the date of this Prospectus, the
Company has not received sufficient votes from the stockholders to approve
this amendment.
17
Senior Securities; Amendments; Other Matters
The approval of holders of two-thirds of the outstanding shares of
Convertible Preferred Stock, voting as a class, is required to (i) increase
the number of authorized shares of Convertible Preferred Stock or issue any
shares of Convertible Preferred Stock other than to existing holders of
Convertible 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 Convertible 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 Convertible 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 Convertible Preferred
Stock, (v) authorize any reclassification of the Convertible Preferred Stock,
(vi) except pursuant to a conversion of the Convertible Preferred Stock,
require the exchange of Convertible 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 or major recapitalization of the Company or the
Operating Partnership.
In addition, the approval of holders of a majority of the outstanding shares
of Convertible Preferred Stock, voting as a class, is required for the Company
to take any of the following actions: (i) the sale, transfer or assignment of
beneficial interests in or voting rights with respect to assets of the Company
or the Operating Partnership in excess of $45,000,000 within any 90-day period
or $125,000,000 within any 360-day period; (ii) the Company's termination of
its status as a REIT; (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 are located in the States of California, Oregon
and Washington, (B) less than 80% of the Company's or the Operating
Partnership's assets are located west of the Mississippi River or (C) less
than 80% of the Company's or the Operating Partnership's assets are classified
as multi-family residential properties; or (iv) any change in control of the
Company or the Operating Partnership.
Conversion Rights
The Convertible Preferred Stock is subject to both conversion at the option
of the holder thereof and mandatory conversion required by the Company,
subject to the terms and conditions described below.
Optional Conversion. Commencing on June 20, 1997, and then at the beginning
of each of the next three three-month periods thereafter, 25% of the
authorized shares of Convertible Preferred Stock will be eligible for
conversion at the option of the holder thereof. Each share of Convertible
Preferred Stock subject to conversion shall be generally convertible into a
number of fully paid and non-assessable shares of Common Stock (calculated as
to each conversion to the nearest 1/100 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 (as defined below) then in effect.
Notwithstanding the foregoing, in the case of the liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, shares of
Convertible Preferred Stock shall, at the option of the holder thereof,
immediately become convertible into Common Stock.
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 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 (see "--Redemption at
Holder's Option After Notice of Mandatory Conversion"), have the right, to
convert all, but not less than all, of the outstanding shares of Convertible
Preferred Stock into a number of fully paid and non-assessable shares of
Common Stock (calculated as to each conversion to the nearest 1/100 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 Convertible Preferred Stock. Any fractional interest
in a share of Common Stock resulting from conversion of shares of Convertible
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.
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Conversion Price. The "Conversion Price" per share of Convertible Preferred
Stock will initially be $21.875, and will be equitably adjusted so as to
preserve the ownership interests of the holders of the Convertible Preferred
Stock 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, (iv) issues rights or warrants
to the holders of its Common Stock as a class entitling them to purchase
Common Stock at a price per share less than the then Conversion Price, (v)
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 clause) to purchase any of its
securities, (vi) subject to certain exceptions, issues or sells (or the
Operating Partnership issues or sells) any equity or debt securities which are
convertible into or exchangeable for shares of Common Stock ("Convertible
Securities") or any rights, options or warrants to purchase Common Stock at a
price per share which is less than the Conversion Price, or (vii) 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 clauses applies) for a consideration per share less than the
Conversion Price.
The Company will seek to list the shares of Common Stock required to be
delivered upon conversion of the Convertible Preferred Stock on each national
securities exchange, if any, on which the outstanding shares of Common Stock
are listed at the time of delivery of the Common Stock. 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 Convertible
Preferred Stock.
Redemption at Holder's Option After Notice of Mandatory Conversion
In the event that the Company exercises its right to require a mandatory
conversion of Convertible Preferred Stock (but in no other circumstances),
each holder of Convertible Preferred Stock will have the right to require the
Company to redeem any or all the shares of Convertible Preferred Stock owned
of record by the holder, at a redemption price per share (the "Redemption
Price") equal to the applicable 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 Convertible Preferred Stock through the date of
redemption. As used herein, the "Redemption Percentage" means a percentage
beginning at 105% and decreasing annually by 1% to a floor of 100%.
At such time as there are 40,000 shares or fewer of Convertible Preferred
Stock outstanding, the Company may at its option purchase all of the
outstanding shares of the Convertible 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.
Right of Tiger/Westbrook to Participate in Offerings
Pursuant to the terms of the Stock Purchase Agreement, Tiger/Westbrook has,
for so long as the Convertible Preferred Stock is outstanding, the preemptive
right to purchase a pro rata share on an as converted basis as of the date of
the Company Notice (as defined herein) of any stock (or options, warrants or
rights to purchase such stock or securities convertible into such stock)
(collectively, "Eligible Securities"), for the price and upon the terms
specified by the Company in its notice to Tiger/Westbrook (the "Company
Notice") of a Company issuance of Eligible Securities, which price cannot be
greater than that offered to third parties. If Tiger/Westbrook fails to timely
exercise in full its preemptive rights, then the Company may sell the unsold
Eligible Securities 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 Tiger/Westbrook. Tiger/Westbrook's
preemptive rights do not apply to any Eligible Securities, 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
19
issuable in connection with the Company's dividend reinvestment plan. In
addition, the Stock Purchase Agreement provides Tiger/Westbrook with
preemptive rights to purchase a pro rata share of the Company's equity
offerings.
Registration Rights
The outstanding shares of Convertible Preferred Stock, together with any
shares of Common Stock to which such shares of Convertible Preferred Stock may
be converted, are not registered under the Securities Act or the securities
laws of any state. Accordingly, such Convertible 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. Pursuant to the Registration
Rights Agreement, Tiger/Westbrook may request the Company to register (at the
Company's expense) the then outstanding Convertible Preferred Stock and other
Registrable Securities (as defined herein), under the terms and conditions
described below. "Registrable Securities" means, subject to certain
exceptions, (i) the Convertible Preferred Stock, (ii) all Common Stock
issuable or issued upon conversion of the Convertible 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 Convertible Preferred Stock or
Common Stock.
After the completion of Tiger/Westbrook's purchases of Convertible Preferred
Stock, pursuant to the Stock Purchase Agreement, with respect to the
Convertible Preferred Stock, and after February 20, 1997, with respect to
Common Stock which are Registrable Securities, at Tiger/Westbrook's request,
the Company will use its best efforts to cause all outstanding Convertible
Preferred Stock or all or a portion of such Common Stock to be registered
under the Securities Act (including, under certain circumstances pursuant to
an offering on a continuous or delayed basis in the future (a "Shelf
Registration")), subject to certain limitations, including, without
limitation, as to the value of the shares included in the registration
(generally, a minimum of $7,000,000 or, in the case of a Shelf Registration,
all of the applicable Registrable Securities outstanding), size of the
registration (the registration must be for all of the outstanding Convertible
Preferred Stock or at least 25% of Tiger/Westbrook's Common Stock), and timing
(the Company is not required to make more than one registration per year).
With respect to a Shelf Registration, the Company shall use its best efforts
to keep the Shelf Registration continuously effective for up to two years.
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, at the request of Tiger/Westbrook, the Company will use its best
efforts to register all (or any portion) of the shares of Common Stock (but
not Convertible Preferred Stock) as specified by Tiger/Westbrook.
Tiger/Westbrook's registration rights are assignable to any transferee of the
Convertible Preferred Stock or Common Stock owned by Tiger/Westbrook,
provided, only Tiger/Westbrook may request registration pursuant to the
Registration Rights Agreement.
Stockholder Approval and Amendment to Charter
At the September 27, 1996 special meeting of the stockholders, the
stockholders approved the sale of up to $40.0 million of Convertible Preferred
Stock to Tiger/Westbrook and certain amendments to the Charter relating to the
ownership limit provisions described in the section entitled "Description of
Common Stock--Restrictions on Transfer" in order to facilitate the Convertible
Preferred Stock sale. See "--Election of Directors." As of the date of this
Prospectus, the Company has received insufficient votes from the stockholders
to approve a proposed amendment to the Charter to cause certain modifications
to the composition of the Board of Directors in the event of a Dividend
Default or a Charter Breach. See "--Election of Directors." However, as of the
date of this Prospectus, the Company is continuing to solicit such votes.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue Depositary Shares, each of which will represent a
fractional interest of a share of a particular class or series of Preferred
Stock, as specified in the applicable Prospectus Supplement. Shares of a class
or series of Preferred Stock represented by Depositary Shares will be
deposited under a separate Deposit Agreement (each, a "Deposit Agreement")
among the Company, the depositary named therein (the "Preferred Stock
Depositary") and the holders from time to time of the depositary receipts
issued by the Preferred Stock Depositary which will evidence the Depositary
Shares ("Depositary Receipts"). Subject to the terms of the Deposit Agreement,
each owner of a Depositary Receipt will be entitled, in proportion to the
fractional interest of a share of a particular class or series of Preferred
Stock represented by the Depositary Shares evidenced by such Depositary
Receipt, to all the rights and preferences of the class or series of the
Preferred Stock represented by such Depositary Shares (including dividend,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the
issuance and delivery of the Preferred Stock by the Company to a Preferred
Stock Depositary, the Company will cause such Preferred Stock Depositary to
issue, on behalf of the Company, the Depositary Receipts. Copies of the
applicable form of Deposit Agreement and Depositary Receipt may be obtained
from the Company upon request, and the statements made hereunder relating to
the Deposit Agreement and the Depositary Receipt to be issued thereunder are
summaries of certain anticipated provisions thereof and do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all of the provisions of the applicable Deposit Agreement and related
Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of Preferred Stock
to the record holders of Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of the Depositary Receipts owned by such
holders, subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges and expenses to
such Preferred Stock Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case the Preferred Stock Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any class or series of Preferred Stock converted
into Excess Stock or otherwise converted or exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted or converted into Excess
Stock or otherwise), the holders thereof will be entitled to delivery at such
office, to or upon each such holder's order, of the number of whole or
fractional shares of the class or series of Preferred Stock and any money or
other property represented by the Depositary Shares evidenced by such
Depositary Receipts. Holders of Depositary Receipts will be entitled to
receive whole or fractional shares of the related class or series of Preferred
Stock on the basis of the proportion of Preferred Stock represented by each
Depositary Share as specified in the applicable Prospectus Supplement, but
holders of such shares of Preferred Stock will not thereafter be entitled to
receive Depositary Shares therefor. If the Depositary Receipts delivered by
the holder evidence a number of Depositary Shares in excess of the number of
Depositary Shares representing the number of shares of Preferred Stock to be
withdrawn, the Preferred Stock Depositary will deliver to such holder at the
same time a new Depositary Receipt evidencing such excess number of Depositary
Shares.
21
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the Preferred
Stock Depositary, the Preferred Stock Depositary will redeem as of the same
redemption date the number of the Depositary Shares representing shares of
such class or series of Preferred Stock so redeemed, provided the Company
shall have paid in full to the Preferred Stock Depositary the redemption price
of the Preferred Stock to be redeemed plus an amount equal to any accrued and
unpaid dividends thereon to the date fixed for redemption. The redemption
price per Depositary Share will be equal to the corresponding proportion of
the redemption price and any other amounts per share payable with respect to
such class or series of Preferred Stock. If fewer than all the Depositary
Shares are to be redeemed, the Depositary Shares to be redeemed will be
selected pro rata (as nearly as may be practicable without creating fractional
Depositary Shares) or by any other equitable method determined by the Company
that will not result in the issuance of any Excess Stock.
From and after the date fixed for redemption, all dividends in respect of
the shares of a class of series of Preferred Stock so called for redemption
will cease to accrue, the Depositary Shares so called for redemption will no
longer be deemed to be outstanding and all rights of the holders of the
Depositary Receipts evidencing the Depositary Shares so called for redemption
will cease, except the right to receive any moneys payable upon such
redemption and any money or other property to which the holders of such
Depositary Receipts were entitled upon such redemption upon surrender thereof
to the Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class or
series of Preferred Stock deposited with the Preferred Stock Depositary are
entitled to vote, the Preferred Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts evidencing the Depositary Shares which represent such class or series
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the
record date for such class or series of Preferred Stock) will be entitled to
instruct the Preferred Stock Depositary as to the exercise of the voting
rights pertaining to the amount of Preferred Stock represented by such
holder's Depositary Shares. The Preferred Stock Depositary will vote the
amount of such class or series of Preferred Stock represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Stock Depositary in order to enable the Preferred Stock Depositary
to do so. The Preferred Stock Depositary will abstain from voting the amount
of Preferred Stock represented by such Depositary Shares to the extent it does
not receive specific instructions from the holders of Depositary Receipts
evidencing such Depositary Shares. The Preferred Stock Depositary will not be
responsible for any failure to carry out any instruction to vote, or for the
manner or effect of any such vote made, as long as any such action or non-
action is in good faith and does not result from negligence or willful
misconduct of the Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company
whether voluntary or involuntary, the holders of each Depositary Receipt will
be entitled to the fraction of the liquidation preference accorded each share
of Preferred Stock represented by the Depositary Share evidenced by such
Depositary Receipt as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock or
any other securities or property of the Company, except in connection with
certain exchanges in connection with the preservation of the Company's status
as a REIT. See "Description of Common Stock--Restrictions on Transfer."
Nevertheless, if so specified in the applicable Prospectus Supplement relating
to an offering of Depositary Shares, the Depositary Receipts may be
surrendered by holders thereof to the applicable Preferred Stock Depositary
with written
22
instructions to the Preferred Stock Depositary to instruct the Company to
cause conversion of a class or series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipts into whole shares of
Common Stock, other shares of a class or series of Preferred Stock (including
Excess Stock) of the Company or other shares of stock, and the Company has
agreed that upon receipt of such instructions and any amounts payable in
respect thereof, it will cause the conversion thereof utilizing the same
procedures as those provided for delivery of Preferred Stock to effect such
conversion. If the Depositary Shares evidenced by a Depositary Receipt are to
be converted in part only, a Depositary Receipt or Receipts will be issued for
any Depositary Shares not to be converted. No fractional shares of Common
Stock will be issued upon conversion, and if such conversion will result in a
fractional share being issued, an amount will be paid in cash by the Company
equal to the value of the fractional interest based upon the closing price of
the Common Stock on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing Depositary Shares which represent
the Preferred Stock and any provision of the Deposit Agreement may at any time
be amended by agreement between the Company and the Preferred Stock
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to the holders of the related
Preferred Stock will not be effective unless such amendment has been approved
by the existing holders of at least two-thirds of the applicable Depositary
Shares evidenced by the applicable Depositary Receipts then outstanding. No
amendment shall impair the right, subject to certain anticipated exceptions in
the Deposit Agreements, of any holder of Depositary Receipts to surrender any
Depositary Receipt with instructions to deliver to the holder the related
class or series of Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes
effective shall be deemed, by continuing to hold such Depositary Receipt, to
consent and agree to such amendment and to be bound by the applicable Deposit
Agreement as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each series or class of Preferred Stock subject to such Deposit
Agreement consents to such termination, whereupon the Preferred Stock
Depositary will deliver or make available to each holder of Depositary
Receipts, upon surrender of the Depositary Receipts held by such holder, such
number of whole or fractional shares of each Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by Preferred Stock Depositary with
respect to such Depositary Receipts. The Company has agreed that if the
Deposit Agreement is terminated to preserve the Company's status as a REIT,
then the Company will use its best efforts to list each class or series of
Preferred Stock issued upon surrender of the related Depositary Shares. In
addition, the Deposit Agreement will automatically terminate if (i) all
outstanding Depositary Shares shall have been redeemed, (ii) there shall have
been a final distribution in respect of each class or series of Preferred
Stock in connection with any liquidation, dissolution or winding up of the
Company and such distribution shall have been distributed to the holders of
the Depositary Receipts evidencing the Depositary Shares representing such
class or series of Preferred Stock or (iii) each share of the related
Preferred Stock shall have been converted into stock of the Company not so
represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
23
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time
remove the Preferred Stock Depositary, any such resignation or removal to take
effect upon the appointment of a successor Preferred Stock Depositary. A
successor Preferred Stock Depositary must be appointed within 60 days after
delivery of the notice of resignation or removal and must be a bank or trust
company having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its
control, performing its obligations under the Deposit Agreement. The
obligations of the Company and the Preferred Stock Depositary under the
Deposit Agreement will be limited to performing their duties thereunder in
good faith and without negligence (in the case of any action or inaction in
the voting of a class or series of Preferred Stock represented by the
Depositary Shares), gross negligence or willful misconduct, and the Company
and the Preferred Stock Depositary will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Receipts, Depositary
Shares or shares of a class or series of Preferred Stock represented thereby
unless satisfactory indemnity is furnished. The Company and the Preferred
Stock Depositary may rely on written advice of counsel or accountants, or
information provided by persons presenting shares of Preferred Stock
represented thereby for deposit, holders of Depositary Receipts or other
persons believed in good faith to be competent to give such information, and
on documents believed in good faith to be genuine and signed by a proper
party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
24
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under the
Company's stock option plans and the M&M Stock Option). The Company may issue
Warrants for the purchase of Preferred Stock or Common Stock. Warrants may be
issued independently or together with any other Offered Securities offered by
any Prospectus Supplement and may be attached to or separate from such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent specified in the applicable Prospectus Supplement (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any provisions of
the Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Warrants
in respect of which this Prospectus is being delivered, including, where
applicable, the following: (1) the title of such Warrants; (2) the aggregate
number of such Warrants; (3) the price or prices at which such Warrants will
be issued; (4) the designation, terms and number of shares of Preferred Stock
or Common Stock purchasable upon exercise of such Warrants; (5) the
designation and terms of the Offered Securities, if any, with which such
Warrants are issued and the number of such Warrants issued with each such
Offered Security; (6) the date, if any, on and after which such Warrants and
the related Preferred Stock or Common Stock will be separately transferable;
(7) the price at which each share of Preferred Stock or Common Stock
purchasable upon exercise of such Warrants may be purchased; (8) the date on
which the right to exercise such Warrants shall commence and the date on which
such right shall expire; (9) the minimum or maximum amount of such Warrants
which may be exercised at any one time; (10) information with respect to book-
entry procedures, if any; (11) a discussion of certain federal income tax
considerations; and (12) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
Certain provisions of the Company's Charter and Bylaws might discourage
certain types of transactions that involve an actual or threatened change of
control of the Company. The Charter provides that the Company must seek the
consent of holders of two-thirds of the issued and outstanding shares of
Convertible Preferred Stock before it or the Operating Partnerships may merge
or consolidate with any other entity or sell all or substantially all of its
assets. Also, the Charter requires that the Company must obtain the consent of
holders of more than 50% of the issued and outstanding shares of Convertible
Preferred Stock before it may undergo a change in control. See "Description of
Preferred Stock--Convertible Preferred Stock--Senior Securities; Amendments;
Other Matters." The Ownership Limit may delay or impede a transaction or a
change in control of the Company that might involve a premium price for the
Company's capital stock or otherwise be in the best interest of the
stockholders. See "Description of Common Stock--Restrictions on Transfer."
Pursuant to the Company's Charter and Bylaws, the Company's Board of Directors
is divided into three classes of directors, each class serving staggered
three-year terms. The staggered terms of directors may reduce the possibility
of a tender offer or an attempt to change control of the Company. The issuance
of Preferred Stock by the Board of Directors may also have the effect of
delaying, deferring or preventing a change in control of the Company. See
"Description of Preferred Stock--General."
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations is based
on current law and does not purport to deal with all aspects of taxation that
may be relevant to particular stockholders in light of their personal
investment or tax circumstances, or to certain types of stockholders
(including insurance companies, financial institutions and broker-dealers, tax
exempt organizations, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws. Certain Federal Income Tax Considerations relevant to holders
of the Offered Securities may be provided in the applicable Prospectus
Supplement relating thereto.
25
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE OFFERED SECURITIES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A
REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN
INCOME AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND
ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
GENERAL
The Company believes that since its formation it has operated, and intends
to continue to operate, in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material
aspects of the Code sections that govern the federal income tax treatment of a
REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations thereunder, and
administrative and judicial interpretations thereof, all of which are subject
to change which may apply retroactively. Morrison & Foerster LLP has acted as
tax counsel to the Company in connection with Company's election to be taxed
as a REIT.
In the opinion of Morrison & Foerster LLP, commencing with the Company's
taxable year ended December 31, 1994, the Company has been organized in
conformity with the requirements for qualification as a REIT, and its method
of operation has and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized
that this opinion is based on various assumptions and is conditioned upon
certain representations made by the Company as to factual matters. Such
representations are set forth in a certificate of the Company filed with the
opinion of Morrison & Foerster LLP relating to certain tax matters which has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Moreover, such qualification and taxation as a REIT
depends upon the Company's ability to meet, through actual annual operating
results, distribution levels and diversity of stock ownership, the various
qualification tests imposed under the Code discussed below, the results of
which will not be reviewed by Morrison & Foerster LLP. Accordingly, no
assurance can be given that the actual results of the Company's operations for
any particular taxable year will satisfy such requirements. See "--Failure to
Qualify." An opinion of counsel is not binding on the IRS, and no assurance
can be given that the IRS will not challenge the Company's eligibility for
taxation as a REIT.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities and the amount of cash available for distribution
to its stockholders could be reduced.
TAXATION OF THE COMPANY
In any year in which the Company qualifies as a REIT, in general it will not
be subject to federal income tax on that portion of its net income that it
distributes to stockholders. This treatment substantially eliminates the
"double taxation" on income at the corporate and stockholder levels that
generally results from investment in a corporation. However, the REIT will be
subject to federal income tax as follows: First, the REIT will be taxed at
regular corporate rates on any undistributed real estate investment trust
taxable income, including undistributed net capital gains. Second, under
certain circumstances, the REIT may be subject to the "alternative minimum
tax" on its items of tax preference. Third, if the REIT has (i) net income
from the sale or other disposition of "foreclosure property" which is held
primarily for sale to customers in the ordinary course of business or
(ii) other nonqualifying income from foreclosure property, it will be subject
to tax at the highest corporate rate on such income. Fourth, if the REIT has
net income from prohibited transactions (which are, in general, certain sales
or other dispositions of property held primarily for sale to customers in the
ordinary course of business
26
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if the REIT should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), and has nonetheless maintained its
qualification as a real estate investment trust because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the REIT fails the 75% or
95% test. Sixth, if the REIT should fail to distribute during each calendar
year at least the sum of (i) 85% of its real estate investment trust ordinary
income for such year, (ii) 95% of its real estate investment trust capital
gain net income for such year, and (iii) any undistributed taxable income from
prior periods, the REIT would be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed. For purposes
of the excise tax, dividends declared in October, November, or December of one
calendar year and paid by January 31 of the following calendar year are deemed
paid January 31 of the initial calendar year. Seventh, if the REIT acquires
any asset from a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the asset in the
REIT's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation, and the REIT recognizes
gain on the disposition of such asset during the 10 year period beginning on
the date on which such asset was acquired by the REIT, then, to the extent of
any built-in gain at the time of acquisition, such gain will be subject to tax
at the highest regular corporate rate, assuming the REIT will make an election
pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION
The Code defines a real estate investment trust as a corporation, trust or
association (1) which is managed by one or more trustees or directors; (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable
as a domestic corporation, but for Sections 856 through 860 of the Code; (4)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (5) the beneficial ownership of which is held
by 100 or more persons; (6) not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code) at any time during the last half of each taxable
year; and (7) which meets certain other tests, described below, regarding the
nature of income and assets. The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during
a proportionate part of a taxable year of less than 12 months. Conditions (5)
and (6) will not apply until after the first taxable year for which an
election is made by the Company to be taxed as a REIT.
In order to ensure compliance with the ownership tests described above, the
Company has placed certain restrictions on the transfer of the common stock
and preferred stock to prevent further concentration of stock ownership.
Moreover, to evidence compliance with these requirements, the Company must
maintain records which disclose the actual ownership of its outstanding common
stock and preferred stock. In fulfilling its obligations to maintain records,
the Company must and will demand written statements each year from the record
holders of designated percentages of its common stock and preferred stock
disclosing the actual owners of such common stock and preferred stock. A list
of those persons failing or refusing to comply with such demand must be
maintained as part of the Company's records. A stockholder failing or refusing
to comply with the Company's written demand must submit with his tax returns a
similar statement disclosing the actual ownership of common stock and
preferred stock and certain other information. In addition, the Company's
Charter provides restrictions regarding the transfer of its shares that are
intended to assist the Company in continuing to satisfy the share ownership
requirements. See "Description of Capital Stock--Restrictions on Transfer."
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the income of the partnership attributable to such share. In addition, the
character of the assets and gross income of the partnership shall retain the
same character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income tests and the asset tests,
described below. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Partnership will be treated
as assets, liabilities and items of income of the Company for purposes of
applying the requirements described below.
27
Asset Tests
At the close of each quarter of the Company's taxable year, the Company must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items and government securities (as well as certain temporary
investments in stock or debt instruments purchased with the proceeds of new
capital raised by the Company). Second, although the remaining 25% of the
Company's assets generally may be invested without restriction, securities in
this class may not exceed either (i) 5% of the value of the Company's total
assets as to any one non-government issuer, or (ii) 10% of the outstanding
voting securities of any one issuer. The Company's investment in the
Properties through its interest in the Operating Partnership constitutes
qualified assets for purposes of the 75% asset test. In addition, the Company
may own 100% of "qualified real estate investment trust subsidiaries" as
defined in the Code. All assets, liabilities, and items of income, deduction,
and credit of such a qualified REIT subsidiary will be treated as owned and
realized directly by the Company.
The Operating Partnership owns 100% of the non-voting preferred stock of
Essex Management Company, Essex Sacramento, Inc. and Essex Fidelity I
Corporation and none of the voting common stock. By virtue of its partnership
interest in the Operating Partnership, the Company will be deemed to own its
pro rata share of the assets of the Operating Partnership, including the
securities of Essex Management Company, Essex Sacramento, Inc. and Essex
Fidelity I Corporation, as described above. Because the Operating Partnership
will not own any of the voting securities of Essex Management Company, Essex
Sacramento, Inc. and Essex Fidelity I Corporation and, in each case, the
preferred stock's approval right is limited to certain fundamental corporate
actions that could adversely affect the preferred stock as a class, the 10%
limitation on holdings of voting securities of any one issuer will not be
exceeded.
Based upon its analysis of the total estimated value of the Essex Management
Company, Essex Sacramento, Inc. and Essex Fidelity I Corporation securities to
be owned by the Operating Partnership relative to the estimated value of the
total assets to be owned by the Operating Partnership and the other assets of
the Company, the Company believes that its pro rata share of the preferred
non-voting stock of Essex Management Company, Essex Sacramento, Inc. and Essex
Fidelity I Corporation to be held by the Operating Partnership represents, in
each case, less than 5% of the Company's total assets and, together with any
other nonqualifying assets represents less than 25% of the Company's total
assets. Although the Company plans to take steps to ensure that it satisfies
the 5% value tax for any quarter with respects to which retesting is to occur,
there can be no assurance that such steps will always be successful or will
not require a reduction in the Operating Partnership's overall interest in the
Company.
Gross Income Tests
There are three separate percentage tests relating to the sources of the
Company's gross income which must be satisfied for each taxable year. For
purposes of these tests, where the Company invests in a partnership, the
Company will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of the Company as it has in the hands of the
partnership. See "--Tax Aspects of the Company's Investment in the Operating
Partnerships--General."
THE 75% TEST. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes (i)
rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real property
and real estate mortgages, other than gain from property held primarily for
sale to customers in the ordinary course of the Company's trade or business
("dealer property"); (iv) dividends or other distributions on shares in other
REITs, as well as gain from the sale of such shares; (v) abatements and
refunds of real property taxes; (vi) income from the operation, and gain from
the sale, of property acquired at or in lieu of a foreclosure of the mortgage
collateralized by such property ("foreclosure
28
property"); and (vii) commitment fees received for agreeing to make loans
collateralized by mortgages on real property or to purchase or lease real
property.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant (a "related party tenant"). In
addition, if rent attributable to personal property, leased in connection with
a lease of real property, is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property
will not qualify as rents from real property. Moreover, an amount received or
accrued generally will not qualify as rents from real property (or as interest
income) for purposes of the 75% and 95% gross income tests if it is based in
whole or in part on the income or profits of any person. Rent or interest will
not be disqualified, however, solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Finally, for rents received to
qualify as rents from real property, the Company generally must not operate or
manage the property or furnish or render services to tenants, other than
through an "independent contractor" from whom the Company derives no revenue.
The "independent contractor" requirement, however, does not apply to the
extent that the services provided by the Company are "usually or customarily
rendered" in connection with the rental of space for occupancy only, and are
not otherwise considered "rendered to the occupant."
The Company, through the Operating Partnership (which will not be an
independent contractor), will provide certain services with respect to the
Properties and any newly acquired Properties. The Company believes that the
services provided by the Operating Partnership are usually or customarily
rendered in connection with the rental of space of occupancy only, and
therefore that the provision of such services will not cause the rents
received with respect to the Properties to fail to qualify as rents from real
property for purposes of the 75% and 95% gross income tests. Essex does not
intend to rent to any related party (other than with respect to the
Headquarters Building), to base any rent on the income or profits of any
person (other than rents that are based on a fixed percentage or percentages
of receipts or sales), or to charge rents that otherwise would not qualify as
rents from real property. Essex does anticipate renting a portion of its
Headquarters Building to M&M, who would be considered a related party tenant.
The portion of rent received by Essex from M&M, therefore, would not qualify
as rents from real property for purposes of satisfying the 75% and 95% gross
income test. It is not expected that the rent received from any related party
(including M&M) will constitute in the aggregate more than 4% of Essex's gross
income with respect to any taxable year.
THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the
taxable year must be derived from the above-described qualifying income, or
from dividends, interest or gains from the sale or disposition of stock or
other securities that are not dealer property. Dividends and interest on any
obligation not collateralized by an interest on real property are included for
purposes of the 95% test, but not for purposes of the 75% test. For purposes
of determining whether the Company complies with the 75% and 95% income tests,
gross income does not include income from prohibited transactions. A
"prohibited transaction" is a sale of dealer property, excluding certain
property held by the Company for at least four years and foreclosure property.
See "--Taxation of the Company" and "--Tax Aspects of the Company's Investment
in the Operating Partnership--Sale of the Properties."
The Company believes that it and the Operating Partnership has held and
managed the Properties in a manner that has given rise to rental income
qualifying under the 75% and 95% gross income tests. Gains on sales of the
Properties will generally qualify under the 75% and 95% gross income tests.
Essex Management Corporation also anticipates receiving fee income in
consideration of the performance of property management and other services
with respect to properties not owned by Essex or the Operating Partnership;
however, substantially all income derived by Essex from Essex Management
Corporation will be in the form of dividends on Essex Management Corporation's
preferred stock owned by the Operating Partnership. Such dividends will
satisfy the 95%, but not the 75%, gross income tests (as discussed above).
Essex intends to closely monitor its non-qualifying income and anticipates
that non-qualifying income on its other investments
29
and activities, including such dividend income and interest rate swap or cap
income (if any), will not result in Essex's failing either the 75% or the 95%
gross income tests.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if: (i) the Company's failure to
comply was due to reasonable cause and not to willful neglect; (ii) the
Company reports the nature and amount of each item of its income included in
the 75% and 95% gross income tests on a schedule attached to its tax return;
and (iii) any incorrect information on this schedule is not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. If these relief provisions apply, the Company will, however, still
be subject to a special tax upon the greater of the amount by which it fails
either the 75% or 95% gross income test for that year.
THE 30% TEST. The Company must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property held
for less than four years (other than foreclosure property and involuntary
conversions), (ii) stock or securities held for less than one year, and (iii)
property in a prohibited transaction. The Company does not anticipate that it
will have any substantial difficulty in complying with this test.
Annual Distribution Requirements
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its stockholders each year in
an amount at least equal to (A) the sum of (i) 95% of the Company's REIT
taxable income (computed without regard to the dividends paid deduction and
the REIT's net capital gain) and (ii) 95% of the net income (after tax), if
any, from foreclosure property, minus (B) the sum of certain items of non-cash
income. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. To the extent that the Company does
not distribute all of its net capital gain or distributes at least 95%, but
less than 100%, of its REIT taxable income, as adjusted, it will be subject to
tax on the undistributed amount at regular capital gains or ordinary corporate
tax rates, as the case may be. Furthermore, if the REIT should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain income for
such year, and (iii) any undistributed taxable income from prior periods, the
REIT would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. For purposes of the excise
tax, dividends declared in October, November, or December of one calendar year
and paid by January 31 of the following calendar year are deemed paid January
31 of the initial calendar year.
The Company believes that it has made timely distributions sufficient to
satisfy the annual distribution requirements. In this regard, the partnership
agreement of the Operating Partnership authorizes the Company, as general
partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that in the
future the Company may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand. Further, as described below,
it is possible that, from time to time, the Company may be allocated a share
of net capital gain attributable to the sale of depreciated property that
exceeds its allocable share of cash attributable to that sale. To avoid any
problem with the 95% distribution requirement, the Company will closely
monitor the relationship between its REIT taxable income and cash flow and, if
necessary, will borrow funds (or cause the Operating Partnership or other
affiliates to borrow funds) in order to satisfy the distribution requirement.
The Company (through the Operating Partnership) may be required to borrow
funds at times when market conditions are not favorable.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year as a result of an adjustment to
the Company's tax return by the IRS by paying "deficiency dividends" to
shareholders in a later year, which may be included in the Company's deduction
for dividends
30
paid for the earlier year. Thus, the Company may be able to avoid being taxed
on amounts distributed as deficiency dividends; however, the Company will be
required to pay interest based on the amount of any deduction taken for
deficiency dividends.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which
the Company fails to qualify will not be deductible by the Company, nor will
they be required to be made. In such event, to the extent of the Company's
current and accumulated earnings and profits, all distributions to
stockholders will be taxable as ordinary income, and, subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether the Company would be entitled to
such statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable solely to the Company's investment in the Operating
Partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws. It should be noted that the
Company has not received an opinion of counsel with respect to the disclosure
in the following discussion.
General
The Company holds a direct ownership interest in the Operating Partnership.
In general, partnerships are "pass-through" entities which are not subject to
federal income tax. Rather, partners are allocated their proportionate shares
of the items of income, gain, loss, deduction and credit of a partnership, and
are potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. The Company includes its
proportionate share of the foregoing Operating Partnership items for purposes
of the various REIT income tests and in the computation of its REIT taxable
income. See "--Taxation of the Company" and "--Requirements for
Qualification--Gross Income Tests." Any resultant increase in the Company's
REIT taxable income increases its distribution requirements (see "--
Requirements for Qualification--Annual Distribution Requirements"), but is not
generally subject to federal income tax in the hands of the Company is
distributed by the Company to its stockholders. Moreover, for purposes of the
REIT asset tests (see "--Requirements for Qualification--Asset Tests"), the
Company includes its proportionate share of assets held by the Operating
Partnership.
Entity Classification
The Company's interest in the Operating Partnership involves special tax
considerations, including the possibility of a challenge by the Internal
Revenue Service (the "Service") of the status of the Operating Partnership as
a partnership (as opposed to an association taxable as a corporation) for
federal income tax purposes. If the Operating Partnership were to be treated
as an association, it would be taxable as a corporation. In such a situation,
the Operating Partnership would be required to pay income tax at corporate
rates on its net income, and distributions to its partners would constitute
dividends that would not be deductible in computing net income. In addition,
the character of the Company's assets and items of gross income would change,
which would preclude the Company from satisfying the asset test and possibly
the income tests (see "--Requirements for Qualification--Asset Tests" and "--
Gross Income Tests"), and in turn would prevent the Company from qualifying as
a REIT. See "--Requirements for Qualification--Failure to Qualify" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year. The Operating Partnership has received an opinion from Morrison
& Foerster LLP, counsel to the Company, stating that the Operating Partnership
is classified and treated as a partnership for federal income tax purposes.
Such legal opinion is not binding on the
31
IRS. If the IRS were to challenge successfully the Operating Partnership's
status as a partnership for federal income tax purposes, the Company would
cease to qualify as a REIT and the Company and the Operating Partnership would
be subject to Federal income tax (including any alternative minimum tax) on
their net income at corporate rates. The Company also believes that each of
the partnerships in which the Operating Partnership owns interests would be
classified and treated as a partnership for Federal income tax purposes.
Tax Allocations with Respect to the Properties
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership (such as the
Properties), must be allocated in a manner such that the contributing partner
is charged with, or benefits from, respectively, the unrealized gain or
unrealized loss associated with the property at the time of the contribution.
The amount of such unrealized gain or unrealized loss is generally equal to
the difference between the fair market value of contributed property at the
time of contribution, and the adjusted tax basis of such property at the time
of contribution (a "Book-Tax Difference"). Such allocations are solely for
federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. The Operating
Partnership was formed by way of contributions of appreciated property
(including the Properties). Consequently, the partnership agreement of the
Operating Partnership requires such allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, the limited partners of the Operating Partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Operating Partnership of the
contributed assets (including the Properties). This will tend to eliminate the
Book-Tax Difference over the life of the Operating Partnership. However, the
special allocation rules under Section 704(c) do not always entirely rectify
the Book-Tax Difference on an annual basis or with respect to a specific
taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Partnership may cause the
Company to be allocated lower depreciation and other deductions, and possibly
greater amounts of taxable income in the event of a sale of such contributed
assets in excess of the economic or book income allocated to it as a result of
such sale. This may cause the Company to recognize taxable income in excess of
cash proceeds, which might adversely affect the Company's ability to comply
with the REIT distribution requirements. See "--Requirements for
Qualification--Annual Distribution Requirements." With respect to any property
purchased or to be purchased by the Operating Partnership (other than through
the issuance of interests in the Operating Partnership) subsequent to the
formation of the Company, such property will initially have a tax basis equal
to its fair market value and the special allocation provisions described above
will not apply.
Sale of the Properties
Generally, any gain realized by the Operating Partnership on the sale of
property held by the Operating Partnership for more than one year will be
long-term capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture. The Company's share of any gain
realized by the Operating Partnership on the sale of any dealer property
generally will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "Taxation of the Company" and "--
Requirements for Qualification--Gross Income Tests--The 95% Test." Under
existing law, whether property is dealer property is a question of fact that
depends on all the facts and circumstances with respect to the particular
transaction. The Operating Partnership intends to hold the Properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating the Properties, and to make such
occasional sales of the Properties as are consistent with the Company's
investment objectives. Based upon such investment objectives, the Company
believes that in general the Properties should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
will not be material.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends)
32
will be taken into account by them as ordinary income. Stockholders that are
corporations will not be entitled to a dividends received deduction.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which
the stockholder has held its stock. However, corporate stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. To the extent that the Company makes distributions in excess of
current and accumulated earnings and profits, these distributions are treated
first as a tax-free return of capital to the stockholder, reducing the tax
basis of a stockholder's stock by the amount of such distribution (but not
below zero), with distributions in excess of the stockholders' tax basis
taxable as capital gains (if the stock is held as a capital asset). In
addition, any dividend declared by the Company in October, November or
December of any year and payable to a stockholder of record on a specific date
in any such month shall be treated as both paid by the Company and received by
the stockholder on December 31 of such year, provided that the dividend is
actually paid by the Company during January of the following calendar year.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of Common Stock by a
stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Company required to be treated by such
stockholder as long-term capital gains.
Backup Withholding
The Company must report annually to the IRS and to each domestic stockholder
the amount of dividends paid to and the amount of tax withheld, if any, with
respect to, each domestic stockholder. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with
respect to dividends paid unless such stockholder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (b) provides a taxpayer identification number, certifies as to
no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A stockholder that
does not provide the Company with its correct taxpayer identification number
may also be subject to penalties imposed by the Service. Any amount paid as
backup withholding will be creditable against the stockholder's income tax
liability.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Based upon a published ruling by the IRS, distributions by the Company to a
stockholder that is a tax-exempt entity will not constitute "unrelated
business taxable income" ("UBTI") provided that the tax-exempt entity has not
financed the acquisition of its shares with "acquisition indebtedness" within
the meaning of the Code and the shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity.
Notwithstanding the preceding paragraph, however, a portion of the dividends
paid by the Company may be treated as UBTI to certain domestic private pension
trusts if the Company is treated as a "pension-held REIT." The Company
believes that it is not, and does not expect to become a "pension-held REIT."
If the Company were to become a pension-held REIT, these rules generally would
only apply to certain pension trusts that hold more than 10% of the Company's
stock.
TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of certain anticipated U.S. federal income and
estate tax consequences of the ownership and disposition of the Company's
stock applicable to Non-U.S. Holders of such stock. A "Non-U.S. Holder" is any
person other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state thereof, or (iii) an estate or
trust whose income is includable in gross income for U.S. federal income tax
purposes regardless of its
33
source. The discussion is based on current law and is for general information
only. The discussion addresses only certain and not all aspects of U.S.
federal income and estate taxation.
Distributions From the Company.
1. Ordinary Dividends. The portion of dividends received by Non-U.S. Holders
payable out of the Company's earnings and profits which are not attributable
to capital gains of the Company and which are not effectively connected with a
U.S. trade or business of the Non-U.S. Holder will be subject to U.S.
withholding tax at the rate of 30% (unless reduced by treaty). In general,
Non-U.S. Holders will not be considered engaged in a U.S. trade or business
solely as a result of their ownership of stock of the Company. In cases where
the dividend income from a Non-U.S. Holder's investment in stock of the
Company is (or is treated as) effectively connected with the Non-U.S. Holder's
conduct of a U.S. trade or business, the Non-U.S. Holder generally will be
subject to U.S. tax at graduated rates, in the same manner as U.S.
stockholders are taxed with respect to such dividends (and may also be subject
to the 30% branch profits tax in the case of a Non-U.S. Holder that is a
foreign corporation).
2. Non-Dividend Distributions. Distributions by the Company which are not
dividends out of the earnings and profits of the Company will not be subject
to U.S. income or withholding tax. If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be subject
to withholding at the rate applicable to dividends. However, the Non-U.S.
Holder may seek a refund of such amounts from the IRS if it is subsequently
determined that such distribution was, in fact, in excess of current and
accumulated earnings and profits of the Company.
3. Capital Gain Dividends. Under the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"), a distribution made by the Company to a Non-U.S.
Holder, to the extent attributable to gains from dispositions of United States
Real Property Interests ("USRPIs") such as the properties beneficially owned
by the Company ("USRPI Capital Gains"), will be considered effectively
connected with a U.S. trade or business of the Non-U.S. Holder and subject to
U.S. income tax at the rate applicable to U.S. individuals or corporations,
without regard to whether such distribution is designated as a capital gain
dividend. In addition, the Company will be required to withhold tax equal to
35% of the amount of dividends to the extent such dividends constitute USRPI
Capital Gains. Distributions subject to FIRPTA, in limited circumstances, may
also be subject to a 30% branch profits tax in the hands of a foreign
corporate stockholder that is not entitled to treaty exemption.
Disposition of Stock of the Company. Unless the Company's stock constitutes
a USRPI, a sale of such stock by a Non-U.S. Holder generally will not be
subject to U.S. taxation under FIRPTA. The stock will not constitute a USRPI
if the Company is a "domestically controlled REIT." A domestically controlled
REIT is a REIT in which, at all times during a specified testing period, less
than 50% in value of its shares is held directly or indirectly by Non-U.S.
Holders. The Company believes that it is, and it expects to continue to be a
domestically controlled REIT, and therefore that the sale of the Company's
stock will not be subject to taxation under FIRPTA. Because the Company's
stock will be publicly traded, however, no assurance can be given the Company
will continue to be a domestically controlled REIT.
If the Company does not constitute a domestically controlled REIT, a Non-
U.S. Holder's sale of stock generally will still not be subject to tax under
FIRPTA as a sale of a USRPI provided that (i) the stock is "regularly traded"
(as defined by applicable Treasury regulations) on an established securities
market and (ii) the selling Non-U.S. Holder held 5% or less of the Company's
out-standing stock at all times during a specified testing period.
If gain on the sale of stock of the Company were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals) and the purchaser of the stock could be required to
withhold 10% of the purchase price and remit such amount to the Service.
34
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's
investment in the stock of the Company is effectively connected with a U.S.
trade or business conducted by such Non-U.S. holder, the Non-U.S. Holder will
be subject to the same treatment as a U.S. stockholder with respect to such
gain, or (ii) if the Non-U.S. Holder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
has a "tax home" in the United States, the nonresident alien individual will
be subject to a 30% tax on the individual's capital gain.
Estate Tax. Stock of the Company owned or treated as owned by an individual
who is not a citizen or resident (as specially defined for U.S. federal estate
tax purposes) of the United States at the time of death will be includable in
the individual's gross estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise. Such individual's estate may
be subject to U.S. federal estate tax on the property includable in the estate
for U.S. federal estate tax purposes.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each Non-U.S. Holder the amount of dividends
(including any capital gain dividends) paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of these returns may also be made available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Holder resides.
U.S. backup withholding, which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required
under the U.S. information reporting requirements, will generally not apply to
dividends (including any capital gain dividends) paid on stock of the Company
to a Non-U.S. Holder at an address outside the United States. However, the
payment of the proceeds from the disposition of stock of the Company to or
though a U.S. office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalty of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes
an exemption. The payment of the proceeds from the disposition of stock to or
through a non-U.S. office of a non-U.S. broker generally will not be subject
to backup withholding and information reporting.
These information reporting, backup withholding and withholding rules are
under review by the United States Treasury and their application to the
Company's stock could be changed by future regulations. The IRS recently
issued proposed Treasury regulations concerning the withholding of tax and
reporting for certain amounts paid to non-resident individuals and foreign
corporations. The proposed Treasury regulations, if adopted in their present
form, would be effective for payments made after December 31, 1997.
Prospective investors should consult their tax advisors concerning the
potential adoption of such proposed Treasury regulations and the potential
effect on their ownership of the Company's stock.
OTHER TAX CONSIDERATIONS
Essex Management Corporation
A portion of the cash to be used by the Operating Partnership to fund
distributions to partners, including Essex, is expected to come from Essex
Management Corporation through dividends on the non-voting stock that will be
held by the Operating Partnership. Essex Management Corporation will pay
federal and state income tax at the full applicable corporate rates. Essex
Management Corporation will attempt to minimize the amount of such taxes, but
there can be no assurance whether or to what extent measures taken to minimize
taxes will be successful. Because Essex, the Operating Partnership and Essex
Management Corporations are related through stock or partnership ownership,
the allocation of certain expenses and reimbursements thereof among Essex,
Essex Management Corporation and the Operating Partnership could be subject to
additional scrutiny by the IRS. To the extent that Essex Management
Corporation is required to pay federal, state or local taxes, the cash
available for distribution by Essex to stockholders will be reduced
accordingly.
35
Dividend Reinvestment Program
Under the Company's dividend reinvestment program, stockholders
participating in the program will be deemed to have received the gross amount
of any cash distributions which would have been paid by the Company to such
stockholders had they not elected to participate. These deemed distributions
will be treated as actual distributions from the Company to the participating
stockholders and will retain the character and tax effect applicable to
distributions from the Company generally. See "Federal Income Tax
Considerations--Taxation of Taxable Domestic Stockholders." Participants in
the dividend reinvestment program are subject to federal income tax on the
amount of the deemed distributions to the extent that such distributions
represent dividends or gains, even though they receive no cash. Shares of
Common Stock received under the program will have a holding period beginning
with the day after purchase, and a tax basis equal to their cost (which is the
gross amount of the deemed distribution).
State and Local Taxes
The Company and its stockholders may be subject to state or local taxation
in various jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of the Company and its
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisers regarding the effect of state and local tax laws on an investment in
the Common Stock of the Company.
It should be noted that the Company has not obtained an opinion of counsel
with respect to the foregoing disclosure in subsections entitled "Taxation of
Taxable Domestic Stockholders," "Taxation of Tax-Exempt Stockholders,"
"Taxation of Foreign Stockholders" and "Other Tax Considerations".
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to
investors directly or through agents, which agents may be affiliated with the
Company. Any such underwriter or agent involved in the offer and sale of the
Offered Securities will be named in the applicable Prospectus Supplement.
Sales of Offered Securities offered pursuant to any applicable Prospectus
Supplement may be effected from time to time in one or more transactions at a
fixed price or prices which may be changed, at prices related to the
prevailing market prices at the time of sale, or at negotiated prices. The
Company also may, from time to time, authorize underwriters acting as the
Company's agents to offer and sell the Offered Securities upon the terms and
conditions as set forth in the applicable Prospectus Supplement. In connection
with the sale of Offered Securities, underwriters may be deemed to have
received compensation from the Company in the form of underwriting discounts
or commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Offered Securities
may be deemed to be underwriters, and any discounts and commissions received
by them and any profit realized by them on resale of the Offered Securities
may be deemed to be underwriting discounts and commissions under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act. Any such indemnification agreements will be described in the
applicable Prospectus Supplement.
36
Unless otherwise specified in the related Prospectus Supplement, each series
of Offered Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the New York Stock Exchange.
Any shares of Common Stock sold pursuant to a Prospectus Supplement will be
listed on such exchange, subject to official notice of issuance. The Company
may elect to list any series of Preferred Stock, Depositary Shares or Warrants
on any exchange, but it is not obligated to do so. It is possible that one or
more underwriters may make a market in a series of Offered Securities, but
will not be obligated to do so and may discontinue any market making at any
time without notice. Therefore, no assurance can be given as to the liquidity
of the trading market for the Offered Securities.
If so indicated in the applicable Prospectus Supplement, the Company may
authorize dealers acting as the Company's agent to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the
date or dates stated in such Prospectus Supplement. Each Contract will be for
an amount not less than, and the aggregate principal amount of Offered
Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company. Contracts will
not be subject to any conditions except (i) the purchase by an institution of
the Offered Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject, and (ii) if the Offered Securities are
being sold to underwriters, the Company shall have sold to such underwriters
the total principal amount of the Offered Securities less the principal amount
thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for, the Company in the ordinary
course of business.
EXPERTS
The consolidated financial statements and schedule of Essex Property Trust,
Inc. (the "Company") as of December 31, 1995 and 1994, and for the year ended
December 31, 1995 and for the period June 13, 1994 through December 31, 1994
and of Essex Partners Properties (the "Predecessor") for the period January 1,
1994 through June 12, 1994 and the year ended December 31, 1993 and the
financial statements audited by KPMG Peat Marwick LLP included in Form 8-K
dated August 30, 1996, as amended by Form 8-K/A dated October 17, 1996, have
been incorporated by reference herein and in the registration statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Morrison & Foerster LLP, Palo Alto, California by attorneys licensed to
practice under Maryland State law. In addition, the description of the
Company's qualification and taxation as a REIT under the Code contained in
this Prospectus under the caption entitled "Federal Income Tax
Considerations--General" is based upon the opinion of Morrison & Foerster LLP.
37
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
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TABLE OF CONTENTS
PROSPECTUS
PAGE
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Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
The Company................................................................ 3
Use of Proceeds............................................................ 4
Ratio of Earnings to Fixed Charges......................................... 4
Risk Factors............................................................... 4
Description of Common Stock................................................ 12
Description of Preferred Stock............................................. 14
Description of Depositary Shares........................................... 21
Description of Warrants.................................................... 25
Certain Provisions of the Company's Charter and Bylaws..................... 25
Federal Income Tax Considerations.......................................... 25
Plan of Distribution....................................................... 36
Experts.................................................................... 37
Legal Matters.............................................................. 37
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$102,442,500
ESSEX PROPERTY TRUST, INC.
COMMON STOCK,
PREFERRED STOCK,
DEPOSITARY SHARES AND
WARRANTS
----------------
PROSPECTUS
----------------
, 1996
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses, other than underwriting discounts and commissions, in
connection with the offering of the securities being registered are set forth
below. All of such expenses are estimates, except the Securities Act
registration fee.
Securities Act Registration Fee................................. $ 20,690.00
Printing fees................................................... 50,000.00
Legal fees and expenses......................................... 75,000.00
Accounting fees and expenses.................................... 20,000.00
Blue sky fees and expenses...................................... 15,000.00
Miscellaneous expenses.......................................... 5,310.00
-----------
Total......................................................... $186,000.00
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Maryland General Corporation Law (the "MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of
its directors and officers to the corporation and its stockholders for money
damages except for (i) actual receipt of an improper benefit or profit in
money, property or services or (ii) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
Charter contains such a provision which limits such liability to the maximum
extent permitted by the MGCL.
The Charter authorizes the Company to obligate itself to indemnify its
present and former officers and directors and to pay or reimburse reasonable
expenses for such individuals in advance of the final disposition of a
proceeding to the maximum extent permitted from time to time by the laws of
Maryland. The Bylaws of the Company obligate it to indemnify, and advance
expenses to present, former and proposed directors and officers to the maximum
extent permitted by Maryland law. The MGCL permits a corporation to indemnify
its present and former directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their services in those or other capacities unless it is
established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services, or (c) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission
was unlawful. However, a corporation may not indemnify for an adverse judgment
in a suit by or in the right of the corporation. In addition, the MGCL
requires the Company, as conditions to advancing expenses, to obtain (i) a
written affirmation by the director or officer of his good-faith belief that
he has met the standard of conduct necessary for indemnification by the
Company as authorized by the applicable Bylaws and (ii) a written statement by
him or on his behalf to repay the amount paid or reimbursed by the Company if
it shall ultimately be determined that the standard of conduct was not met.
The Bylaws of the Company also permit the Company to provide indemnification
and advance or expenses to a present or former director or officer who served
a predecessor of the Company in such capacity, and to any employee or agent of
the Company or a predecessor of the Company. Finally, the MGCL requires a
corporation (unless its charter provides otherwise, which the Company's
charter does not) to indemnify a director or officer who has been successful,
on the merits or otherwise, in the defense of any proceedings to which he is
made a party by reason of his service in that capacity.
The Company has entered into indemnification agreements with each of the
directors and executive officers of the Company to provide them with
indemnification to the full extent permitted by the Charter and Bylaws of the
Company.
II-1
The Company maintains an insurance policy which provides liability coverage
for directors and officers of the Company.
ITEM 16. EXHIBITS
4.1* Form of Certificate of Articles Supplementary for additional series of
Preferred Stock or for other classes or series of Essex Property Trust,
Inc.'s capital stock
4.2* Form of Warrant Agreement
4.3* Form of Deposit Agreement
5.1 Opinion of Morrison & Foerster LLP
8.1 Opinion of Morrison & Foerster LLP relating to certain tax matters
12.1 Statement on Computation of ratio of earnings to combined fixed charges
and preferred stock (incorporated by reference to Exhibit 12.1 to Essex
Property Trust, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Morrison & Foerster LLP (included in Exhibits 5.1 and 8.1)
24.1 Power of Attorney (included on page II-4)
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* To be filed by amendment or incorporated by reference in connection with
the offering of the applicable Offered Securities.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering price may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
The undersigned Registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrants' annual reports pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance under Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant undertakes that insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
provisions described under Item 15 of this registration statement, or
otherwise (other than insurance), such Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the Securities
being registered, each Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palo Alto, State of California, on the 14th day of
November, 1996.
ESSEX PROPERTY TRUST, INC.
By:
/s/ Keith R. Guericke
__________________________________
Keith R. Guericke
Chief Executive Officer and
President
We, the undersigned officers and directors of Essex Property Trust, Inc. do
hereby constitute and appoint George M. Marcus, Keith R. Guericke and Michael
J. Schall, and each of them, our true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that each of said attorneys-in-fact and agents, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ George M. Marcus Chairman of the Board of November 14, 1996
__________________________________ Director
George M. Marcus
/s/ William A. Millichap Director November 14, 1996
____________________________________
William A. Millichap
/s/ Keith R. Guericke Chief Executive Officer and November 14, 1996
____________________________________ President (Principal
Keith R. Guericke Executive Officer)
/s/ Michael J. Schall Director, Executive Vice November 14, 1996
____________________________________ President and Chief
Michael J. Schall Financial Officer
(Principal Financial
Officer)
/s/ Mark J. Mikl Controller (Principal November 14, 1996
____________________________________ Accounting Officer)
Mark J. Mikl
/s/ David W. Brady Director November 14, 1996
____________________________________
David W. Brady
II-4
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert E. Larson Director November 14, 1996
____________________________________
Robert E. Larson
/s/ Gary P. Martin Director November 14, 1996
____________________________________
Gary P. Martin
/s/ Issie N. Rabinovitch Director November 14, 1996
____________________________________
Issie N. Rabinovitch
/s/ Thomas E. Randlett Director November 14, 1996
____________________________________
Thomas E. Randlett
/s/ Willard H. Smith, Jr. Director November 14, 1996
____________________________________
Willard H. Smith, Jr.
/s/ Gregory J. Hartman Director November 14, 1996
____________________________________
Gregory J. Hartman
II-5
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.1* Form of Certificate of Articles Supplementary for additional series of
Preferred Stock or for other classes or series of Essex Property
Trust, Inc.'s capital stock
4.2* Form of Warrant Agreement
4.3* Form of Deposit Agreement
5.1 Opinion of Morrison & Foerster LLP
8.1 Opinion of Morrison & Foerster LLP relating to certain tax matters
12.1 Statement on Computation of ratio of earnings to combined fixed
charges and preferred stock (incorporated by reference to Exhibit 12.1
to Essex Property Trust, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Morrison & Foerster LLP (included in Exhibits 5.1 and 8.1)
24.1 Power of Attorney (included on page II-4)
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(*) To be filed by amendment or incorporated by reference in connection with
the offering of the applicable Offered Securities.