SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

 

SECOND AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

 

OF

ESSEX PORTFOLIO, L.P.

THE LIMITED PARTNERSHIP INTERESTS REFERRED TO HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, UNLESS IT HAS BEEN CONFIRMED TO YOU IN WRITING, WITH ANY STATE REGULATORY AGENCY.  THESE LIMITED PARTNERSHIP INTERESTS MUST BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND, EXCEPT AS SPECIFICALLY PROVIDED IN THIS PARTNERSHIP AGREEMENT, MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED TO BE SO TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH LIMITED PARTNERSHIP INTERESTS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE REGULATIONS PROMULGATED PURSUANT THERETO AND ANY APPLICABLE STATE LAW (UNLESS EXEMPT THEREFROM), AND WITHOUT COMPLIANCE WITH THE REQUIREMENTS SET FORTH IN THIS PARTNERSHIP AGREEMENT.

NO STATE OR FEDERAL SECURITY COMMISSIONERS OR STATE OR FEDERAL REGULATORY AGENCIES HAVE PASSED UPON THE VALUE OF THE SECURITIES, NOR HAVE THEY APPROVED OR DISAPPROVED THE OFFERING.  ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

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TABLE OF CONTENTS

			Page
ARTICLE I - DEFINITIONS, ETC.			2
	1.1	Definitions	2
		Accountants	2
		Acquisition Cost	2
		Acquisition Project	2
		Act	3
		Actual FFO	3
		Actual FFO Per Share	3
		Additional Limited Partner	3
		Additional Units	3
		Administrative Expenses	3
		Affiliate	3
		Agreement or the Partnership Agreement	3
		Amended and Restated Agreement	4
		Arbitration Rules	4
		Articles Supplementary	4
		Assignee	4
		Audited Financial Statements	4
		Available Cash	4
		Bankruptcy	4
		Beneficially Own	5
		Capital Account	5
		Capital Commitment	5
		Capital Contribution	5
		Cash Amount	5
		Certificate	5
		Change in Control	5
		Clawback Amount	7
		Closing Price	7
		Code	7
		Common Equivalent Shares	7
		Common Stock	7
		Common Stock Amount	8
		Common Tenancies	8
		Common Unit	8
		Compensation Committee	8
		Completion of the Offering	8
		Consent of the Limited Partners	8
		Contributed Interests	8
		Contributed Property	8
		Contribution Agreement	9
		Contribution Date	9

 

 

 

 

ARTICLE IV - CONTRIBUTIONS TO CAPITAL			28
	4.1	General Partner Capital Contribution	28
	4.2	Limited Partner Capital Contributions	28
	4.3	Issuances of Additional Partnership Interests	28
	4.4	Options	30
	4.5	Contribution of Proceeds of Issuance of Shares of Common Stock and Preferred Stock	30
	4.6	Admission of Additional Limited Partners	31
	4.7	No Third Party Beneficiary	33
	4.8	No Interest; No Return	33
ARTICLE V - INTENTIONALLY OMITTED]			33
ARTICLE VI - ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS			33
	6.1	Allocations	33
	6.2	Distributions	33
	6.3	Withholding	36
	6.4	Books of Account	36
	6.5	Reports	36
	6.6	Audits	36
	6.7	Tax Elections and Returns	36
	6.8	Tax Matters Partner	37
ARTICLE VII - RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER			38
	7.1	Expenditures by Partnership	38
	7.2	Powers and Duties of General Partner	38
	7.3	Major Decisions	41
	7.4	Actions with Respect to Certain Documents	42
	7.5	General Partner Participation	42
	7.6	Proscriptions	42
	7.7	Additional Limited Partners	43
	7.8	Title Holder	43
	7.9	Compensation of the General Partner	43
	7.10	Waiver and Indemnification	43
	7.11	Contracts With Controlled Entities	44
	7.12	Operation in Accordance with REIT Requirements	44
	7.13	Exceptions to REIT Restrictions	45
ARTICLE VIII - DISSOLUTION, LIQUIDATION AND WINDING-UP			45
	8.1	Liquidating Events	45
	8.2	Accounting	45
	8.3	Distribution on Dissolution	45
	8.4	Timing Requirements	46
	8.5	Sale of Partnership Assets	46
	8.6	Distributions in Kind	47
	8.7	Documentation of Liquidation	47

 

	8.8	Liability of the Liquidating Trustee	47
ARTICLE IV - TRANSFER OF PARTNERSHIP INTERESTS			48
	9.1	General Partner Transfer	48
	9.2	Transfers by Limited Partners	48
	9.3	Certain Transfers Prohibited	49
	9.4	Additional Restrictions on Transfer	51
ARTICLE X - RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS			52
	10.1	No Participation in Management	52
	10.2	Bankruptcy of a Limited Partner and Certain Other Events	52
	10.3	No Withdrawal	52
	10.4	Duties and Conflicts	52
	10.5	Acquisition Projects	53
	10.6	Development Projects	53
	10.7	Acquisition/Development Projects—Further Assurances	53
	10.8	Conversion Upon Death	54
	10.9	Conversion and Redemption of Series Z Incentive Units	54
	10.10	Conversion and Redemption of Series Z-1 Incentive Units	59
ARTICLE XI - GRANT OF RIGHTS TO LIMITED PARTNERS			64
	11.1	Grant of Rights	64
	11.2	Terms of Rights	64
ARTICLE XII - ARBITRATION OF DISPUTES			65
	12.1	Arbitration	65
	12.2	Procedures	65
	12.3	Binding Character	66
	12.4	Exclusivity	66
	12.5	No Alteration of Agreement	66
	12.6	Acknowledgment	66
ARTICLE XIII - GENERAL PROVISIONS			67
	13.1	Notices	67
	13.2	Successors	67
	13.3	Effect and Interpretation	67
	13.4	Counterparts	67
	13.5	Partners Not Agents	67
	13.6	Entire Understanding; Etc.	68
	13.7	Amendments	68
	13.8	Severability	70
	13.9	Trust Provision	70
	13.10	Pronouns and Headings	70
	13.11	Assurances	70
	13.12	Tax Consequences	71
	13.13	Securities Representations	71
	13.14	Power of Attorney	72

 

EXHIBITS

 

 

SECOND AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

OF

ESSEX PORTFOLIO, L.P.

THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, is made and entered into as of the 27th day of May, 2009, by the undersigned parties.

W I T N E S S E T H :

WHEREAS, pursuant to that certain Agreement of Limited Partnership of ESX Partners, L.P., entered into as of March 15, 1994, as amended by that certain First Amendment to Agreement of Limited Partnership dated as of April 15, 1994 (such Agreement of Limited Partnership, as so amended, the “Original Agreement”), the parties to the Original Agreement formed Essex Portfolio, L.P., a California limited partnership (the “Partnership”), originally known as ESX Partners, L.P.;

WHEREAS, the Original Agreement was amended and restated as of September 30, 1997 (the “Amended and Restated Agreement”) pursuant to the terms thereof, which was subsequently amended by that certain First Amendment to the Amended and Restated Agreement dated February 6, 1998; that certain Second Amendment to the Amended and Restated Agreement dated April 20, 1998; that certain Third Amendment to the Amended and Restated Agreement dated November 24, 1998; that certain Fourth Amendment to the Amended and Restated Agreement dated July 28, 1999; that certain Fifth Amendment to the Amended and Restated Agreement dated September 3, 1999; that certain Sixth Amendment to the Amended and Restated Agreement dated June 28, 2001; that certain Seventh Amendment to the Amended and Restated Agreement dated June 26, 2003; that certain Eighth Amendment to the Amended and Restated Agreement dated September 23, 2003; that certain Ninth Amendment to the Amended and Restated Agreement dated January 8, 2004; that certain Tenth Amendment to the Amended and Restated Agreement dated January 8, 2004; that certain Eleventh Amendment to the Amended and Restated Agreement dated March 29, 2004; that certain Twelfth Amendment to the Amended and Restated Agreement dated July 26, 2006; that certain Thirteenth Amendment to the Amended and Restated Agreement dated October 26, 2006, that certain Fourteenth Amendment to the Amended and restated Agreement dated December 26, 2007, that certain Fifteenth Amendment to the Amended and Restated Agreement dated February 26, 2008, and that certain Sixteenth Amendment to the Amended and Restated Agreement dated April 7, 2009 (collectively, the “Amendments”);

WHEREAS, all of the 8.75% Convertible Preferred Stock, Series 1996A of Essex Property Trust, Inc., the General Partner of the Partnership, has been converted into common stock of Essex Property Trust, Inc. and the Partnership has redeemed or repurchased all of its Series C Preferred Units, Series D Preferred Units and Series E Preferred Units, and the provisions of the Amended and Restated Agreement and of the Amendments that pertain to such preferred stock and preferred units are no longer of any force or effect; and

 

 

WHEREAS, Essex Property Trust, Inc., a Maryland corporation, as the General Partner of the Partnership, hereby desires to incorporate those Amendments, which are still in force and effect, into this Second Amended and Restated Agreement, and thereby amends, restates and supersedes the Amended and Restated Agreement and all the Amendments in their entirety, pursuant to the terms and conditions hereof.

NOW, THEREFORE, pursuant to Sections 13.7(b)(iv) and 13.14 of the Amended and Restated Agreement, the General Partner on its own behalf and as attorney-in-fact for the Limited Partners, hereby amends and restates the Partnership Agreement in its entirety (except solely with respect to certain Exhibits and Schedules attached to the Original Agreement or to the Amended and Restated Agreement and specifically referenced or incorporated herein) as follows:

ARTICLE I

DEFINITIONS, ETC.

1.1            Definitions.   Except as otherwise herein expressly provided, the following terms and phrases shall have the meanings set forth below:

“ Accountants ” shall mean the firm or firms of independent certified public accountants selected by the General Partner on behalf of the Partnership to audit the books and records of the Partnership and to prepare statements and reports in connection therewith.

“ Acquisition Cost ” shall mean (i) in the case of Contributed Property acquired by the General Partner in exchange for shares of Common Stock, the Current Per Share Market Price as   of the closing date on which the General Partner acquired such Contributed Property multiplied by the number of shares of Common Stock issued in the acquisition, or (ii) in the case   of Contributed Property acquired by the General Partner for consideration other than Common Stock, the amount of such consideration plus, in either case, any costs and expenses incurred by the General Partner in connection with such acquisition or contribution; provided, however, that in the event the Acquisition Cost of Contributed Property is financed by any borrowings by the General Partner, the Partnership shall assume any such obligations of the General Partner concurrently with the contribution of such property to the Partnership or, if impossible, shall obligate itself to the General Partner in an amount and on terms equal to such obligations, and the Acquisition Cost shall be reduced by the amount of such obligations.

“ Acquisition Project ” shall mean any real property on which retail or multi-family residential uses are conducted, including construction and improvement activities undertaken with respect thereto and off-site improvements, on-site improvements, structures, buildings and/or related parking and other facilities; provided, however, that the term “Acquisition Project” shall not include the Excluded Properties.

 

 

“ Act ” shall mean the California Revised Limited Partnership Act, California Corporations Code Sections 15611-15723, as the same may hereafter be amended from time to time.

“ Actual FFO ” shall mean with respect to any fiscal period “funds from operations” of the General Partner as determined with respect to such fiscal period by the Board of Directors of the General Partner using a consistently applied methodology that conforms with the standards for computation of “funds from operations” established by the National Association of Real Estate Investment Trusts, Inc. (or successor organizations) from time to time; it being understood that, to the extent that the General Partner discloses “funds from operations” for any fiscal period in any of its periodic reports publicly filed with the Securities and Exchange Commission, Actual FFO for such fiscal period for the purposes of this Agreement will conform to such publicly disclosed “funds from operations.”

“ Actual FFO Per Share ” shall mean with respect to any fiscal period the Actual FFO for such period divided by the number of Common Equivalent Shares.

“ Additional Limited Partner ” shall have the meaning set forth in Section 4.3(a) hereof.

“ Additional Units ” shall have the meaning set forth in Section 4.3(a) hereof.

“ Administrative Expenses ” shall mean (i) all administrative and operating costs and expenses incurred by the Partnership and EWIP or any other Investment Entity, (ii) those administrative costs and expenses of the General Partner, including salaries paid to officers of the General Partner, and accounting and legal expenses undertaken by the General Partner on behalf or for the benefit of the Partnership, and (iii) to the extent not included in clause (ii) above, REIT Expenses, provided that Administrative Expenses shall not include Initial Offering Expenses or costs and expenses incurred subsequent to the Completion of the Offering relating to any offer or registration of securities by the General Partner and all statements, reports, fees and expenses incidental thereto, including underwriting discounts and selling commissions applicable to any such offer of securities.

“ Affiliate ” shall mean, with respect to any Partner (or as to any other person the affiliates of whom are relevant for purposes of any of the provisions of this Agreement), (i) any member of the Immediate Family of such Partner; (ii) any trustee or beneficiary of a Partner; (iii) any legal representative, successor, or assignee of any Person referred to in the preceding clauses (i) and (ii); (iv) any trustee for the benefit of any Person referred to in the preceding clauses (i) through (iii); or (v) any Entity which directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, any Person referred to in the preceding clauses (i) through (iv).

“ Agreement ” or the “ Partnership Agreement ” shall mean this Second Amended and Restated Agreement of Limited Partnership, as originally executed and as hereafter amended, modified, supplemented or restated from time to time, as the context requires.

 

 

“Amended and Restated Agreement” shall mean that certain First Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., entered into as of September 30, 1997, as amended.

“ Arbitration Rules ” shall have the meaning set forth in Section 12.1 hereof.

“ Articles Supplementary ” shall mean any Articles Supplementary executed by the General Partner, and filed with the Department, as the same may be amended, modified, supplemented or replaced, and pursuant to which shares of Preferred Stock were issued and/or in the future may be issued.

“ Assignee ” shall mean a Person to whom one or more Partnership Units have been transferred, but who has not become a Substituted Limited Partner.

“ Audited Financial Statements ” shall mean financial statements (balance sheet, statement of income, statement of partners’ equity and statement of cash flows) prepared in accordance with generally accepted accounting principles and accompanied by an independent auditor’s report.

“ Available Cash ” shall mean, with respect to any fiscal period of the Partnership, the excess, if any, of “Receipts” over “Expenditures.”  For purposes hereof, the term “Receipts” means the sum of all cash receipts of the Partnership from all sources for such period, (x) including (i) Net Sale Proceeds and Net Financing Proceeds and (ii) any amounts held as reserves as of the last day of such period which the General Partner reasonably deems to be in excess of necessary reserves as determined below, and (y) excluding Capital Contributions.  The term “Expenditures” means the sum of (a) all cash expenses of the Partnership for such period, (b) the amount of all payments of principal and interest on account of any indebtedness of the Partnership including payments of principal and interest on account of General Partner Loans, or amounts due on such indebtedness during such period, and (c) such additional cash reserves as of the last day of such period as the General Partner deems necessary for any capital or operating expenditure permitted hereunder, but excluding all amounts payable under the clauses (a), (b) and (c) above with the proceeds of Capital Contributions.

“ Bankruptcy ” shall mean, with respect to any Partner, (i) the commencement by such Partner of any proceeding seeking relief under any provision or chapter of the federal Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or reorganization, (ii) an adjudication that such Partner is insolvent or bankrupt; (iii) the entry of an order for relief under the federal Bankruptcy Code with respect to such Partner, (iv) the filing of any such petition or the commencement of any such case or proceeding against such Partner, unless such petition and the case or proceeding initiated thereby are dismissed within ninety (90) days from the date of such filing, (v) the filing of an answer by such Partner admitting the allegations of any such petition, (vi) the appointment of a trustee, receiver or custodian for all or substantially all of the assets of such Partner unless such appointment is vacated or dismissed within ninety (90) days from the date of such appointment but not less than five (5) days before the proposed sale of any assets of such Partner, (vii) the insolvency of such Partner or the execution by such Partner of a general assignment for the benefit of creditors, (viii) the failure of such Partner to pay its debts as they mature, (ix) the levy, attachment, execution or other seizure of substantially all of the assets of such Partner where such seizure is not discharged within thirty (30) days thereafter, or (x) the admission by such Partner in writing of its inability to pay its debts as they mature or that it is generally not paying its debts as they become due.

 

 

“ Beneficially Own ” shall have the meaning set forth in attached Exhibit I.

“ Capital Account ” shall mean, with respect to any Partner, the separate “book” account which the Partnership shall establish and maintain for such Partner in accordance with Section 704(b) of the Code and Section 1.704-1(b)(2)(iv) of the Regulations and such other provisions of Section 1.704-1(b) of the Regulations that must be complied with in order for the Capital Accounts to be determined in accordance with the provisions of said Regulations.  In furtherance of the foregoing, the Capital Accounts shall be maintained in compliance with Section 1.704-1(b)(2)(iv) of the Regulations; and the provisions hereof shall be interpreted and applied in a manner consistent therewith.  In the event that a Partnership Interest is transferred in accordance with the terms of this Agreement, the Capital Account, at the time of the transfer, of the transferor attributable to the transferred interest shall carry over to the transferee.

“ Capital Commitment ” shall mean, with respect to Series Z Incentive Units and Series Z-1 Incentive Units, a commitment by a Series Z Partner and/or a Series Z-1 Partner to pay to the Partnership the amount of $1.00 for each such Unit that is issued to the Series Z Partner and/or Series Z-1 Partner.

“ Capital Contribution ” shall mean, with respect to any Partner, the amount of money and the initial Gross Asset Value of any property other than money contributed to the Partnership with respect to the Partnership Interest held by such Partner (net of liabilities secured by such property that the Partnership is considered to assume or take subject to under Section 752 of the Code).  Gross Asset Value shall be calculated as provided herein.

“ Cash Amount ” shall mean the amount of cash equal to the product of the Closing Price (calculated, in the case of the exercise of Rights, on the date on which the Exercise Notice is delivered to the General Partner) multiplied by the Common Stock Amount.

“ Certificate ” shall mean the Certificate of Limited Partnership establishing the Partnership, as filed with the office of the California Secretary of State, as it may be amended from time to time in accordance with the terms of this Agreement and the Act.

“ Change in Control ” shall mean the earliest to occur of any of the following events:

(i)             any “person,” as such term is used in the Exchange Act (other than any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of any of the General Partner or any of its subsidiaries or affiliates), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the General Partner representing thirty percent (30%) or more of the combined voting power of the General Partner’s then outstanding securities having the right to vote in an election of the General Partner’s Board of Directors (for purposes of this definition, “Voting Securities”) (other than as a result of an acquisition of securities directly from the General Partner). Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred for purposes of this clause (i) solely as the result of an acquisition of securities by the General Partner which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person (as defined in the foregoing clause) to thirty percent (30%) or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if such person shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the General Partner) and immediately thereafter beneficially owns thirty percent (30%) or more of the combined voting power of all then outstanding Voting Securities, then a “Change in Control” shall be deemed to have occurred for purposes of this clause (i).

 

 

(ii)            the moment immediately prior to the consummation of a merger, reorganization or consolidation of the General Partner or the occurrence of any other event (including without limitation a tender or exchange offer), the result of which is that the “beneficial owners” (as such term is defined in Rule 13d-3 of the Exchange Act) of the Voting Securities of the General Partner before the merger, reorganization, consolidation or other transaction are not the “beneficial owners”, directly or indirectly, of a majority of the voting power of the surviving or resulting entity upon completion of such merger, reorganization, consolidation or other transaction;

(iii)           the moment immediately prior to the consummation of a merger, reorganization or consolidation of the Partnership, unless the General Partner immediately prior to such merger, reorganization or consolidation remains the sole general partner of the Partnership after such merger;

(iv)           the moment immediately prior to the consummation of a change (whether by removal, withdrawal, transfer or otherwise) in the general partner of the Partnership;

(v)            persons who, as of June 1, 2001, constitute the General Partner’s Board of Directors (for purpose of this definition, the “Incumbent Directors”) cease for any reason, including, without limitation, as a result of a tender or exchange offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board of Directors of the General Partner (rounded up to the next whole number), provided that any person becoming a director of the General Partner subsequent to such date shall be considered an Incumbent Director if such person’s election was approved by or such person was nominated for election by a vote of a majority of the Incumbent Directors; provided, however, that any person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a “person” other than the Board of Directors, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or

 

 

(vi)           the moment immediately prior to the consummation of a sale of all or substantially all of the assets of the General Partner and/or the Partnership.

“ Clawback Amount ” shall mean at any time with respect to each Series Z Incentive Unit, an amount equal to the positive difference, if any, between (i) the then unpaid Capital Commitment with respect to such Series Z Incentive Unit, and (ii) the sum of any distributions deemed to offset the Clawback Amount in accordance with Section 6.2(d) below.  The unpaid Capital Commitment of a Series Z Partner with respect to a Series Z Incentive Unit shall never be greater than the Clawback Amount with respect to such Series Z Incentive Unit, as adjusted from time to time.

“ Closing Price ” on any date shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock as such person is selected from time to time by the Board of Directors of the General Partner.  In the event that the Common Stock Amount includes additional rights that a holder of shares of Common Stock would be entitled to receive and if the value of such additional rights is not included in the Closing Price, then the value of such additional rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers in its reasonable judgment appropriate, and such amount shall be added to the Closing Price.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended.

“ Common Equivalent Shares ” shall mean the total number of shares of Common Stock outstanding on a fully diluted basis, calculated in a manner consistent with the manner used by the General Partner for reporting diluted earnings or loss per share under generally accepted accounting principles, it being understood that, to the extent that the General Partner discloses diluted earnings or loss per share in any of its periodic reports publicly filed with the Securities and Exchange Commission, Common Equivalent Shares for such period for the purposes of this Agreement shall be calculated in a manner consistent with such public disclosure.

“ Common Stock ” shall mean the shares of the common stock, par value $.0001 per share, of Essex Property Trust, Inc.

 

 

“ Common Stock Amount ” shall mean the number of shares of Common Stock equal to the product of the number of Partnership Units offered for conversion by an Exercising Partner, multiplied by the Conversion Factor; provided, however, that in the event the General Partner issues to all holders of Common Stock rights, options, warrants or convertible or exchangeable securities entitling the shareholders to subscribe for or purchase additional Common Stock, or any other securities or property of the General Partner, the value of which is not included in the first sentence of the definition of Closing Price of the shares of Common Stock (collectively, “additional rights”), then the Common Stock Amount shall also include such additional rights that a holder of that number of shares of Common Stock would be entitled to receive.

“ Common Tenancies ” shall mean, collectively, the Pathways Common Tenancy and the Oak Pointe Common Tenancy.

“ Common Unit ” shall mean a Partnership Unit representing an interest in the Partnership, other than a Series B Preferred Unit, Series B Preferred Interest, Series F Preferred Interest, Series G Preferred Interest, Series Z Incentive Unit, Series Z-1 Incentive Unit, LTIP Unit or any other Preferred Interest or Preferred Partnership Units.

“ Compensation Committee ” shall mean the Compensation Committee of the Board of Directors of the General Partner or, if no such committee exists, the full Board of Directors of the General Partner.

“ Completion of the Offering ” shall mean the closing of the sale of Common Stock in the Offering, which was completed on June 13, 1994.

“ Consent of the Limited Partners ” means the written consent of a Majority-In-Interest of the Limited Partners, which consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by a Majority-In-Interest of the Limited Partners, unless otherwise expressly provided herein, in their sole and absolute discretion.

“ Contributed Interests ” shall mean, with respect to each Limited Partner, the undivided ownership interests in the Existing Properties contributed to the Partnership by such Limited Partner; the undivided ownership interests in the assets of the Existing Partnerships that are tenants-in-common in the Common Tenancies; and the partnership interests in the Washington Partnerships contributed to the Partnership by such Limited Partner, all as set forth opposite such Limited Partner’s name on Exhibit B attached to the Original Agreement; provided that the term Contributed Interests shall not include the Plumtree Property or the Wharfside Property.

“ Contributed Property ” shall have the meaning set forth in the definition of Gross Asset Value.

 

 

“ Contribution Agreement ” shall mean that certain Contribution Agreement entered into as of March 15, 1994 between the Partnership and the original Partners in the Partnership.

“ Contribution Date ” shall have the meaning set forth in Section 4.3(a) hereof.

“ Control ” shall mean the ability, whether by the direct or indirect ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, to select the managing partner of a partnership, or otherwise to select, or have the power to remove and then select, a majority of those persons exercising governing authority over an Entity.  In the case of a limited partnership, the sole general partner, all of the general partners to the extent each has equal management control and authority, or the managing general partner or managing general partners thereof shall be deemed to have control of such partnership and, in the case of a trust, any trustee thereof or any Person having the right to select any such trustee shall be deemed to have control of such trust.

“ Controlled Entity ” shall mean, with respect to any Limited Partner or Person, any Entity which directly or indirectly Controls, is Controlled by, or is under common Control with, such Limited Partner or Person.

“ Conversion Factor ” shall mean 1.0, provided that in the event that the General Partner (i) pays a dividend on its outstanding shares of Common Stock in shares of Common Stock or makes a distribution to all holders of its outstanding Common Stock in shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock, or (iii) combines its outstanding shares of Common Stock into a smaller number of shares of Common Stock, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of shares of Common Stock issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination occurred as of such time), and the denominator of which shall be the actual number of shares of Common Stock (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, subdivision or combination.  Any adjustment to the Conversion Factor shall become effective immediately after the record date for such event in the case of a dividend or distribution or the effective date in the case of a subdivision or combination.

“ Conversion Ratchet Percentage ” with respect to any Series Z Incentive Unit (i) shall equal 0% on June 28, 2001, (ii) shall increase by twenty (20) percentage points on January 1 of the first calendar year after June 28, 2001 on which (x) the holder of such Series Z Incentive Unit is an employee of the General Partner and/or the Partnership and/or any subsidiary or affiliate thereof as of such January 1, (y) the Actual FFO Per Share of the General Partner for the calendar year preceding such January 1 is greater than or equal to the Target FFO for such year, and (z) the Conversion Ratchet Percentage prior to such increase is less than 100%, and (iii) shall increase ten percentage points on January 1 of every calendar year thereafter on which the conditions in clauses (x), (y) and (z) of the immediately preceding clause (ii) are met; provided, however, that if the Compensation Committee determines that Actual FFO Per Share is no longer an appropriate corporate performance parameter for establishing management objectives or that the applicable target levels are no longer feasible in light of factors or circumstances outside of the Partnership’s or the General Partner’s control (such as general economic conditions, legal/regulatory changes, war or similar events), it may, in its reasonable good faith discretion without any consent or other action on the part of the Series Z Partners or any other Partners of the Partnership, revise and amend the requirement in (y) above (and any definitions involved therein) to reflect one or more different or additional parameters, objectives or performance measures, so long as the Compensation Committee, in its reasonable good faith discretion, determines that the revised or amended clause (y) is, considered as a whole, comparable or more effective as a means for analyzing the performance of the Partnership and incentivizing the Series Z Partners (it being understood that such amended or restated clause (y) shall not be more difficult to achieve than the present requirements of clause (y)).

 

 

“ Current Per Share Market Price ” on any date shall mean the average of the Closing Price for the five (5) consecutive Trading Days ending on such date.

“ Demand Notice ” shall have the meaning set forth in Section 12.2 hereof.

“ Department ” shall mean the Maryland State Department of Assessments and Taxation.

“ Depreciation ” shall mean, with respect to any asset of the Partnership for any fiscal year or other period, the depreciation, depletion or amortization, as the case may be, allowed or allowable for Federal income tax purposes in respect of such asset for such fiscal year or other period; provided, however, that if there is a difference between the Gross Asset Value and the adjusted tax basis of such asset, Depreciation shall mean “book depreciation, depletion or amortization” as determined under Section 1.704-1(b)(2)(iv)(g)(3) of the Regulations.

“ Development Project ” shall mean any vacant land intended for development for retail or multi-family residential uses; provided, however, that the term “Development Project” shall not include the Excluded Properties.

“ Distribution Ratchet Percentage ” with respect to any Series Z Incentive Unit (i) shall equal 10% on June 28, 2001, (ii) shall increase on January 1, 2002, to (a) twenty-five percent (25%) if the Conversion Ratchet Percentage with respect to such Series Z Incentive Units also increases to twenty percent (20%), or (b) fifteen percent (15%) if the Conversion Ratchet Percentage with respect to such Series Z Incentive Units remains at 0%, (iii) shall increase, to the extent it has not already done so, to twenty-five percent (25%) at such time as such Conversion Ratchet Percentage is equal to 20%, and (iv) after such time as the Conversion Ratchet Percentage with respect to such Series Z Incentive Units is equal to or greater than 30%, the Distribution Ratchet Percentage shall be equal to the Conversion Ratchet Percentage with respect to such Series Z Incentive Units.

“ Entity ” shall mean any general partnership, limited partnership, limited liability company, limited liability partnership, corporation, joint venture, trust, business trust, cooperative or association.

 

 

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time (or any corresponding provisions of succeeding laws).

“ EWIP ” shall mean Essex Washington Interest Partners, a California general partnership, the sole partners of which shall be the General Partner and the Partnership.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“ Excluded Properties ” shall mean those certain real properties listed on Exhibit H attached to the Original Agreement.

“ Exercise Notice ” shall have the meaning set forth in affected Exhibit I.

“ Exercising Partner ” shall have the meaning set forth in attached Exhibit I.

“ Existing Partnerships ” shall mean those seventeen (17) partnerships listed on Exhibit C attached to the Original Agreement.

“ Existing Properties ” shall mean those certain 12 multi-family residential properties and 6 commercial properties owned entirely by the Existing Partnerships immediately prior to the Completion of the Offering, the ground lessee’s interest in that certain Property commonly known as 777 California Avenue, Palo Alto, California, and an approximate 69.3% tenancy-in-common interest in that certain property commonly known as the Pathways Apartments, Long Beach, California.

“ Fiscal Year ” shall mean the fiscal year of the Partnership.

“ Forfeited Capital Account ” shall mean that portion of the Capital Account attributable to a Series Z Incentive Unit equal to the product of (a) the excess of (i) the Adjusted Capital Account Balance (as defined in Section 10.9(a)) allocable to such Series Z Incentive Unit over (ii) the sum of (A) the capital contribution made with respect to such Series Z Incentive Unit and (B) the excess of the sum of the net allocations of operating income made with respect to such Series Z Incentive Unit for all fiscal years (taking into account allocations of Net Operating Loss made with respect to such Series Z Incentive Unit for all fiscal years) over the distributions of operating cash flow made to such Series Z Unit (except to the extent such allocations have reduced the Clawback Amount) multiplied by (b) 100% minus the Conversion Ratchet Percentage applicable to such Series Z Incentive Unit.

“ General Partner ” shall mean Essex Property Trust, Inc., a Maryland corporation, its duly admitted successors and assigns and any other Person who is a general partner of the Partnership at the time of reference thereto.

“ Gross Asset Value ” shall mean, with respect to any asset of the Partnership, such asset’s adjusted basis for Federal income tax purposes, except as follows:

 

 

a)             a Capital Contribution (other than a de minimis Capital Contribution) to the Partnership  by the General Partner or a new or existing Limited Partner as consideration for Partnership Units;

b)             the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for the redemption of Partnership Units; and

c)             the liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations;

At all times, Gross Asset Values shall be adjusted by any Depreciation taken into account with respect to the Partnership’s assets for purposes of computing Net Income and Net Loss.  Any adjustment to the Gross Asset Values of Partnership property shall require an adjustment to the Partners’ Capital Accounts; as for the manner in which such adjustments are allocated to the Capital Accounts, see paragraph (c) of the definition of Net Income and Net Loss in the case of adjustment by Depreciation, and paragraph (e) of said definition in all other cases.

“ Gross Offering Proceeds ” shall mean the amount equal to the product of the Initial Price of the Common Stock multiplied by the number of shares of Common Stock outstanding as of the Completion of the Offering.

 

 

“ Hart-Scott Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“ Headquarters Building ” shall mean that certain office building located at 925 East Meadow Drive, Palo Alto, California, and any other building that served as the predecessor corporate headquarters of the General Partner or as the successor corporate headquarters of the General Partner.

“ Immediate Family ” shall mean, with respect to any Person, such Person’s spouse, parents, parents-in-law, descendants, nephews, nieces, brothers, sisters, brothers-in-law, sisters-in-law and children-in-law.

“ Initial Offering Expenses ” shall mean (i) costs and expenses incurred prior to, at or substantially concurrent with the Completion of the Offering relating to the formation of the General Partner, including taxes, fees and assessments associated therewith, and (ii) costs and expenses incurred prior to, at or substantially concurrent with the Completion of the Offering relating to any offer or registration of securities by the General Partner and all statements, reports, fees and expenses incidental thereto, including underwriting discounts and selling commissions applicable to any such offer of securities.

“ Initial Price of the Common Stock ” shall mean the initial public offering price of the Common Stock.

“ Investment Entities ” shall have the meaning set forth in Section 7.5 hereof.

“ Lien ” shall mean any liens, security interests, mortgages, deeds of trust, charges, claims, encumbrances, pledges, options, rights of first offer or first refusal and any other rights or interests of others of any kind or nature, actual or contingent, or other similar encumbrances of any nature whatsoever.

“ Limited Partner Representative ” shall mean the Limited Partner that is selected by a Majority-in-Interest of the Limited Partners from time to time to act as the Limited Partner Representative hereunder.  The initial Limited Partner Representative shall be Keith R. Guericke.  All obligations of the General Partner or the Partnership set forth herein to deliver documents and other items to the Limited Partners shall be deemed satisfied if such documents and other items are delivered to the Limited Partner Representative.

“ Limited Partners ” shall mean those Persons listed under the heading “Limited Partners” on the signature page to the Amended and Restated Agreement in their respective capacities as limited partners of the Partnership and any Person who subsequently became a limited partner of the Partnership pursuant to the provisions of the Amended and Restated Agreement, as amended, or of this Agreement, their permitted successors or assigns as a limited partner hereof, or any Person who, at the time of reference thereto, is a limited partner of the Partnership.

“ Liquidating Event ” shall have the meaning set forth in Section 8.1 hereof.

 

 

“ Liquidating Trustee ” shall mean such Person as is selected as the Liquidating Trustee hereunder by the General Partner, which Person may include an Affiliate of the General Partner, provided such Liquidating Trustee agrees in writing to be bound by the terms of this Agreement.  The Liquidating Trustee shall be empowered to give and receive notices, reports and payments in connection with the dissolution, liquidation and/or winding-up of the Partnership and shall hold and exercise such other rights and powers as are necessary or required to permit all parties to deal with the Liquidating Trustee in connection with the dissolution, liquidation and/or winding-up of the Partnership.

“LTIP Units” shall mean Partnership Units granted pursuant to that certain long-term compensation program known as the “2007 Outperformance Plan” and which shall have the rights, powers, privileges, restrictions, qualifications and limitations set forth in Exhibit T hereto.

“ M&M ” shall mean The Marcus & Millichap Company, a California corporation.

“ M&M Option Agreement ” shall mean that certain agreement entered into between M&M, M&M REIBC and the General Partner pursuant to which M&M obtained at the Completion of the Offering certain options to purchase Common Stock and M&M REIBC provides certain transaction and trend information to the General Partner.

“ M&M REIBC ” shall mean Marcus & Millichap Real Estate Investment Brokerage Company, a California corporation.

“ Major Decisions ” shall have the meaning set forth in Section 7.3 hereof.

“ Majority-In-Interest of the Limited Partners ” shall mean Limited Partner(s) who hold in the aggregate more than fifty percent (50%) of the Percentage Interests then allocable to and held by the Limited Partners, as a class.

“ Net Financing Proceeds ” shall mean the cash proceeds received by the Partnership in connection with any borrowing or refinancing of borrowing by or on behalf of the Partnership (whether or not secured), after deduction of all costs and expenses incurred by the Partnership in connection with such borrowing, and after deduction of that portion of such proceeds used to repay any other indebtedness of the Partnership, or any interest or premium thereon.

“ Net Income ” or “ Net Loss ” shall mean, for each fiscal year or other applicable period, an amount equal to the Partnership’s net income or loss for such year or period as determined for federal income tax purposes by the Accountants, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a) of the Code shall be included in taxable income or loss), with the following adjustments: (a) by including as an item of gross income any tax-exempt income received by the Partnership; (b) by treating as a deductible expense any expenditure of the Partnership described in Section 705(a)(2)(B) of the Code (including amounts paid or incurred to organize the Partnership (unless an election is made pursuant to Code Section 709(b)) or to promote the sale of interests in the Partnership and by treating deductions for any losses incurred in connection with the sale or exchange of Partnership property disallowed pursuant to Section 267(a)(1) or Section 707(b) of the Code as expenditures described in Section 705(a)(2)(B) of the Code); (c) in lieu of depreciation, depletion, amortization, and other recovery deductions taken into account in computing total income or loss, there shall be taken into account Depreciation; (d) gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of such property rather than its adjusted tax basis; and (e) in the event of an adjustment of the Gross Asset Value of any Partnership asset which requires that the Capital Accounts of the Partnership be adjusted pursuant to Regulation Section 1.704-1(b)(2)(v)(e), (f) and (m), the amount of such adjustment is to be taken into account as additional Net Income or Net Loss pursuant to attached Exhibit E.

 

 

“ Net Operating Income ” shall mean, for any fiscal year or portion thereof, the excess of the items of income and gain over the items of deduction and loss, excluding, in each case, items of gain or loss realized in connection with the sale or disposition of real property and other capital assets.

“ Net Operating Loss ” shall mean, for any fiscal year or portion thereof, the excess of the items of deduction and loss over the items of income and gain, excluding, in each case, items of gain or loss realized in connection with the sale or disposition of real property and other capital assets.

“ Net Property Gain ” shall mean, for any fiscal year or portion thereof, the excess of gains realized from the sale or disposition of real property and other capital assets over the losses realized in connection with the sale or disposition of real property and other capital assets.

“ Net Property Loss ” shall mean, for any fiscal year or portion thereof, the excess of losses realized from the sale or disposition of real property and other capital assets over the gains realized in connection with the sale or disposition of real property and other capital assets.

“ Net Sale Proceeds ” means the cash proceeds received by the Partnership in connection with a sale of any asset by or on behalf of the Partnership after deduction of any costs or expenses incurred by the Partnership, or payable specifically out of the proceeds of such sale (including, without limitation, any repayment of any indebtedness required to be repaid as a result of such sale or which the General Partner elects to repay out of the proceeds of such sale, together with accrued interest and premium, if any, thereon and any sales commissions or other costs and expenses due and payable to any Person in connection with a sale, including to a Partner or its Affiliates).

“ New Securities ” shall have the meaning set forth in Section 4.3(c).

“ Nonrecourse Deductions ” shall have the meaning set forth in Sections 1.704-2(b)(1) and (c) of the Regulations.

 

 

“ Oak Pointe Common Tenancy ” shall mean the owner of that certain improved real property located in Pacifica, California, and commonly known as the Oak Pointe Apartments.

“ Offering ” shall have the meaning set forth in the Registration Statement.

“ Officer ” of the General Partner shall mean each person who holds the position of President, Chief Executive Officer, any Vice President, Treasurer, Chief Financial Officer or Corporate Secretary and who is also a Limited Partner, except that, as to any Person that is not the holder of any of the foregoing positions as of the Completion of the Offering, the General Partner may determine in its discretion upon the bestowing of such a position on such Person that such Person shall not be deemed an Officer for the purposes of this Agreement.

“ Option ” shall mean an option to purchase Common Stock granted under any Stock Incentive Plan or under the M&M Option Agreement.

“ Original Agreement ” shall mean that certain Agreement of Limited Partnership of the Partnership dated as of March 15, 1994, as amended by that certain First Amendment to Agreement of Limited Partnership dated as of April 15, 1994.

“ Ownership Limit ” shall have the meaning set forth in attached Exhibit I.

“ Partner Nonrecourse Debt ” shall have the meaning set forth in Section 1.704-2(b)(4) of the Regulations.

“Partner Nonrecourse Debt Minimum Gain ” shall mean “partner nonrecourse debt minimum gain” as determined in accordance with Regulation Section 1.704-2(i)(2).

“ Partner Nonrecourse Deductions ” shall have the meaning set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.

“ Partners ” shall mean the General Partner and the Limited Partners, their duly admitted successors or assigns or any Person who is a partner of the Partnership at the time of reference thereto.

“ Partnership ” shall mean the limited partnership formed pursuant to the Original Agreement and hereby constituted, as such limited partnership may from time to time be constituted.

“ Partnership Interest ” shall mean the ownership interest of a Partner in the Partnership from time to time, including each Partner’s Percentage Interest and such Partner’s Capital Account.  Wherever in this Agreement reference is made to a particular Partner’s Partnership Interest, it shall be deemed to refer to such Partner’s Percentage Interest and shall include the proportionate amount of such Partner’s other interests in the Partnership which are attributable to or based upon the Partner’s Partnership Interest.  A Partnership Interest may be expressed as a number of Partnership Units.

 

 

“ Partnership Minimum Gain ” shall have the meaning set forth in Section 1.704-2(b)(2) of the Regulations.

“ Partnership Unit ” shall mean a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to the terms of this Agreement.  The allocation of Partnership Units to each Partner as of the date hereof is as set forth on attached Exhibit A.

“ Pathways Common Tenancy ” shall mean the owner of that certain improved real property located in Long Beach, California, and commonly known as Pathways Apartments.

“ Percentage Interest ” shall mean with respect to any Partner other than holders of Series B Preferred Units, Series Z Incentive Units or Series Z-1 Incentive Units, the undivided percentage ownership interest of such Partner in the Partnership, as determined by dividing (i) the number of Partnership Units owned by such Partner by (ii) the sum of (A) the total number of Partnership Units then outstanding (excluding the Series B Preferred Interest, the Series B Partnership Units, the Series F Preferred Interest, Series G Preferred Interest, Series Z Incentive Units and the Series Z-1 Incentive Units), (B) the total number of outstanding Series Z Incentive Units multiplied by the Distribution Ratchet Percentage with respect to each such Series Z Incentive Unit, calculated on a unit-by-unit basis, and (C) the total number of outstanding Series Z-1 Incentive Units multiplied by the Series Z-1 Distribution Ratchet Percentage with respect to each such Series Z-1 Incentive Unit, calculated on a unit-by-unit basis. With respect to any holder of Series Z Incentive Units, such Partner’s Percentage Interest shall be equal to such Partner’s Series Z Percentage Interest. With respect to any holder of Series Z-1 Incentive Units, such Partner’s Percentage Interest shall be equal to such Partner’s Series Z-1 Percentage Interest. If any Partner holds a combination of Common Units, LTIP Units, Series Z Incentive Units and/or Series Z-1 Incentive Units, then such Partner’s Percentage Interest shall be equal to the sum of (A) the Percentage Interest as calculated pursuant to the first sentence of this definition (assuming for purposes of such calculation that such Partner holds only Common Units and/or LTIP Units, if any), (B) the Series Z Percentage Interest (assuming for purposes of such calculation that such Partner holds only Series Z Incentive Units, if any) and (C) the Series Z-1 Percentage Interest (assuming for purposes of such calculation that such Partner holds only Series Z-1 Incentive Units, if any).

“ Person ” shall mean any individual or Entity.

“ Plumtree Property ” shall mean that certain improved real property located in Santa Clara, California, and commonly known as the Plumtree Apartments.

“ Preferred Stock ” shall mean any preferred stock of the General Partner as described in the applicable Articles Supplementary.

“Preferred Units” shall mean any preferred Partnership Units of the Partnership as described in this Agreement or in any amendment to this Agreement.

“ Property” or “Properties ” shall mean any real property in which the Partnership, directly or indirectly, acquires ownership of a fee or leasehold interest.

 

 

“ Property Manager ” shall mean Essex Management Corporation, a California corporation.

“ Prospectus ” shall have the meaning set forth in the Underwriting Agreement.

“ Purchase Price ” shall mean the consideration payable for the Offered Units (as defined on Exhibit I attached hereto) pursuant to paragraph 6 of Exhibit I attached hereto.

“ Qualified Individual ” shall have the meaning set forth in Section 12.2 hereof.

“ Redemption Distribution ” shall have the meaning set forth in Section 6.2(c) hereof.

“ Registration Statement ” shall have the meaning set forth in the Underwriting Agreement.

“ Regulations ” or “ Treasury Regulations ” shall mean the final, temporary or proposed income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

“ REIT ” shall mean a real estate investment trust as defined in Section 856 of the Code.

“ REIT Expenses ” shall mean (i) costs and expenses incurred subsequent to the Completion of the Offering relating to the formation and continuity of existence of the General Partner and its subsidiaries (which subsidiaries shall, for purposes of this definition, be included within the definition of General Partner), including taxes, fees and assessments associated therewith, and any and all costs, expenses or fees payable to any director or trustee of the General Partner or such subsidiaries, (ii) costs and expenses associated with the preparation and filing of any periodic reports by the General Partner under federal, state or local laws or regulations, including filings with the SEC, (iii) costs and expenses associated with compliance by the General Partner with laws, rules and regulations promulgated by any regulatory body, including the SEC, and (iv) all other operating or administrative costs of the General Partner incurred in the ordinary course of its business on behalf of the Partnership.

“ REIT Requirements ” shall have the meaning set forth in Section 6.2 hereof.

“ Requesting Party ” shall have the meaning set forth in Section 12.2 hereof.

“ Responding Party ” shall have the meaning set forth in Section 12.2 hereof.

“ Restricted Period ” shall mean, with respect to Keith R. Guericke, the period of time during which Keith R. Guericke is president or chief executive officer of the General Partner or such longer period specified in an employment or non-competition agreement between Keith R. Guericke and the General Partner.

“ Rights ” shall have the meaning set forth in Section 11.1 hereof.

 

 

“SDAT” shall mean the Department as defined herein.

“ SEC ” shall mean the United States Securities and Exchange Commission.

“ Securities Act ” shall mean the Securities Act of 1933, as amended.

“ Series B Preferred Interest ” shall mean the interest in the Partnership received by the General Partner in connection with the issuance of shares of Series B Preferred Stock, as and when issued, which Series B Preferred Interest includes and shall include the right to receive preferential distributions and certain other rights as set forth in this Agreement.

“ Series B Preferred Stock ” shall mean the preferred stock of the General Partner described in Article FIRST of the Articles Supplementary reclassifying the General Partner’s 7.875% Series B Cumulative Redeemable Preferred Stock as Series B Cumulative Redeemable Preferred Stock filed with the SDAT on or around January 14, 2004.

“ Series B Preferred Units ” shall mean the 7.875% Series B Cumulative Redeemable Preferred Units of limited partnership interests in the Partnership with rights, preferences, exchange and other rights, voting powers and restrictions, limitations as to distributions, qualifications and terms and conditions as set forth in Exhibit N.

“ Series F Preferred Interest ” shall mean the interest in the Partnership received by the General Partner in connection with the issuance of shares of Series F Preferred Stock, as and when issued, which Series F Preferred Interest includes and shall include the right to receive preferential distributions and certain other rights as set forth in this Agreement.

“ Series F Preferred Stock ” shall mean the preferred stock of the General Partner described in Article THIRD of the Articles Supplementary, reclassifying 1,000,000 shares of Common Stock as 1,000,000 shares of 7.8125% Series F Cumulative Redeemable Preferred Stock filed with the Department on or about September 23, 2003.

“ Series G Preferred Interest ” shall mean the interest in the Partnership received by the General Partner in connection with the issuance of shares of Series G Preferred Stock, as and when issued, which Series G Preferred Interest includes and shall include the right to receive preferential distributions and certain other rights as set forth in this Agreement.

“ Series G Preferred Stock ” shall mean the preferred stock of the General Partner described in Article THIRD of the Articles Supplementary, reclassifying 5,980,000 shares of Common Stock as 5,980,000 shares of 4.875% Series G Cumulative Convertible Preferred Stock filed with the Department on or about July 26, 2006.

“ Series Z Incentive Unit ” shall mean a Series Z Incentive Unit of limited partnership interest in the Partnership with the rights set forth in this Agreement.

“ Series Z Percentage Interest ” shall mean, with respect to any holder of Series Z Incentive Units, the undivided percentage ownership interest of such Partner in the Partnership as determined by dividing (A) the product resulting from multiplying the total number of outstanding Series Z Incentive Units owned by such Partner by the Series Z Distribution Ratchet Percentage attributed to such holder’s Series Z Incentive Units, by (B) the sum of (x) the total number of Partnership Units then outstanding (excluding the Series B Preferred Interest, the Series B Partnership Units, the Series F Preferred Interest, Series G Preferred Interest, the Series Z Incentive Units and the Series Z-1 Incentive Units), (y) the total number of outstanding Series Z Incentive Units multiplied by the Distribution Ratchet Percentage with respect to each Series Z Incentive Unit, calculated on a unit-by-unit basis, and (z) the total number of outstanding Series Z-1 Incentive Units multiplied by the Series Z-1 Distribution Ratchet Percentage with respect to each such Series Z-1 Incentive Unit, calculated on a unit-by-unit basis.

 

 

“ Series Z-1 Change in Control ” shall mean the earliest to occur of any of the following:

(i)             any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of any of the General Partner or any of its subsidiaries or affiliates), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the General Partner representing thirty percent (30%) or more of the combined voting power of the General Partner’s then outstanding securities having the right to vote in an election of the General Partner’s Board of Directors (for purposes of this definition, “Voting Securities”) (other than as a result of an acquisition of securities directly from the General Partner). Notwithstanding the foregoing, a “Series Z-1 Change in Control” shall not be deemed to have occurred for purposes of this clause (i) solely as the result of an acquisition of securities by the General Partner which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person (as defined in the foregoing clause) to thirty percent (30%) or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if such person shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the General Partner) and immediately thereafter beneficially owns thirty percent (30%) or more of the combined voting power of all then outstanding Voting Securities, then a “Series Z-1 Change in Control” shall be deemed to have occurred for purposes of this clause (i).

(ii)            the moment immediately prior to the consummation of a merger, reorganization or consolidation of the General Partner or the occurrence of any other event (including without limitation a tender or exchange offer), the result of which is that the “beneficial owners” (as such term is defined in Rule 13d-3 of the Exchange Act) of the Voting Securities of the General Partner before the merger, reorganization, consolidation or other transaction are not the “beneficial owners”, directly or indirectly, of a majority of the voting power of the surviving or resulting entity upon completion of such merger, reorganization, consolidation or other transaction;

(iii)           the moment immediately prior to the consummation of a merger, reorganization or consolidation of the Partnership, unless the General Partner immediately prior to such merger, reorganization or consolidation remains the sole general partner of the Partnership after such merger;

 

 

(iv)           the moment immediately prior to the consummation of a change (whether by removal, withdrawal, transfer or otherwise) in the General Partner of the Partnership;

(v)            persons who, as of the date of issuance of the first Series Z-1 Incentive Unit, constitute the General Partner’s Board of Directors (for purposes of this definition, the “Incumbent Directors”) cease for any reason, including, without limitation, as a result of a tender or exchange offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board of Directors of the General Partner (rounded up to the next whole number), provided that any person becoming a director of the General Partner subsequent to such date shall be considered an Incumbent Director if such person’s election was approved by, or such person was nominated for election by, a vote of a majority of the Incumbent Directors; provided, however, that any person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board of Directors or other actual or threatened solicitation of proxies or consents by, or on behalf of, a “person” other than the Board of Directors, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or

(vi)           the moment immediately prior to the consummation of a sale of all or substantially all of the assets of the General Partner and/or the Partnership.

“ Series Z-1 Clawback Amount ” shall mean, at any time with respect to each Series Z-1 Incentive Unit, an amount equal to the positive difference, if any, between (i) the then unpaid Capital Commitment with respect to such Series Z-1 Incentive Unit, and (ii) the sum of any distributions deemed to offset the Series Z-1 Clawback Amount in accordance with Section 6.2(e) below. The unpaid Capital Commitment of a Series Z-1 Partner with respect to a Series Z-1 Incentive Unit shall never be greater than the Series Z-1 Clawback Amount with respect to such Series Z-1 Incentive Unit, as adjusted from time to time.

“ Series Z-1 Conversion Ratchet Percentage ” with respect to any Series Z-1 Incentive Unit (i) shall equal 0% on the date of authorization of issuance, or upon issuance, of such Series Z-1 Incentive Unit, (ii) shall increase by twenty (20) percentage points on January 1 of the first calendar year after the date of authorization of issuance, or upon issuance, of such Series Z-1 Incentive Unit, on which (x) the holder of such Series Z-1 Incentive Unit is an employee of the General Partner and/or the Partnership and/or any subsidiary or affiliate thereof as of such January 1, (y) the Actual FFO Per Share of the General Partner for the calendar year preceding such January 1 is greater than or equal to the Series Z-1 Target FFO for such year, and (z) the Series Z-1 Conversion Ratchet Percentage prior to such increase is less than 100%, and (iii) shall increase ten (10) percentage points on January 1 of every calendar year thereafter on which the conditions in clauses (x), (y) and (z) of the immediately preceding clause (ii) are met; provided, however, that (a) the Compensation Committee may authorize the issuance of, or issue, Series Z-1 Incentive Units with a different schedule of percentage increase in the Conversion Ratchet Percentage than set forth in clauses (i), (ii) and (iii) above and such schedule shall be set forth in a subscription agreement executed at the time of issuance of the Series Z-1 Incentive Unit; and provided, further that such schedule is no less favorable to the Series Z-1 Partners than the schedule set forth in clauses (i), (ii) and (iii) above; and (b) if the Compensation Committee determines that Actual FFO Per Share is no longer an appropriate corporate performance parameter for establishing management objectives or that the applicable target levels are no longer feasible in light of factors or circumstances outside of the Partnership’s or the General Partner’s control (such as general economic conditions, legal/regulatory changes, war or similar events), it may, in its reasonable good faith discretion without any consent or other action on the part of the Series Z-1 Partners or any other Partners of the Partnership, revise and amend the requirement in (y) above (and any definitions involved therein) to reflect one or more different or additional parameters, objectives or performance measures, so long as the Compensation Committee, in its reasonable good faith discretion, determines that the revised or amended clause (y) is, considered as a whole, comparable or more effective as a means for analyzing the performance of the Partnership and incentivizing the Series Z-1 Partners (it being understood that such amended or restated clause (y) shall not be more difficult to achieve than the present requirements of clause (y)).

 

 

“ Series Z-1 Distribution Ratchet Percentage ” with respect to any Series Z-1 Incentive Unit (i) shall equal 10% on the date of authorization of issuance, or upon issuance, of such Series Z-1 Incentive Unit, (ii) shall increase, on January 1 of the first calendar year after the date of issuance of such Series Z-1 Incentive Unit, to (a) twenty-five percent (25%) if the Series Z-1 Conversion Ratchet Percentage with respect to such Series Z-1 Incentive Units also increases to twenty percent (20%), or (b) fifteen percent (15%) if the Series Z-1 Conversion Ratchet Percentage with respect to such Series Z-1 Incentive Units remains at 0%, (iii) shall increase, to the extent it has not already done so, to twenty-five percent (25%) at such time as such Series Z-1 Conversion Ratchet Percentage is equal to 20%, and (iv) after such time as the Conversion Ratchet Percentage with respect to such Series Z-1 Incentive Units is equal to or greater than 30%, the Series Z-1 Distribution Ratchet Percentage shall be equal to the Series Z-1 Conversion Ratchet Percentage with respect to such Series Z-1 Incentive Units; provided, however that the Compensation Committee may authorize the issuance of, or issue, Series Z-1 Incentive Units with a different schedule of percentage increase in the Distribution Ratchet Percentage than set forth in clauses (i), (ii) and (iii) above and such schedule shall be set forth in a subscription agreement executed at the time of issuance of the Series Z-1 Incentive Unit; and provided, further that such schedule is no less favorable to the Series Z-1 Partners than the schedule set forth in clauses (i), (ii)and (iii) above.

“ Series Z-1 Forfeited Capital Account ” shall mean that portion of the Capital Account attributable to a Series Z-1 Incentive Unit equal to the product of (a) the excess of (i) the Adjusted Capital Account Balance (as defined in Section 10.10(a)) allocable to such Series Z-1 Incentive Unit over (ii) the sum of (A) the capital contribution made with respect to such Series Z-1 Incentive Unit and (B) the excess of the sum of the net allocations of operating income made with respect to such Series Z-1 Incentive Unit for all fiscal years (taking into account allocations of Net Operating Loss made with respect to such Series Z-1 Incentive Unit for all fiscal years) over the distributions of operating cash flow made to such Series Z-1 Incentive Unit (except to the extent such allocations have reduced the Series Z-1 Clawback Amount) multiplied by (b) 100% minus the Series Z-1 Conversion Ratchet Percentage applicable to such Series Z-1 Incentive Unit.

 

 

“ Series Z-1 Incentive Unit ” shall mean a Series Z-1 Incentive Unit of limited partnership interest in the Partnership with the rights set forth in this Agreement.

“ Series Z-1 Percentage Interest ” shall mean, with respect to any holder of Series Z-1 Incentive Units, the undivided percentage ownership interest of such Partner in the Partnership as determined by dividing (A) the product resulting from multiplying the total number of outstanding Series Z-1 Incentive Units owned by such Partner by the Series Z-1 Distribution Ratchet Percentage attributed to such holder’s Series Z-1 Incentive Units, by (B) the sum of (x) the total number of Partnership Units then outstanding (excluding the Series B Preferred Interest, the Series B Partnership Units, the Series F Preferred Interest, Series G Preferred Interest, the Series Z Incentive Units and the Series Z-1 Incentive Units), (y) the total number of outstanding Series Z Incentive Units multiplied by the Distribution Ratchet Percentage with respect to each Series Z Incentive Unit, calculated on a unit-by-unit basis, and (z) the total number of outstanding Series Z-1 Incentive Units multiplied by the Series Z-1 Distribution Ratchet Percentage with respect to each such Series Z-1 Incentive Unit, calculated on a unit-by-unit basis.

“ Series Z-1 Target FFO ” shall be determined by the Compensation Committee at the time each Series Z-1 Incentive Unit is issued; the Compensation Committee shall set forth in Exhibit S hereto the Series Z-1 Target FFO amount for the fiscal year in which such Series Z-1 Incentive Unit is issued and also the amounts of the Series Z-1 Target FFO or a formula for such amounts for each fiscal year thereafter through the term of such Series Z-1 Incentive Unit; provided, however, that if the Compensation Committee determines that the Series Z-1 Target FFO amounts and/or formulae set forth in Exhibit S are no longer an appropriate corporate performance parameter for establishing management objectives or that the applicable target levels are no longer feasible in light of factors or circumstances outside of the Partnership’s or the General Partner’s control (such as general economic conditions, legal/regulatory changes, war or similar events), it may, in its reasonable good faith discretion without any consent or other action on the part of the Series Z-1 Partners or any other Partners of the Partnership, revise and amend the Series Z-1 Target FFO amounts and/or formulae set forth in Exhibit S (and any definitions involved therein) to reflect one or more different or additional parameters, objectives or performance measures, so long as the Compensation Committee, in its reasonable good faith discretion, determines that the revised or amended definition is, considered as a whole, comparable as a means for analyzing the performance of the Partnership and incentivizing the Series Z-1 Partners (it being understood that such amended or restated definition shall not be more difficult to achieve than the present requirements of this definition).

“ Series Z-1 Trigger Event ” shall mean the earliest to occur of any of the following events:

(i)             such time as a plan of dissolution or liquidation (but not including a deemed liquidation for tax purposes in connection with one or more transfers of interest in the Partnership) of the General Partner and/or the Partnership is duly adopted by appropriate corporate or partnership action;

 

 

(ii)            the date on which the Series Z-1 Conversion Ratchet Percentage applicable to all Series Z-1 Incentive Units held by then current employees of the General Partner and/or the Partnership (i.e., other than holders of Series Z-1 Incentive Units whose employment with the General Partner and/or the Partnership has terminated) reaches 100%;

(iii)           the earliest date on which the employment of all holders of Series Z-1 Incentive Units has been terminated; and

(iv)           fifteen (15) years after the date of issuance of the first Series Z-1 Incentive Unit.

“ Stock Incentive Plans ” shall have the meaning set forth in the Prospectus, along with any other employee or non-employee stock incentive, phantom unit or option plans adopted by the General Partner, and any amendments or amendment and restatements thereof.

“ Substituted Limited Partner ” shall mean a “substituted limited partner” as such term is defined in Section 15519 of the Act.

“ Target FFO ” shall mean Actual FFO Per Share equal to $4.29 with respect to fiscal year 2001 and, with respect to each fiscal year thereafter, shall mean Actual FFO Per Share equal to the lesser of (x) the product of $4.29 times 1.1N, where “N” is equal to 1 with respect to fiscal year 2002 plus an additional 1 for each fiscal year thereafter, and (y) 110% of the Actual FFO Per Share applicable to the immediately preceding fiscal year; provided, however, that if the Compensation Committee determines that Actual FFO Per Share is no longer an appropriate corporate performance parameter for establishing management objectives or that the applicable target levels are no longer feasible in light of factors or circumstances outside of the Partnership’s or the General Partner’s control (such as general economic conditions, legal/regulatory changes, war or similar events), it may, in its reasonable good faith discretion without any consent or other action on the part of the Series Z Partners or any other Partners of the Partnership, revise and amend this definition of Target FFO (and any definitions involved herein) to reflect one or more different or additional parameters, objectives or performance measures, so long as the Compensation Committee, in its reasonable good faith discretion, determines that the revised or amended definition is, considered as a whole, comparable as a means for analyzing the performance of the Partnership and incentivizing the Series Z Partners (it being understood that such amended or restated definition shall not be more difficult to achieve than the present requirements of this definition).

“ Third Arbitrator ” shall have the meaning set forth in Section 12.2 hereof.

“ Trading Day ” shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

 

 

“ Transaction Expense ” shall have the meaning set forth in attached Exhibit I.

“ Transfer ” as a noun, shall mean any sale, assignment, conveyance, pledge, hypothecation, gift, encumbrance or other transfer (including any transfer by operation of law or by merger or consolidation), and, as a verb, shall mean to sell, assign (including by operation of law or by merger or consolidation), convey, pledge, hypothecate, give, encumber or otherwise transfer.

“ Treasury Regulations” or “ Regulations ” shall mean the final, temporary or proposed income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

“ Trigger Event ” shall mean the earliest to occur of any of the following events:

(i)             such time as a plan of dissolution or liquidation (but not including a deemed liquidation for tax purposes in connection with one or more transfers of interest in the Partnership) of the General Partner and/or the Partnership is duly adopted by appropriate corporate or partnership action;

(ii)            the date on which the Conversion Ratchet Percentage applicable to all Series Z Incentive Units held by then current employees of the General Partner and/or the Partnership (i.e., other than holders of Series Z Incentive Units whose employment with the General Partner and/or the Partnership has terminated) reaches 100%;

(iii)           the earliest date on which the employment of all holders of Series Z Incentive Units has been terminated; and

(iv)           January 1, 2016.

“ Underwriting Agreement ” shall mean that certain Purchase Agreement dated June 6, 1994, among the General Partner, the Partnership and the representatives of the several underwriters named in Schedule I thereto.

“ Washington Partnership Interests ” shall mean a one percent (1%) limited partnership interest in each of the Washington Partnerships contributed to EWIP by the Partnership.

“ Washington Partnerships ” shall mean those two (2) Existing Partnerships listed on Exhibit G attached to the Original Agreement.

“ Weighted Number of Series Z Incentive Units ” as determined from time to time shall mean the total number of outstanding Series Z Incentive Units, multiplied by the Conversion Ratchet Percentage with respect to each such Series Z Incentive Unit, calculated on a unit-by-unit basis.

“ Weighted Number of Series Z-1 Incentive Units ” as determined from time to time shall mean the total number of outstanding Series Z-1 Incentive Units, multiplied by the Series Z-1 Conversion Ratchet Percentage with respect to each such Series Z-1 Incentive Unit, calculated on a unit-by-unit basis.

 

 

“ Wharfside Property ” shall mean that certain improved real property located in Seattle, Washington, and commonly known as Wharfside Pointe Apartments.

1.2             Exhibit, Etc.   References to “Exhibit” or to a “Schedule” are, unless otherwise specified, to one of the Exhibits or Schedules attached to this Agreement, and references to an “Article” or a “Section” are, unless otherwise specified, to one of the Articles or Sections of this Agreement.  Each Exhibit and Schedule attached hereto and referred to herein is hereby incorporated herein by reference.

ARTICLE II

ORGANIZATION

2.1             Continuation of the Partnership.   The parties hereto do hereby continue the Partnership, subject to the terms and conditions hereinafter set forth.  The Partners agree that the rights and liabilities of the Partners shall be as provided in the Act except as otherwise herein expressly provided.  The General Partner executed the Certificate and filed it with the Office of the Secretary of State of the State of California in connection with the formation of the Partnership.  A certified copy of the amendment to the Certificate shall be filed for record in each county in which the Partnership shall own real property or an interest therein, and the General Partner shall cause such other notice, instrument, document or certificate as may be required by applicable law, and which may be necessary to enable the Partnership to conduct its business and to own the Properties under the Partnership name, to be filed or recorded in all appropriate public offices.  The General Partner shall execute and file with the Office of the Secretary of State of the State of California any amendments to the Certificate required by law.  A certified copy of each such amendment shall be filed by the General Partner for record in each county in which a copy of the Certificate has been filed for record.

2.2             Name.   The business of the Partnership shall be conducted under the name of Essex Portfolio, L.P. or such other name as the General Partner may select, and all transactions of the Partnership, to the extent permitted by applicable law, shall be carried on and completed in such name.

2.3             Character of the Business.   The purpose of the Partnership shall be to acquire, hold, own, develop, redevelop, construct, finance, improve, maintain, operate, manage, sell, provide seller financing, lease, transfer, encumber, convey, exchange, lend money, and otherwise dispose of or deal with Properties and ownership interests therein; to acquire, hold, own, develop, redevelop, construct, finance, improve, maintain, operate, manage, sell, provide seller financing, lease, transfer, encumber, convey, exchange, lend money, and otherwise dispose of or deal with real and personal property of all kinds, whether owned by the Partnership or otherwise; to be a partner in and to exercise all of the powers of a partner in other partnerships; subject to compliance with the REIT Requirements, to be a member in and to exercise all of the powers of a member in a limited liability company; to be a shareholder in a corporation, including, without limitation, the Property Manager (provided that the Partnership shall not have more than a ten percent (10%) voting interest in the Property Manager or any other corporation structured similarly thereto); and to undertake such other activities as may be necessary, advisable, desirable or convenient to the business of the Partnership, and to engage in such other ancillary activities as shall be necessary or desirable to effectuate the foregoing purposes.  The Partnership shall have all powers necessary or desirable to accomplish the purposes enumerated.  In connection with the foregoing, but subject to all of the terms, covenants, conditions and limitations contained in this Agreement and any other agreement entered into by the Partnership, the Partnership shall have full power and authority, directly or through its interests in EWIP, any of the other Investment Entities, the Washington Partnerships, the Property Manager or the Pathways Common Tenancy, to enter into, perform and carry out contracts of any kind, to borrow money and to issue evidences of indebtedness, whether or not secured by mortgage, trust deed, pledge or other lien, and, directly or indirectly, to acquire and construct additional Properties necessary or useful in connection with its business, and to lend money secured by additional Properties and other real and personal property.

 

 

2.4             Location of the Principal Place of Business.   The location of the principal place of business of the Partnership shall be at 925 East Meadow Drive, Palo Alto, California 94303, or such other location as shall be selected from time to time by the General Partner in its sole discretion.

2.5             Agent for Service of Process.   The Partnership hereby appoints Jordan Ritter, Esq., whose address is 925 East Meadow Drive, Palo Alto, California 94303, as its agent for service of process.  Such agent may be changed from time to time by the General Partner in its sole discretion by filing an amendment to the Certificate.

2.6             Certificates of Ownership.   Each Partner’s Partnership Units shall be evidenced by one or more registered certificates of ownership, which certificates shall be executed by the General Partner.  Such certificates shall contain a legend evidencing the restrictions on transfer of the Partnership Units, which legend shall be substantially similar to the legend contained on the cover page of this Agreement.

ARTICLE III

TERM

3.1             Commencement.   The Partnership commenced business as a limited partnership upon the filing of the Certificate of Limited Partnership with the Secretary of State of the State of California, on March 15, 1994.

3.2             Termination.   The Partnership shall continue until December 31, 2054, unless it is dissolved and wound up sooner pursuant to the provisions of Article VIII hereof or otherwise as provided by law.

 

 

ARTICLE IV

CONTRIBUTIONS TO CAPITAL

4.1             General Partner Capital Contribution.   Concurrent with the Completion of the Offering, the General Partner contributed to the Partnership as its initial contribution to the capital of the Partnership an amount equal to the difference between the Gross Offering Proceeds and the Initial Offering Expenses.  Subsequent to the Completion of the Offering, as of the date hereof, the General Partner has contributed as additional Capital Contributions (a) an amount equal to the net proceeds from the issuances of shares of Preferred Stock, and (b) the net proceeds from public, underwritten offerings of Common Stock completed subsequent to the Offering.

4.2             Limited Partner Capital Contributions. Prior to or concurrent with the Completion of the Offering, certain Limited Partners contributed, or caused to be contributed, as its initial Capital Contribution to the capital of the Partnership, all of such Limited Partner’s right, title and interest in the Purchase Contracts, the Contributed Interests and the Plumtree Property.

4.3             Issuances of Additional Partnership Interests.

(a)            Without the consent of any Limited Partner, but subject to the terms of Section 9.4 below, the General Partner may from time to time, upon its determination that the issuance of additional Partnership Units (“Additional Units”) is in the best interests of the Partnership and upon not less than fifteen (15) days’ prior written notice to the Limited Partner Representative (provided that prior notice shall not be required if the Limited Partners collectively own less than five percent (5%) of the Partnership Units at the time of such issuance), cause the Partnership to issue to the Partners (including the General Partner) or other Persons Additional Units or other Partnership Interests in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as the General Partner shall determine, including, without limitation, rights, powers and duties senior to the Limited Partner’s Partnership Interests, and, if necessary, admit any such other Person as an additional Limited Partner (“Additional Limited Partner”) (in accordance with Section 4.6 hereof), in exchange for the Capital Contribution by such Partner or Person of cash and/or property.  Without limiting the provisions of this Article IV, the General Partner is expressly authorized to cause the Partnership to issue Additional Units for less than fair market value, so long as the General Partner concludes in good faith that such issuance is in the best interests of the Partnership.  In the event that Additional Units are issued by the Partnership pursuant to this Section 4.3(a):

(i)             the Percentage Interest of the Person to whom the Additional Units are being issued shall be equal to a fraction, the numerator of which is equal to the number of Partnership Units issued to such Person as of the date of contribution to the Partnership (the “Contribution Date”) and the denominator of which is equal to the total number of issued and outstanding Partnership Units on the Contribution Date (including the Partnership Units issued to such Person); and

 

 

(ii)            the Percentage Interests of each Partner other than the Person to whom Additional Units are being issued shall be adjusted, as of the Contribution Date, such that the Percentage Interest of each such Partner shall be equal to a fraction, the numerator of which is equal to the number of Partnership Units owned by such Partner and the denominator of which is the total number of Partnership Units specified in the denominator of the fraction described in subparagraph (i) of this Section 4.3(a).

As soon as reasonably practicable following the issuance of Additional Units, the General Partner shall provide written notice to each of the Limited Partners informing the Limited Partners of the number of Additional Units issued and the identity of the issue.  Notice of such number and such identity shall be deemed to have been given when such information is disclosed in a document publicly filed with the SEC.

(b)            The General Partner may not cause the Partnership to issue Additional Units or other Partnership Interests to itself unless either:

(i)             (A) the Additional Units or additional Partnership Interests are issued in connection with an issuance of shares of the capital stock of the General Partner (including shares of Common Stock issued by the General Partner to the Partnership to satisfy the Partnership’s redemption obligations under Article XI hereof), which shares have designations, preferences and other rights, all such that the economic interests are substantially similar to the designations, preferences and other rights of the Additional Units or additional Partnership Interests issued to the General Partner in accordance with Section 4.3(a) hereof, and (B) except for shares of Common Stock issued by the General Partner to the Partnership to satisfy the Partnership’s redemption obligation under Article XI hereof, the General Partner shall make a Capital Contribution to the Partnership in an amount equal to the net proceeds raised in connection with the issuance of such shares of the General Partner; or

(ii)            the Additional Units or additional Partnership Interests are issued to all Partners pro rata in accordance with their respective Percentage Interests.

(c)            After the date hereof, the General Partner shall not issue any additional shares of Common Stock or Preferred Stock (other than shares of Common Stock or Preferred Stock issued pursuant to Article XI hereof or any exchange right or redemption right applicable to any Preferred Interest), rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock or Preferred Stock (collectively, “New Securities”) other than to all holders of the shares of Common Stock (or, to the extent such New Securities relate to Preferred Stock, to all holders of the shares of Preferred Stock) unless (i) the General Partner shall cause the Partnership to issue to the General Partner Partnership Interest or rights, options warrants or other rights, all such that the economic interests are substantially similar to those of the New Securities, and (ii) the General Partner contributes the proceeds, if any (subject to actual or deemed reimbursement of any expenses, including underwriting discount commission or fees by the Partnership to the General Partner pursuant to Section 7.1 hereof) from the issuance of such New Securities and from the exercise of rights contained in such New Securities to the Partnership. Without limiting the foregoing, the General Partner is expressly authorized to issue New Securities for less than fair market value (so long as the General Partner concludes in good faith that such issuance is in the best interests of the Partnership) and to cause the Partnership to issue to the General Partner corresponding Partnership Interests.

 

 

(d)            Notwithstanding anything contained herein to the contrary, the liability of the Limited Partners shall be limited to the aggregate amount of any capital contributions made by the Limited Partners pursuant to this Agreement.  Except to the extent that additional capital contributions are unanimously approved by the Partners, the Limited Partners shall have no personal liability to contribute or lend money to, or in respect of, the liabilities or the obligations of the Partnership.

(e)            Notwithstanding the provisions of Section 4.3(a) above, there shall be no adjustment of the Percentage Interests of the Partners on account of the additional Capital Contribution by the General Partner to the Partnership of the net proceeds from the sale of the Series F Preferred Stock or of the net proceeds from the sale of the Series G Preferred Stock.

4.4             Options.   If at any time or from time to time Options granted in connection with either any Stock Incentive Plan or the M&M Option Agreement are exercised in accordance with the terms of such Stock Incentive Plans or the M&M Option Agreement or Common Stock is issued pursuant to any stock purchase plan, dividend reinvestment plan or open enrollment plan adopted by the General Partner (as the case may be):

(a)            the General Partner shall, on or about the last business day of each calendar year, contribute to the capital of the Partnership an amount equal to the exercise price paid during such year to the General Partner by such exercising party in connection with the exercise of the Option or the purchase price of the Common Stock issued pursuant to such stock purchase plan or dividend reinvestment plan;

(b)            the General Partner shall be issued Additional Units equal to the number of shares of Common Stock delivered by the General Partner to such exercising party or purchaser;

(c)            the General Partner shall be deemed to have made an additional Capital Contribution, in an amount equal to the Current Per Share Market Price (as of the Trading Date immediately preceding the date on which the exercise price or the purchase price (as the case may be) is contributed to the capital of the Partnership) multiplied by the number of shares of Common Stock delivered by the General Partner to such exercising party or purchaser; and.

(d)            the Percentage Interests of the Partners shall be adjusted in the manner set forth in Section 4.3(a) above.

4.5             Contribution of Proceeds of Issuance of Shares of Common Stock and Preferred Stock . In connection with the issuance of shares of Common Stock or Preferred Stock pursuant to Section 4.3 hereof, the General Partner shall make a Capital Contribution to the Partnership of the proceeds raised in connection with such issuance, provided that if the proceeds actually received by the General Partner are less than the gross proceeds of such issuance as a result of any underwriter’s discount, commission or fee or other expenses paid or incurred in connection with such issuance, then the General Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount of the gross proceeds of such issuance and the Partnership shall be deemed simultaneously to have reimbursed the General Partner pursuant to Section 7.1 hereof for the amount of such underwriter’s discount, commission or fee or other expenses. A redemption of a Partnership Unit, whether by the Partnership or the General Partner, shall not constitute an issuance of shares of Common Stock or Preferred Stock for purposes of this Section 4.5.

 

 

4.6             Admission of Additional Limited Partners.

(a)            After the date hereof, a Person who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) a written agreement in form satisfactory to the General Partner accepting all of the terms and conditions of this Agreement and (ii) such other documents or instruments as may be required in the discretion of the General Partner in order to effect such Person’s admission as an Additional Limited Partner.

(b)            No Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner’s sole and absolute discretion for any or no reason.  The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission.

(c)            If an Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof and all other items allocable among Partners and Assignees for such Fiscal Year shall be allocated among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Fiscal Year in accordance with Section 706(d) of the Code, using any permissible method selected by the General Partner.  Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all Partners and Assignees including such Additional Limited Partner.

(d)            The General Partner shall be authorized on behalf of each of the Partners to amend this Agreement to reflect the admission of any Additional Limited Partner or any increase in the Percentage Interests of any Partner and the corresponding reduction of the Percentage Interests of the other Partners in accordance with the provisions of Section 4.3 hereof and this Section 4.6, and the General Partner shall as soon as practicable thereafter deliver a copy of such amendment to each Limited Partner, provided that, with respect to any such amendment, such amendment shall be deemed to have been delivered when such amendment is publicly filed with the SEC.  Notwithstanding anything contained herein to the contrary, an Additional Limited Partner that acquires Additional Units pursuant to Section 4.3 hereof and this Section 4.6 shall not acquire any interest in, and may not exercise or otherwise participate in, any Rights pursuant to Article XI and attached Exhibit I.  At the sole election of the General Partner, such Additional Limited Partner may be provided with conversion rights similar to the Rights (with such modifications to the same as the General Partner shall require), provided that any such rights shall provide that, upon the exercise of any such rights by such Additional Limited Partner, at the option of the General Partner, the Partnership may redeem for the Cash Amount any Partnership Units for which conversion is requested (provided that, for such purposes, the Cash Amount shall be determined based on the average of the Closing Prices for the ten (10) trading days immediately prior to the date on which such rights are exercised by such Additional Limited Partner, unless the provisions of Section 7(c) of Exhibit I are applicable, in which event the provisions of Section 7(c) shall determine the calculation of the Cash Amount).  The General Partner shall notify the Limited Partners of such acquisition of Rights as soon as reasonably practicable after the occurrence thereof, provided that such notification shall be deemed to have been given when such acquisition of Rights is disclosed in a document publicly filed with the SEC.

 

 

(e)            Effective immediately prior to the effectiveness of the next succeeding sentence, the capital accounts of the Partnership were adjusted to reflect each Partner’s share of the net fair market value of the Partnership’s assets (a “book-up”) by adjusting the Gross Asset Values of all Partnership assets to their respective gross fair market values and allocating the amount of such adjustment as Net Property Gain or Net Property Loss pursuant to Exhibit E hereof.  Effective as of June 28, 2001, each of the Series Z Partners was hereby admitted as an Additional Limited Partner in accordance with Section 4.6 of this Agreement holding that number of Series Z Incentive Units as is set forth next to his or her name on Exhibit Q.

(f)             Effective immediately prior to the initial issuance of the Series Z-1 Incentive Units and the admission of the initial Series Z-1 Partners as Additional Limited Partners, the capital accounts of the Partnership were adjusted to reflect each Partner’s share of the net fair market value of the Partnership’s assets (a “book-up”) by adjusting the Gross Asset Values of all Partnership assets to their respective gross fair market values and allocating the amount of such adjustment as Net Property Gain or Net Property Loss pursuant to Exhibit E hereof. Each person who is issued a Series Z-1 Incentive Unit shall (a) make a Capital Commitment to the Partnership in the amount of $1.00 per Unit and (b) be admitted as an Additional Limited Partner in accordance with Sections 4.3 and 4.6 of this Agreement, holding that number of Series Z-1 Incentive Units as is set forth next to his or her name on Exhibit R. It is the intention of the Partnership that only directors, officers or other employees of the General Partner shall be issued Series Z-1 Incentive Units and only such persons may become Series Z-1 Partners. At the Partnership’s election, taking into account the provisions of Section 402 of the Sarbanes-Oxley Act of 2002, the Partnership may allow a Series Z-1 Partner to have a positive Series Z-1 Clawback Amount; provided, however, that prior to a Series Z-1 Partner becoming a director or executive officer of the General Partner, within the meaning of Section 402 of the Sarbanes-Oxley Act of 2002, as amended, such Series Z-1 Partner shall pay to the Partnership the aggregate Capital Commitment for the Series Z-1 Incentive Units that have been issued to such Series Z-1 Partner. If the Partnership does not elect to allow a Series Z-1 Partner to have such a positive Series Z-1 Clawback Amount, then upon the issuance of any Series Z-1 Incentive Units to such Series Z-1 Partner, the Capital Commitment calculated on a unit-by-unit basis for such Series Z-1 Incentive Units shall be immediately due and payable to the Partnership. Each person who is issued a Series Z-1 Incentive Unit shall become a party to this Agreement as a Limited Partner and shall be bound by all the terms, conditions and other provisions of this Agreement. Pursuant to Section 4.6(b) of this Agreement, the General Partner hereby consents to the admission of each Person who is issued a Series Z-1 Incentive Unit as an Additional Limited Partner of the Partnership. The admission of a Series Z-1 Partner shall become effective as of the date such Series Z-1 Partner has executed a counterpart signature page to the relevant amendment to the Amended and Restated Agreement, or executes a counterpart signature page to this Agreement (and such other written agreements as the General Partner may require), which shall also be the date on which the name of a Series Z-1 Partner is recorded on the books and records of the Partnership. The admission of a Series Z-1 Partner shall not require the consent or approval of any other Limited Partner.

 

 

4.7             No Third Party Beneficiary.   No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the Partners and their respective successors and assigns.  None of the rights or obligations of the Partners herein set forth to make Capital Contributions to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners.

4.8             No Interest; No Return.   No Partner shall be entitled to interest on its Capital Contribution or on such Partner’s Capital Account.  Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership.

ARTICLE V

 

[INTENTIONALLY OMITTED]

ARTICLE VI

ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS

6.1             Allocations.   Net Income, Net Loss and/or other Partnership items shall be allocated pursuant to the provisions of attached Exhibit E.

6.2             Distributions.   The General Partner shall cause the Partnership to distribute all or a portion of Available Cash to the Partners from time to time as determined by the General Partner, but in any event not less frequently than quarterly in such amounts as the General Partner shall determine; provided, however, that notwithstanding the foregoing, the General Partner shall use its best efforts to cause the Partnership to distribute sufficient amounts to enable the General Partner to pay shareholder dividends that will (1) satisfy the requirements for qualifying as a REIT under the Code and Regulations (“REIT Requirements”), and (2) avoid any federal income or excise tax liability of the General Partner; and provided further, that all such distributions shall be made in accordance with the provisions of this Section 6.2.

 

 

(a)            Distributions shall be made in accordance with the following order of priority:

(i)             First, on a pro rata basis, (based upon the same ratio that accrued distributions per share of Series B Preferred Stock, Series F Preferred Stock and Series G Preferred Stock and per unit of Series B Preferred Units (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such stock or units do not have cumulative distribution rights) bear to each other) (w) to the General Partner, on account of the Series B Preferred Interest, Series F Preferred Interest and Series G Preferred Interest until the total amount of distributions made pursuant to this Section 6.2(a)(i)(w) equals the total amount of accrued but unpaid distributions (if any) payable with respect to the Series B Preferred Stock, the Series F Preferred Stock and Series G Preferred Stock as of the date of such distribution; and (y) to the Limited Partners holding Series B Preferred Units, on account of the Series B Preferred Units until the total amount of distributions made pursuant to this Section 6.2(a)(i)(y) equals the total amount of accrued but unpaid distributions (if any) payable with respect to the Series B Preferred Units, in accordance with Exhibit N of the Partnership Agreement, as of the date of such distribution.

(ii)            Next, to the Partners, pro rata in accordance with the Partners’ then Percentage Interests.

Neither the Partnership nor the Limited Partners shall have any obligation to see that any funds distributed to the General Partner pursuant to subparagraph (a)(i) of this Section 6.2 are in turn used by the General Partner to pay dividends on the Series B Preferred Stock, the Series F Preferred Stock or the Series G Preferred Stock (or any other Preferred Stock) or that funds distributed to the General Partner pursuant to subparagraph (a)(ii) of this Section 6.2 are in turn used by the General Partner to pay dividends on the Common Stock or for any other purpose.

(b)            Upon the receipt by the General Partner of each Exercise Notice pursuant to which one or more Limited Partners exercise Rights in accordance with the provisions of Article XI hereof, the General Partner shall, unless the General Partner is required or elects only to issue Common Stock to such exercising Limited Partners, cause the Partnership to distribute to the Partners all or a portion of Available Cash, which distribution shall be made prior to the closing of the purchase and sale of the Offered Units specified in such Exercise Notice, and which distribution shall be made in accordance with subparagraph (a) of this Section 6.2.  Notwithstanding the foregoing, the General Partner shall have the right in its sole discretion to delay the actual distribution of Available Cash to the Partners required by this Section 6.2(b) until the next scheduled distribution of Available Cash.

(c)            Notwithstanding the foregoing, the General Partner may, in its sole discretion, at any time when any Preferred Stock (including any Series B Preferred Stock, Series F Preferred Stock, Series G Preferred Stock or any other Preferred Stock) is outstanding, make a special distribution to itself, alone, on account of the Preferred Interest relating to such Preferred Stock, for the sole purpose of, and in an amount no greater than such amount as will be used by the General Partner for, redemption of all or any part of such outstanding Preferred Stock (any such distribution shall be referred to as a “Redemption Distribution”). There shall be no adjustments of the Percentage Interests of the Partners on account of any Redemption Distribution.

 

 

(d)            Notwithstanding the foregoing, at any time that the Clawback Amount with respect to a Series Z Incentive Unit is greater than zero, then, to the extent of such Clawback Amount, the distributions otherwise provided for by this Section with respect to such Series Z Incentive Unit shall not be paid in cash and shall instead be deemed to offset the applicable Series Z Partners’ unpaid Capital Commitment and thereby reduce the then existing Clawback Amount with respect to such Series Z Incentive Unit in an amount equal to the distributions that would have otherwise been paid with respect to such Series Z Incentive Unit.

(e)            Notwithstanding the foregoing, at any time that the Series Z-1 Clawback Amount with respect to a Series Z-1 Incentive Unit is greater than zero, then, to the extent of such Series Z-1 Clawback Amount, the distributions otherwise provided for by this Section with respect to such Series Z-1 Incentive Unit shall not be paid in cash and shall instead be deemed to offset the applicable Series Z-1 Partners’ unpaid Capital Commitment and thereby reduce the then existing Series Z-1 Clawback Amount with respect to such Series Z-1 Incentive Unit in an amount equal to the distributions that would have otherwise been paid with respect to such Series Z-1 Incentive Unit.

(f)             Distributions made pursuant to this Section 6.2 shall be adjusted as necessary to ensure that the amount apportioned to each LTIP Unit does not exceed the amount attributable to items of Partnership income or gain realized after the date such LTIP Unit was issued by the Partnership. The intent of this Section 6.2(f) is to ensure that any LTIP Units issued after the date of the 2007 Outperformance Plan qualify as “profits interests” under Revenue Procedure 93-27, 1993-2 C.B. 343 (June 9, 1993) and Revenue Procedure 2001-43, 2001-2 C.B. 191 (August 3, 2001), and Section 6.2 shall be interpreted and applied consistently therewith. The General Partner at its discretion may amend this Section 6.2(f) to ensure that any LTIP Units granted after the date of the 2007 Outperformance Plan will qualify as “profits interests” under Revenue Procedure 93-27, 1993-2 C.B. 343 (June 9, 1993) and Revenue Procedure 2001-43, 2001-2 C.B. 191 (August 3, 2001) (and any other similar rulings or regulations that may be in effect at such time).

(g)            Limitation on Distributions.  Notwithstanding anything to the contrary in this Agreement, a holder of Series Z Incentive Units, Series Z-1 Incentive Units or LTIP Units shall receive cash distributions only to the extent that there have been allocations of Net Income to such holder pursuant to Exhibit E of this Agreement.

(h)            Notwithstanding anything to the contrary in this Agreement, a holder of LTIP Units may convert all or a portion of his or her Vested LTIP Units into Common Units, a holder of Series Z Incentive Units may convert all or a portion of his or her vested Series Z Incentive Units into Common Units, and a holder of Series Z-1 Incentive Units may convert all or a portion of his or her vested Series Z-1 Incentive Units into Common Units, only to the extent of the balance in such holder’s Capital Account, after giving effect to any adjustments to or “book ups” of such Capital Account pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)( f ) in connection with, but not limited to, the occurrence of the events set forth in Section 3(g) of Exhibit E of this Agreement.

 

 

6.3             Withholding.   The General Partner may withhold taxes from any allocation or distribution to any Partner to the extent required by the Code or any other applicable law.  For purposes of this Agreement, any taxes so withheld by the Partnership shall be deemed to be a distribution or payment to such Partner, reduce the amount otherwise distributable or allocable to such Partner pursuant to this Agreement and reduce the Capital Account of such Partner.

6.4             Books of Account.   At all times during the continuance of the Partnership, the General Partner shall maintain or cause to be maintained full, true, complete and correct books of account in accordance with generally accepted accounting principles wherein shall be entered particulars of all monies, goods or effects belonging to or owing to or by the Partnership, or paid, received, sold or purchased in the course of the Partnership’s business, and all of such other transactions, matters and things relating to the business of the Partnership as are usually entered in books of account kept by persons engaged in a business of a like kind and character.  In addition, the Partnership shall keep all records as required to be kept pursuant to the Act.  The books and records of account shall be kept at the principal office of the Partnership, and each Partner shall at all reasonable times have access to such books and records and the right to inspect the same.

6.5             Reports.   The General Partner shall cause to be submitted to the Limited Partners promptly upon receipt of the same from the Accountants and in no event later than April 1 of each year, copies of Audited Financial Statements prepared on a consolidated basis for the Partnership, EWIP and any of the other Investment Entities, the Washington Partnerships, and the Property Manager as well as any other Entities that the General Partner deems appropriate to consolidate with the foregoing, together with the reports thereon, and all supplementary schedules and information, prepared by the Accountants.  The Partnership shall also cause to be prepared such reports and/or information as are necessary for the General Partner to determine its qualification as a REIT and its compliance with REIT Requirements.

6.6             Audits.   Not less frequently than annually, the books and records of the Partnership shall be audited by the Accountants.

6.7             Tax Elections and Returns.   All elections required or permitted to be made by the Partnership under any applicable tax law shall be made by the General Partner in its sole discretion; provided, however, the General Partner shall, if requested by a transferee, file an election on behalf of the Partnership pursuant to Section 754 of the Code to adjust the basis of the Partnership property in the case of a transfer of a Partnership Interest, including transfers made in connection with the exercise of Rights, made in accordance with the provisions of this Agreement.  The General Partner shall cause the Accountants to prepare and file all state and federal tax returns on a timely basis.  The General Partner shall cause the Accountants to prepare and submit to the Limited Partners on or before April 1 of each year for review all federal and state income tax returns of the Partnership.  If a Majority-in-Interest of the Limited Partners determines that any modifications to the tax returns of the Partnership should be considered, such Limited Partners shall, within thirty (30) days following receipt of such tax returns from the Accountants or the General Partner, indicate to the Accountants the suggested revisions to the tax returns, which returns shall be resubmitted to the Limited Partners for their review (but not approval).  The Limited Partners shall complete their review of the resubmitted returns within ten (10) days after receipt thereof from the Accountants or the General Partner.  The General Partner shall consult in good faith with the Limited Partners regarding any proposed modifications to the tax returns of the Partnership.  A statement of the allocation of Net Income or Loss of the Partnership shown on the annual income tax returns prepared by the Accountants shall be transmitted and delivered to the Limited Partners within ten (10) days of the receipt thereof by the Partnership.  The General Partner shall be responsible for preparing and filing all federal and state tax returns for the Partnership and furnishing copies thereof to the Partners, together with required Partnership schedules showing allocations of tax items and copies of the tax returns of the Washington Partnerships, EWIP and other Investment Entities, as well as, to the extent appropriate, all other Entities in which the Partnership or any of the foregoing has an equity interest, all within the period of time prescribed by law.

 

 

6.8             Tax Matters Partner.   The General Partner has been designated and shall continue to be the tax matters partner (the “Tax Matters Partner”) within the meaning of Section 6231(a)(7) of the Code for the Partnership; provided, however, (i) in exercising its authority as Tax Matters Partner it shall be limited by the provisions of this Agreement affecting tax aspects of the Partnership; (ii) the General Partner shall consult in good faith with the Limited Partners regarding the filing of a Code Section 6227(b) administrative adjustment request with respect to the Partnership or a Property before filing such request, it being understood, however, that the provisions hereof shall not be construed to limit the ability of any Partner, including the General Partner, to file an administrative adjustment request on its own behalf pursuant to Section 6227(a) of the Code; (iii) the General Partner shall consult in good faith with the Limited Partners regarding the filing of a petition for judicial review of an administrative adjustment request under Section 6228 of the Code, or a petition for judicial review of a final partnership administrative judgment under Section 6226 of the Code relating to the Partnership before filing such petition; (iv) the General Partner shall give prompt notice to the Limited Partners of the receipt of any written notice that the Internal Revenue Service or any state or local taxing authority intends to examine Partnership income tax returns for any year, receipt of written notice of the beginning of an administrative proceeding at the Partnership level relating to the Partnership under Section 6223 of the Code, receipt of written notice of the final Partnership administrative adjustment relating to the Partnership pursuant to Section 6223 of the Code, and receipt of any request from the Internal Revenue Service for waiver of any applicable statute of limitations with respect to the filing of any tax return by the Partnership; and (v) the General Partner shall promptly notify the Limited Partners if the General Partner does not intend to file for judicial review with respect to the Partnership.

 

 

ARTICLE VII

RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER

7.1             Expenditures by Partnership.   The General Partner is hereby authorized to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Partnership.  All of the aforesaid expenditures shall be made on behalf of the Partnership, and the General Partner shall be entitled to reimbursement by the Partnership for any expenditures incurred by it on behalf of the Partnership which shall be made other than out of the funds of the Partnership.  The Partnership shall also assume, and pay when due, all Administrative Expenses.

7.2             Powers and Duties of General Partner.   The General Partner shall be responsible for the management of the Partnership’s business and affairs.  Except as otherwise herein expressly provided, and subject to the limitations contained in Section 7.3 hereof with respect to Major Decisions and the limitations set forth in Section 9.1 hereof, the General Partner has and shall have full and complete power, authority and discretion to take such action for and on behalf of the Partnership and in its name as the General Partner shall, in its sole and absolute discretion, deem necessary or appropriate to carry out the purposes for which the Partnership was organized.  Except as otherwise expressly provided herein, and subject to Section 7.3 hereof, the General Partner shall have the right, power and authority:

(a)            To manage, control, invest, reinvest, acquire by purchase, lease, exchange or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise options to purchase, options to sell or conversion rights, assign, transfer, convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, repair, maintain, insure, lease for any term and otherwise deal with any and all property of whatsoever kind and nature, and wheresoever situated, in furtherance of the purposes of the Partnership;

(b)            To acquire, directly or indirectly, interests in real estate or entities owning real estate of any kind and of any type, and any and all kinds of interests therein (whether through direct ownership, partnerships, security interests or any other type of interests), and to determine the manner in which title thereto is to be held; to manage, insure against loss, protect and subdivide any of the real estate, interests therein or parts thereof; to improve, develop or redevelop any such real estate; to participate in the ownership and development of any property; to dedicate for public use, to vacate any subdivisions or parts thereof, to re-subdivide, to contract to sell or exchange, to grant options to purchase, lease or exchange, to sell or exchange on any terms; to convey, to mortgage or receive mortgages, pledge or otherwise encumber said property, or any part thereof; to lease said property or any part thereof from time to time, upon any terms and for any period of time, and to renew or extend leases, to amend, change or modify the terms and provisions or any leases and to grant options to lease and options to renew leases and options to purchase; to partition or to exchange said real property, or any part thereof, for other real or personal property; to grant easements or charges of any kind; to release, convey or assign any right, title or interest in or about or easement appurtenant to said property or any part thereof; to construct and reconstruct, remodel, alter, repair, add to or take from buildings on any real property in which the Partnership owns an interest; to insure any Person having an interest in or responsibility for the care, management or repair of such property; to direct the trustee of any land trust to mortgage, lease, convey or contract to convey the real estate held in such land trust or to execute and deliver deeds, mortgages, notes, and any and all documents pertaining to the property subject to such land trust or in any matter regarding such trust; to execute assignments of all or any part of the beneficial interest in any land trust in which the Partnership owns a beneficial interest;

 

 

(c)            To employ, engage or contract with or dismiss from employment or engagement Persons to the extent deemed necessary by the General Partner for the operation and management of the Partnership business, including but not limited to, contractors, subcontractors, engineers, architects, surveyors, mechanics, consultants, accountants, attorneys, insurance brokers, real estate brokers and others;

(d)            To negotiate and enter into contracts on behalf of the Partnership that the General Partner considers useful or necessary to the conduct of the Partnership’s operations or implementation of the General Partner’s powers under this Agreement;

(e)            To enter into, make, amend, perform and carry out or cancel and rescind, contracts and other obligations, including, without limitation, guarantees and indemnity agreements, for any purpose pertaining to the business of the Partnership, the Washington Partnerships, EWIP, any other Investment Entities and the Property Manager as well as any other Entity in which the Partnership or any of the other foregoing Entities has an equity interest; and to loan money to, borrow money from and engage in transactions with Affiliates of the Partnership or any other Person;

(f)             To borrow money, procure loans and advances from any Person for Partnership purposes, and to apply for and secure, from any Person, credit or accommodations; to contract liabilities and obligations, direct or contingent and of every kind and nature with or without security; and to repay, discharge, settle, adjust, compromise, or liquidate any such loan, advance, credit, obligation or liability;

(g)            To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale and leaseback arrangements or otherwise give as security or as additional or substitute security, or for sale or other disposition any and all Partnership property, tangible or intangible, including, but not limited to, real estate and beneficial interests in land trusts, and to make substitutions thereof, and to receive any proceeds thereof upon the release or surrender thereof; to sign, execute and deliver any and all assignments, deeds and other contracts and instruments in writing; to authorize, give, make, procure, accept and receive moneys, payments, property, notices, demands, vouchers, receipts, releases, compromises and adjustments; to waive notices, demands, protests and authorize and execute waivers of every kind and nature; to enter into, make, execute, deliver and receive written agreements, undertakings and instruments of every kind and nature; to give oral instructions and make oral agreements; and generally to do any and all other acts and things incidental to any of the foregoing or with reference to any dealings or transactions which the General Partner may deem necessary, proper or advisable to effect or accomplish any of the foregoing;

 

 

(h)            To acquire and enter into any contract of insurance which the General Partner deems necessary or appropriate for the protection of the Partnership, for the conservation of the Partnership’s assets or for any purpose convenient or beneficial to the Partnership;

(i)             To conduct any and all banking transactions on behalf of the Partnership; to adjust and settle checking, savings, and other accounts with such institutions as the General Partner shall deem appropriate; to draw, sign, execute, accept, endorse, guarantee, deliver, receive and pay any checks, drafts, bills of exchange, acceptances, notes, obligations, undertakings and other instruments for or relating to the payment of money in, into, or from any account in the Partnership’s name; to execute, procure, consent to and authorize extensions and renewals of any of the foregoing; to make deposits into and withdrawals from the Partnership’s bank accounts and to negotiate or discount commercial paper, acceptances, negotiable instruments, bills of exchange and dollar drafts;

(j)             To demand, sue for, receive, and otherwise take steps to collect or recover all debts, rents, proceeds, interest, dividends, goods, chattels, income from property, damages and all other property, to which the Partnership may be entitled or which are or may become due the Partnership from any Person; to commence, prosecute or enforce, or to defend, answer or oppose, contest and abandon all legal proceedings in which the Partnership is or may hereafter be interested; and to settle, compromise or submit to arbitration any accounts, debts, claims, disputes and matters which may arise between the Partnership and any other Person and to grant an extension of time for the payment or satisfaction thereof on any terms, with or without security;

(k)            To make arrangements for financing, including the taking of all action deemed necessary or appropriate by the General Partner to cause any approved loans to be closed;

(l)             To take all reasonable measures necessary to insure compliance by the Partnership with applicable arrangements, and other contractual obligations and arrangements entered into by the Partnership from time to time in accordance with the provisions of this Agreement, including periodic reports as required to be submitted to lenders and using all due diligence to insure that the Partnership is in compliance with its contractual obligations;

(m)           To maintain the Partnership’s books and records;

(n)            To prepare and deliver, or cause to be prepared and delivered by th