EXHIBIT 10.1
ESSEX PROPERTY TRUST, INC.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
October 21, 1996
Tiger/▇▇▇▇▇▇▇▇▇ Real Estate Fund, L.P.
Tiger/▇▇▇▇▇▇▇▇▇ Real Estate Co-Investment
Partnership, L.P.
c/▇ ▇▇▇▇▇▇▇▇▇ Real Estate Partners, L.L.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Limitations on Ownership of Stock of
Essex Property Trust, Inc. (the "Company")
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Gentlemen:
In connection with the transactions contemplated by that certain Stock
Purchase Agreement dated as of June 20, 1996, as amended (the "Stock Purchase
Agreement"), between the Company and Tiger/▇▇▇▇▇▇▇▇▇ Real Estate Fund, L.P.
and Tiger/▇▇▇▇▇▇▇▇▇ Real Estate Co-Investment Partnership, L.P.
(collectively, together with any nominee or nominees in whose name securities
may be held, "Buyer"), the Company has solicited and obtained the approval of
the stockholders of the Company to an amendment to the charter of the Company
(the "Charter") that makes certain modifications to the ownership limitations
set forth in the Charter to, among other things, facilitate the transactions
contemplated by the Stock Purchase Agreement (the "Charter Amendment"). The
details of the Charter Amendment are more particularly described under
Proposal 2 of the Proxy Statement of the Company dated September 5, 1996 (the
"Proxy Statement"), prepared and submitted by the Company to its stockholders
in preparation for the special meeting of the stockholders at which the
stockholders of the Company approved, among other things, the Charter
Amendment.
As more particularly set forth in the Proxy Statement, the Charter
Amendment provides that the Board of Directors (as defined in the Charter)
may exempt holders of the Company's Equity Stock (as defined in the Charter)
(other than individuals for the purposes of Section 542(a)(2) of the Code
[as defined in the Charter]) from the Ownership Limit or Existing Holder
Limit (as both such terms are defined in the Charter) conditioned upon, among
other things, the receipt by the Company of an opinion of counsel to the
effect that such holder's exemption and Beneficial Ownership of Equity Stock
(as such term is defined in the Charter) will not cause the Company to
violate certain requirements of the Code for maintaining the Company as a
real
October 21, 1996
Page 2
estate investment trust ("REIT") under the Code (the "REIT Requirements").
The Charter Amendment provides, in addition, that any exemption that would
allow a holder to Beneficially Own or Constructively Own (as both such terms
are defined in the Charter) shares of the Company's Equity Stock with an
aggregate value that is greater than 25% of the value of the outstanding
shares of stock of the Company (the "25% Limit") shall require a ruling (an
"IRS Ruling") from the Internal Revenue Service ("IRS") authorizing such
exemption, in addition to the other requirements of the Charter Amendment.
The Company and the Buyer now wish to provide for certain obligations
of the Company and the Buyer in connection with any request for an IRS Ruling
made by any holder (other than the Buyer) pursuant to the Charter Amendment.
Accordingly, the Company and the Buyer hereby agree as follows:
1. If in compliance with the requirements of the Charter Amendment,
an IRS Ruling is required to be obtained with respect to the proposed
acquisition (the "Proposed Acquisition") of Equity Stock by any stockholder
or proposed stockholder of the Company (other than the Buyer or an affiliate
of the Buyer) (the "Third Party"), the Company shall promptly notify (the
"Company Notice") the Buyer in writing of the Proposed Acquisition. The
Company Notice shall (x) identify the Third Party and (y) set forth the
maximum aggregate value of the Third Party's permitted Beneficial Ownership
of Equity Stock (assuming completion of the Proposed Acquisition) as a
percentage of the aggregate value of the outstanding shares of Equity Stock
(as such percentage may be adjusted pursuant to paragraph 5 below, the
"Holder Percentage Ownership Limit"). The Buyer shall have fifteen (15)
business days after delivery of the Company Notice in which to notify the
Company in writing (the "Election Notice") that the Buyer elects to cause a
request to be made for the Buyer Ruling (as hereinafter defined) and to
otherwise proceed to obtain an exemption from the Ownership Limit, in the
manner described in the succeeding paragraphs, provided however, the Buyer
shall have no rights, and the Company shall have no obligations, hereunder
with regard to the Proposed Acquisition, unless, as of the date of delivery
of the Election Notice, (a) if the average of the last reported sale prices
per share of the Company's Common Stock (as defined in the Stock Purchase
Agreement), as determined by the provisions of Section 5(e)(vii) of the
Articles Supplementary, filed July 1, 1996, for the Company's 8.75%
Convertible Preferred Stock, Series 1996A (the "Articles Supplementary"), on
each of the ten (10) consecutive Trading Days (as defined in the Articles
Supplementary) preceding the date on which the Buyer delivers the Election
Notice (the "Average Closing Price") is equal to or less than $23.00, Buyer
and those of its affiliates that are controlled by ▇▇▇▇▇▇▇▇▇ Real Estate
Partners, L.L.C., considered together as a whole (collectively, the "Buyer
Entities"), hold no less than $10 million in value of such Common Stock
(calculated by multiplying the number of shares of such Common Stock held by
the Buyer Entities [assuming conversion of all shares of Preferred Stock
(as defined in the Stock Purchase Agreement) held by the Buyer Entities
into shares of such Common Stock at the Conversion Price (as defined in the
Articles Supplementary)] by the Average Closing Price), or (b) if the Average
Closing Price is greater than $23.00, the Buyer Entities hold no less than $25
million in value of such Common Stock (calculated by multiplying the number
of shares of such Common Stock held by the Buyer
October 21, 1996
Page 3
Entities [assuming conversion of all shares of Preferred Stock held by the
Buyer Entities into shares of such Common Stock at the Conversion Price] by
the Average Closing Price), provided that if, prior to June 20, 1997, such
Average Closing Price is greater than $23.00, the value of the Common Stock
held by the Buyer Entities shall be calculated as if Buyer purchased all
1,600,000 shares of Preferred Stock contemplated to be purchased by Buyer
under the Stock Purchase Agreement (excluding, however, any shares of
Preferred Stock actually purchased by ▇▇▇▇▇ and subsequently transferred to
any person or entity other than a Buyer Entity). In the event that the
Company does not receive the Election Notice within the fifteen (15) business
days prescribed by the preceding sentence, the Buyer shall be deemed to have
irrevocably and forever waived all of its rights pursuant to this paragraph
as to the Proposed Acquisition triggering the Election Notice (but not as to
any future Proposed Acquisition).
2. If the Buyer makes the election described in the previous
paragraph, the Company shall (a) promptly, but in no event later than the
date on which the Buyer Ruling Request (as hereinafter defined) is filed,
recommend to the Board of Directors that, conditioned upon the Company's
receipt of the Buyer Ruling, an opinion of counsel and such undertakings and
other items required by the Charter Amendment, and subject to the terms of
this agreement, the Board of Directors issue an exemption from the Ownership
Limit to the Buyer, increasing the Buyer's maximum permitted ownership of
Equity Stock to the Holder Percentage Ownership Limit, as the same may be
adjusted pursuant to paragraph 3 hereof and (b) file a request for a ruling
from the IRS, authorizing the Buyer to own Equity Stock up to the Holder
Percentage Ownership Limit (the "Buyer Ruling Request"). The Company shall
file the Buyer Ruling Request concurrently with the request for a ruling from
the IRS authorizing the Third Party to own Equity Stock up to the Holder
Percentage Ownership Limit (the "Third Party Ruling Request"), provided that
the Buyer shall (without limiting Buyer's cooperation obligations under
paragraph 3 below) have provided all information it is required to provide
for the Buyer Ruling Request and shall have approved the Buyer Ruling Request
by the later of (a) the date that the Third Party Ruling Request is prepared
to be filed or (b) fifteen (15) business days after the Company's receipt of
the Election Notice. The Company shall use to file the Buyer Ruling Request
and obtain the IRS Ruling approving the Buyer Ruling Request, as the same may
be modified pursuant to paragraph 5 below (the "Buyer Ruling"), the greater
of (i) the efforts it is required by contract with the Third Party to file
the Third Party Ruling Request and obtain the IRS Ruling approving the Third
Party Ruling Request, as the same may be modified pursuant to paragraph 5
below (the "Third Party Ruling"), and (ii) the actual efforts it uses to file
the Third Party Ruling Request and obtain the Third Party Ruling.
Notwithstanding the foregoing, the Buyer acknowledges and agrees that,
subject to paragraph 5 below, (a) any failure to obtain the Buyer Ruling
shall not affect the validity of the Third Party Ruling as to the Proposed
Acquisition (if obtained) or delay, impair or otherwise affect, in any
manner, the consummation of the Proposed Acquisition, and (b) any failure to
obtain the Third Party Ruling shall not affect the validity of the Buyer
Ruling (if obtained) or delay, impair or otherwise affect, in any manner, the
purchase by the Buyer of any shares of Equity Stock permitted pursuant to the
exemption under the Charter Amendment granted to the Buyer by the Board
pursuant to the Buyer Ruling.
October 21, 1996
Page 4
3. ▇▇▇▇▇ agrees to promptly cooperate with the Company in its
preparation of all documents required in connection with the Buyer Ruling
Request and the obtainment of the Buyer Ruling, including, providing
information as to the nature of Buyer's investors, provided that any
representations required to be made by Buyer to the Company shall not differ
materially from Buyer's August 1996 representations to the Company in
connection with the Company's August 1996 IRS ruling request relating to
Buyer and provided further that Buyer may refuse to provide information if it
reasonably believes that doing so would be adverse to its interests.
Notwithstanding, the foregoing, if the IRS requires Buyer to provide
information or representations that Buyer is not required to provide pursuant
to the previous sentence, and ▇▇▇▇▇ refuses to provide any such information
or representations, the Company's obligation to file the Buyer Ruling Request
and/or to obtain the Buyer Ruling shall immediately and automatically
terminate. The Company shall promptly provide the Buyer with copies of any
and all correspondence and other items received from the IRS or delivered by
the Company to the IRS in connection with the filing and processing of the
Buyer Ruling Request (and, if and to the extent not limited or prohibited by
any confidentiality arrangement between the Third Party and the Company, the
Third Party Ruling Request). Prior to any material communication with the
IRS initiated by the Company in connection with the Buyer Ruling Request, the
Company shall notify (orally or in writing) the Buyer of the reason for and
the general nature of such communication.
4. If the Buyer Ruling is not obtained prior to the later of (a) the
date which is six (6) months after the date on which the Company submits to
the IRS the Buyer Ruling Request, (b) the date, if any, on or prior to which
the Company has agreed with the Third Party to obtain the Third Party Ruling,
or (c) if no such date has been agreed upon between the Company and the Third
Party, the date on which (x) the Company withdraws the Third Party Ruling
Request, (y) the date on which the Third Party Ruling is received by the
Company or (z) the date on which the IRS denies or rejects the Third Party
Ruling Request, the Company shall have no further obligation to obtain the
Buyer Ruling and any and all rights of the Buyer with respect to the Buyer
Ruling or with respect to the Proposed Acquisition (but not with respect to
any future Proposed Acquisition) shall immediately and automatically
terminate and be of no further force or effect and neither party shall have
any further rights or obligations with respect thereto (other than the
Company's and the Buyer's obligations under paragraph 10 below).
5. Notwithstanding anything to the contrary set forth in paragraph 2
above, the Holder Percentage Ownership Limit shall be adjusted as follows:
if the Third Party Ruling Request or the Buyer Ruling Request is, or both
are, denied by the IRS or, if, with respect to the Third Party Ruling, the
Buyer Ruling or both, the IRS approves an exemption from the Ownership Limit
that is lower than the Holder Percentage Ownership Limit requested in the
Third Party Ruling Request and/or the Buyer Ruling Request, in either case
due in whole or in part (but for no other reason) to a determination by the
IRS that the granting of both the requested Buyer Ruling, in full, and the
requested Third Party Ruling, in full, could cause the Company to violate the
REIT Requirements, the Holder Percentage Ownership Limit shall, at the option
of Buyer (the "Buyer Option"), to be exercised no later than four (4)
business days after ▇▇▇▇▇'s receipt of notice of
October 21, 1996
Page 5
such denial or determination by the IRS (provided that ▇▇▇▇▇'s failure to
exercise the Buyer Option within such period shall constitute an election by
Buyer not to exercise the Buyer Option), and if approved by the IRS, be
reduced by the amount required by the IRS to grant the Third Party Ruling and
the Buyer Ruling, such that the Holder Percentage Ownership Limit, as
adjusted, does not permit any holder of Equity Stock to cause the Company to
violate the REIT Requirements. If Buyer timely exercises the Buyer Option,
Buyer and the Company shall promptly and reasonably cooperate to
appropriately amend the Buyer Ruling Request and to cause the Third Party
Ruling Request to be amended, as necessary, and to provide all other
documents, as and to the extent required by the IRS to issue the Third Party
Ruling and the Buyer Ruling, in each case providing for the reduced Holder
Percentage Ownership Limit. Notwithstanding the foregoing, if (a) the
reduction in the Holder Percentage Ownership Limit is required due to the
Buyer Ruling Request (or any documents or information provided to the IRS in
connection therewith), including, without limitation, due to the ownership
structure of Buyer or the nature of the beneficial owners of Buyer, (b) Buyer
timely exercises the Buyer Option and the IRS approves that the Holder
Percentage Ownership Limit as reduced, (c) pursuant to the terms of the
Proposed Acquisition, the Third Party has a binding obligation to purchase
Equity Stock from the Company (and not from a third party, pursuant to a
private sale or purchases on the secondary market or otherwise), the amount
of which Equity Stock is reduced (the value of the amount of Equity Stock
subject to such reduction, the "Reduction Amount") due to the reduction in
the Holder Percentage Ownership Limit, and (d) the Holder Percentage
Ownership Limit (prior to any adjustment hereunder) was determined by the
Company and the Third Party pursuant to a good faith expectation (assuming
that no Buyer Ruling Request would be made) that the IRS would approve the
Third Party Ruling without any adjustment hereunder; then, as and when such
purchases would have been required by the Third Party pursuant to the
Proposed Acquisition, the Buyer Entities shall, collectively, in the
aggregate, purchase (on the secondary market or otherwise) shares of Equity
Stock (either in the form of Common Stock or such other Equity Stock as
mutually agreed upon between Buyer and the Company) equal in value to the
Reduction Amount, provided, however, that the Buyer Entities' obligations to
make such purchase shall be subject to the satisfaction (or waiver) of all
conditions precedent to the Third Party's obligation to purchase all shares
of Equity Stock required to be purchased by the Third Party pursuant to the
Proposed Transaction (other than any condition relating to a reduction in the
Holder Percentage Ownership Limit contemplated by this paragraph 5). Buyer's
failure to exercise the Buyer Option, as and when required by this paragraph
5, shall immediately and automatically terminate Buyer's rights hereunder to
obtain the Buyer Ruling with respect to the Proposed Acquisition, and
thereupon, the Company may modify and/or resubmit the Third Party Ruling
Request, in its entirety, and undertake any and all efforts to obtain the
Third Party Ruling.
6. The exemption from the Ownership Limit granted to Buyer by the
Board of Directors pursuant to paragraph 2 above, if granted, shall be on
substantially the same terms and subject to the same restrictions,
limitations and conditions (but no other restrictions, limitations or
conditions) as the exemption granted to the Third Party by the Board of
Directors, including, without limitation, as to minimum Equity Stock
ownership requirements, if any, and the ability of the Board of Directors to
revoke, limit or modify the exemption, if any, provided that (a)
October 21, 1996
Page 6
Buyer shall not be required to purchase any Equity Stock other than Common
Stock, unless otherwise agreed by Buyer and the Company (it being understood
that, if the exemption granted to the Third Party requires the purchase by
the Third Party of any Equity Stock other than Common Stock or such exemption
otherwise contains terms or conditions relating to Equity Stock other than
Common Stock, unless otherwise agreed to by Buyer and the Company, the
exemption granted to Buyer shall be adjusted to refer to equivalent values of
Common Stock), and (b) such exemption shall not provide for Buyer's permitted
Beneficial Ownership of Equity Stock to be reduced below that permitted by
any previous exemption from the Ownership Limit granted to Buyer by the Board
of Directors.
7. Without limiting the provisions of paragraph 6 above, if the terms
of the Proposed Acquisition require the Third Party to purchase shares of
Equity Stock in excess (the number of such excess shares, the "Excess") of
the shares of Equity Stock required to raise the value of the Third Party's
ownership of Equity Stock above the 25% Limit, on or prior to the later of
(a) 270 days after the date of the Buyer Ruling, or (b) the date on which the
Third Party is required to complete such purchase (as such date may be waived
or extended by the Company and/or the Third Party), Buyer shall purchase
shares of Common Stock (or such other Equity Stock as may be agreed by Buyer
and the Company) equal in value to the Excess.
8. The request for the Buyer Ruling and all documents and
information required in connection therewith shall be in form and substance
reasonably satisfactory to Buyer. Subject to the confidentiality
requirements of the stockholder or proposed stockholder subject to the
Proposed Acquisition, the Company shall promptly provide to the Buyer copies
of the Third Party Ruling Request.
9. Nothing in this Agreement shall require the Company to sell
shares of Equity Stock directly or indirectly to the Buyer (or provide to the
Buyer any preemptive rights or options with respect to the same).
10. If a Buyer Ruling is required by this Agreement, the Company
shall prepare the Buyer Ruling and bear the costs it incurs in connection
with the preparation, filing and obtainment of the Buyer Ruling. As provided
for in the Agreement, the Buyer may review the Buyer Ruling and it shall bear
the costs it incurs in connection with such review (including, without
limitation, the costs of any counsel and/or consultants it retains). If
either party hereto fails to perform any of its obligations under this
Agreement or if a dispute arises between the parties hereto concerning the
meaning or interpretation of any provision of this Agreement, then the
defaulting party or the party not prevailing in such dispute shall pay any
and all costs and expenses incurred by the other party on account of such
default and/or in enforcing or establishing its rights hereunder, including,
without limitation, court costs and reasonable attorneys' fees and
disbursements. Any such attorneys' fees and other expenses incurred by
either party in enforcing a judgment in its favor under this Agreement shall
be recoverable separately from and in addition to any other amount included
in such judgment, and such attorneys' fees obligation is intended to be
severable from the other provisions of this Agreement and to survive and not
be merged into any such judgment.
October 21, 1996
Page 7
11. Without limiting any remedies of the Company, at law or in
equity, ▇▇▇▇▇'s failure to purchase shares of Equity Stock pursuant to the
terms of this Agreement, as and when required hereunder, shall cause this
Agreement to immediately and automatically terminate and be of no further
force or effect.
12. Time is of the essence with respect to the performance by each of
the party's hereto of their respective obligations hereunder.
13. This agreement, incorporates by reference, as if specifically set
forth herein, all of the provisions of Article 9 of the Stock Purchase
Agreement, other than Sections 9.7, 9.11, 9.13 and 9.14 thereof. As used in
such Article 9, the term "Agreement" shall mean this agreement.
14. This agreement shall automatically terminate and be of no further
force or effect (a) if at any time the Buyer Entities own less than 40,000
shares of Preferred Stock or 46,000 shares of Common Stock, or (b) on the
later of (i) the first date on which no shares of Preferred Stock are
outstanding, and (ii) December 31, 2001.
15. Except as required by the transactions contemplated herein, none
of the rights, responsibilities or obligations of any of the parties hereto
may be assigned. Subject to the preceding sentence, this Agreement shall be
binding on and inure to the benefit of the parties hereto, their successors
and assigns.
Very truly yours,
ESSEX PROPERTY TRUST, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President
October 21, 1996
Page 8
ACCEPTED AND AGREED TO AS OF OCTOBER 21, 1996:
TIGER/▇▇▇▇▇▇▇▇▇ REAL ESTATE FUND, L.P.
By: Tiger/▇▇▇▇▇▇▇▇▇ Real Estate Partners Management,
L.L.C., its general partner
By: ▇▇▇▇▇▇▇▇▇ Real Estate Partners, L.L.C.,
its managing member
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Managing Member
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Title: Managing Member
TIGER/▇▇▇▇▇▇▇▇▇ REAL ESTATE CO-
INVESTMENT PARTNERSHIP, L.P.
By: Tiger/▇▇▇▇▇▇▇▇▇ Real Estate Partners Management,
L.L.C., its general partner
By: ▇▇▇▇▇▇▇▇▇ Real Estate Partners, L.L.C.,
its managing member
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Managing Member
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III
Title: Managing Member
