<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES AND EXCHANGE ACT of 1934
January 15, 1998 (December 29, 1997)
Date of Report (Date of Earliest Event Reported)
PRENTISS PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 1-14516 75-2661588
- ---------------------------- ------- --------------------
(State or other jurisdiction (Commission File No.) I.R.S. Employer
of incorporation) (Identification No.)
3890 West Northwest Highway, Suite 400
Dallas, Texas 75220
(Address of principal executive offices)
(214) 654-0886
(Registrant's telephone number, including area code)
N/A
(former name or former address, if changed since last report)
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<PAGE>
Item 5. OTHER EVENTS
On December 18, 1997, the Company amended its Articles of Incorporation
(such amendment, the "Articles Supplementary") and on December 29, 1997, the
Operating Partnership amended its Second Amended and Restated Agreement of
Limited Partnership (see Exhibits 3.1 and 4.1) to designate and establish the
rights and privileges of the Series A Cumulative Convertible Redeemable
Preferred Stock ("Preferred Shares") and Series A Cumulative Convertible
Redeemable Preferred Units ("Preferred Units"), respectively. Rights of holders
of the Preferred Shares include voting, dividend and liquidation preferences
over the holders of common shares of beneficial interest of the Company, par
value $.01 per share (the "Common Shares"), including the right to elect two
additional Directors if, for two consecutive quarters, (i) dividends on
Preferred Shares are in arrears, (ii) the Company fails to pay dividends on the
Common Shares in an amount per share at least equal to $0.38 for two consecutive
quarters or (iii) the Company fails to maintain a ratio of Consolidated EBITDA
to Consolidated Fixed Charges (each as defined in the Articles Supplementary) of
at least 1.75.
Dividends on the Preferred Shares are cumulative from the date of original
issue and are payable quarterly at the greater of $1.60 per share or the rate
declared on the Common Shares. No dividends will be declared or paid on any
class of common or other junior stock to the extent that dividends on Preferred
Shares have not been declared and/or paid. The Preferred Shares are not
redeemable prior to December 29, 2004. On or after December 29, 2004, the
Company, at its option, may redeem the Preferred Shares for cash at a redemption
price of $26.50 per share, plus accrued and unpaid dividends. The Company may
elect to make such redemption with Common Shares on a one-for-one basis, subject
to certain limitations. After November 1, 1998, the investor may elect to
convert the Preferred Shares into shares of common stock on a one-for-one basis
subject to certain limitations. Prior to November 1, 1998, the Preferred Shares
will not be convertible unless the Company undergoes a change in control, as
defined by the agreement, or fails to qualify as a REIT for tax purposes.
On December 2, 1997, the Company agreed to sell 3,773,585 Preferred Shares
to Security Capital Preferred Growth Incorporated ("SCPG"), at $26.50 per share,
for total proceeds of $100.0 million. On December 29, 1997, the Company closed
on the sale of 2,830,189 Preferred Shares to SCPG for proceeds of $75.0 million,
excluding approximately $800,000 in offering costs. The Company contributed the
net proceeds of the sale of Preferred Shares to the Operating Partnership in
exchange for an equal number of Preferred Units. The remainder of the Preferred
Shares will be issued and sold to SCPG by the Company on or before March 31,
1998.
The agreement also contains a covenant to repurchase the Preferred Shares
(or any shares of Common Shares received by the investor upon conversion of the
Preferred Shares) (i) at a purchase price of 110% of the liquidation preference
if the Company fails to continue to be taxed as a REIT or (ii) at a purchase
price of 100% of the liquidation preference in the event a Change of Control (as
defined in the Articles Supplementary ) occurs.
<PAGE>
The Company believes that such offering and sale was exempt from
registration under the Securities Act of 1933, as amended (the "Securities Act")
by virtue of Section 4(2) of the Securities Act.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) EXHIBITS.
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit Description
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<S> <C>
3.1 Articles Supplementary, dated December 18, 1997,
Classifying and Designating a Series of Preferred
Shares of Beneficial Interest as Series A Cumulative
Convertible Redeemable Preferred Shares of Beneficial
Interest and Fixing Distribution and Other Preferences
and Rights of Such Shares
4.1 First Amendment, dated December 29, 1997, to Second
Amended and Restated Agreement of Limited Partnership
of Prentiss Properties Acquisition Partners, L.P.
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
PRENTISS PROPERTIES TRUST
Date: January 15, 1998
By: /s/ Michael Ernst
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Michael Ernst
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Vice President and Treasurer
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<PAGE>
EXHIBIT INDEX
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<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1 Articles Supplementary of the Board of Trustees, dated
December 18, 1997, Classifying and Designating a Series of
Preferred Shares of Beneficial Interest as Series A
Cumulative Convertible Redeemable Preferred Shares of
Beneficial Interest and Fixing Distribution and Other
Preferences and Rights of Such Shares
4.1 First Amendment, dated December 29, 1997, to Amended and
Restated Agreement of Limited Partnership of Prentiss
Properties Acquisition Partners, L.P.
</TABLE>
<PAGE>
Exhibit 3.1
PRENTISS PROPERTIES TRUST
============================
Articles Supplementary of Board of Trustees
Classifying and Designating a Series of
Preferred Shares of Beneficial Interest as
Series A Cumulative Convertible Redeemable
Preferred Shares of Beneficial Interest and
Fixing Distribution and Other Preferences
and Rights of Such Series
============================
Prentiss Properties Trust, a Maryland real estate investment trust (the
"Trust"), hereby certifies to the State Department of Assessments and Taxation
of Maryland pursuant to section 8-203(b) of the Corporations and Associations
Article of the Annotated Code of Maryland that:
FIRST: Pursuant to authority granted by the Amended and Restated
Declaration of Trust of the Trust (the "Declaration"), the Board of Trustees on
December 5, 1997 adopted a resolution designating and classifying 3,773,585
unissued and unclassified preferred shares of beneficial interest of the Trust
as Series A Cumulative Convertible Redeemable Preferred Shares of Beneficial
Interest.
SECOND: The following is a description of the Series A Cumulative
Convertible Redeemable Preferred Shares of Beneficial Interest of the Trust (the
"Series A Preferred Shares"), including the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends and other
distributions, qualifications, and terms and conditions of redemption thereof,
which, upon any restatement of the Declaration of Trust, may be made a part of
Article VI of the Declaration with any appropriate changes in enumeration or
lettering of any section or subsections thereof:
Section 1. Number of Shares and Designation. This class of preferred shares
--------------------------------
of beneficial interest shall be designated as Series A Cumulative Convertible
Redeemable Preferred Shares of Beneficial Interest and the number of shares
which shall constitute such series shall not be more than 3,773,585 shares, par
value $0.01 per share, which number may be decreased (but not below the
aggregate number thereof then outstanding and/or which have been reserved for
issuance) from time to time by the Board of Trustees.
<PAGE>
Section 2. Definitions. For purposes of the Series A Preferred Shares, the
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following terms shall have the meanings indicated:
"Board of Trustees" shall mean the Board of Trustees of the Trust or
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any committee authorized by such Board of Trustees to perform any of its
responsibilities with respect to the Series A Preferred Shares.
"Business Day" shall mean any day, other than a Saturday or Sunday,
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that is neither a legal holiday nor a day on which banking institutions in
New York City, New York are authorized or required by law, regulation or
executive order to close.
"Call Date" shall mean the date specified in the notice to holders
---------
required under Section 5(d) as the Call Date.
"Change of Control" shall have the meaning set forth in Section 6(a).
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"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Common Shares" shall mean the common shares of beneficial interest,
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par value $0.01 per share, of the Trust.
"Constituent Person" shall have the meaning set forth in Section 6(e).
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"Conversion Date" shall have the meaning set forth in Section 6(a).
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"Conversion Price" shall mean the conversion price per Common Share
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for which the Series A Preferred Shares are convertible, as such Conversion
Price may be adjusted pursuant to Section 6. The initial conversion price
shall be $26.50.
"Current Market Price" of publicly traded Common Shares or any other
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class of shares of beneficial interest or other security of the Trust or
any other issuer for any day shall mean the last reported sales price,
regular way, on such day, or, if no sale takes place on such day, the
average of the reported closing bid and asked prices on such day, regular
way, in either case as reported on the New York Stock Exchange ("NYSE") or,
if such security is not listed or admitted for trading on the NYSE, on the
principal national securities exchange on which such security is listed or
admitted for trading or, if not listed or admitted for trading on any
national securities exchange, on the NASDAQ National Market ("NASDAQ") or,
if such security is not quoted on NASDAQ, the average of the closing bid
and asked prices on such day in the over-the-counter market as reported by
the National Association of Securities Dealers, Inc. (the "NASD") or, if
bid and asked prices for such security on such clay shall not have been
reported through the NASD, the average of the bid and asked prices on such
day as furnished by any NYSE member firm regularly making a market in such
security selected for such purpose by the Board of Trustees.
<PAGE>
"Dividend Payment Date" shall mean (i) for any Dividend Period with
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respect to which the Trust pays a dividend on the Common Shares, the date
on which such dividend is paid, or (ii) for any Dividend Period with
respect to which the Trust does not pay a dividend on the Common Shares, a
date to be set by the Board of Trustees, which date shall not be later than
the thirtieth calendar day after the end of the applicable Dividend Period.
"Dividend Periods" shall mean quarterly dividend periods commencing on
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January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period with respect to any Series A Preferred Shares (other than the
initial Dividend Period, which shall commence on the Issue Date for such
Series A Preferred Shares and end on and include the last day of the
calendar quarter immediately following such Issue Date, and other than the
Dividend Period during which any Series A Preferred Shares shall be
redeemed pursuant to Section 5 or converted pursuant to Section 6, which
shall end on and include the Call Date with respect to the Series A
Preferred Shares being redeemed).
"Expiration Time" shall have the meaning set forth in Section
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6(d)(iv).
"Fair Market Value" shall mean the average of the daily Current Market
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Prices of a Common Share on the five (5) consecutive Trading Days selected
by the Trust commencing not more than 20 Trading Days before, and ending
not later than, the earlier of the day in question and the day before the
"ex date" with respect to the issuance or distribution requiring such
computation. The term "ex date," when used with respect to any issuance or
distribution, means the first day on which the Common Shares trade regular
way, without the right to receive such issuance or distribution, on the
exchange or in the market, as the case may be, used to determine that day's
Current Market Price.
"Fully Junior Shares" shall mean the Common Shares and any other class
-------------------
or series of shares of beneficial interest of the Trust now or hereafter
issued and outstanding over which the Series A Preferred Shares have
preference or priority in both (i) the payment of dividends and (ii) the
distribution of assets on any liquidation, dissolution or winding up of the
Trust.
"Funds from Operations" shall mean net income (loss) (computed in
---------------------
accordance with generally accepted accounting principles) excluding gains
(or losses) from debt restructuring, and distributions in excess of
earnings allocated to other Operating Partnership interests or minority
interests (as reflected in the financial statements of the Trust) plus
depreciation/amortization of assets unique to the real estate industry, all
computed in a manner consistent with the revised definition of Funds From
Operations adopted by the National Association of Real Estate Investment
Trusts (NAREIT), in its White Paper dated March 1995, as such definitions
may be modified from time to time, as determined by the Trust in good
faith.
<PAGE>
"Issue Date" shall mean the date on which the Series A Preferred
----------
Shares are issued.
"Issue Price" shall mean $26.50 per Series A Preferred Share.
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"Junior Shares" shall mean the Common Shares and any other class or
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series of shares of beneficial interest of the Trust now or hereafter
issued and outstanding over which the Series A Preferred Shares have
preference or priority in the payment of dividends or in the distribution
of assets on any liquidation, dissolution or winding up of the Trust.
"Non-Electing Share" shall have the meaning set forth in Section 6(e).
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"Operating Partnership" shall mean Prentiss Properties Acquisition
---------------------
Partners, L.P., a Delaware limited partnership.
"Parity, Shares" shall have the meaning set forth in Section 9(b).
--------------
"Person" shall mean any individual, firm, partnership, corporation,
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limited liability company, trust or other entity, and shall include any
successor (by merger or otherwise) of such entity.
"Purchased Shares" shall have the meaning set forth in Section
----------------
6(d)(iv).
"REIT Termination Event" shall mean the earliest to occur of:
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(i) the filing of a federal income tax return by the Trust for any
taxable year on which the Trust does not compute its income as a
real estate investment trust;
(ii) the approval by the shareholders of the Trust of a proposal for
the Trust to cease to qualify as a real estate investment trust;
(iii) a determination by the Board of Trustees of the Trust, based on
the advice of counsel, that the Trust has ceased to qualify as a
real estate investment trust; or
(iv) a "determination" within the meaning of Section 1313(a) of the
Code that the Trust has ceased to qualify as a real estate
investment trust.
"Securities" and "Security" shall have the meanings set forth in
---------- --------
Section 6(d)(iii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
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<PAGE>
"Series A Preferred Shares" shall have the meaning given such term in
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the preamble to these Articles Supplementary.
"set apart for payment" shall be deemed to include, without any action
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other than the following, the recording by the Trust in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to
a declaration of dividends or other distribution by the Board of Trustees,
the allocation of funds to be so paid on any series or class of shares of
beneficial interest of the Trust; provided, however, that if any funds for
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any class or series of Junior Shares or any class or series of shares of
beneficial interest ranking on a parity with the Series A Preferred Shares
as to the payment of dividends are placed in a separate account of the
Trust or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Series A Preferred Shares shall
mean placing such funds in a separate account or delivering such funds to a
disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in question
-----------
are traded on the NYSE, or if such securities are not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on NASDAQ, or if such
securities are not quoted on NASDAQ, in the securities market in which the
securities are traded.
"Transaction" shall have the meaning set forth in Section 6(e).
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"Transfer Agent" shall mean the Trust, or such other agent or agents
--------------
of the Trust as may be designated by the Board of Trustees or their
designee as the transfer agent, registrar and dividend disbursing agent for
the Series A Preferred Shares.
Capitalized terms not otherwise defined herein have the meanings ascribed to
them in the Declaration.
Section 3. Dividends.
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(a) Subject to the preferential rights of the holders of any
Preferred Shares that rank senior in the payment of dividends to the Series
A Preferred Shares, the holders of Series A Preferred Shares shall be
entitled to receive, when, as and if declared by the Board of Trustees, out
of funds legally available for the payment of dividends, cumulative
preferential dividends payable in cash in an amount per share equal to the
greater of (i) an annual dividend of $1.60 or (ii) the regular cash
dividends (determined on each Dividend Payment Date) on the Common Shares,
or portion thereof, into which a Series A Preferred Share is convertible.
The dividends referred to in clause (ii) of the preceding sentence shall
equal the number of Common Shares, or portion thereof, into
<PAGE>
which one Series A Preferred Share will be convertible on or after the
Conversion Date, multiplied by the most current quarterly dividend on one
Common Share on or before the applicable Dividend Payment Date. If the
Trust pays a regular cash dividend on the Common Shares with respect to a
Dividend Period after the date on which the Dividend Payment Date is
declared pursuant to clause (ii) of the definition of Dividend Payment Date
and the dividend calculated pursuant to clause (ii) of this paragraph (a)
with respect to such Dividend Period is greater than the dividend
previously declared on the Series A Preferred Shares with respect to such
Dividend Period, the Trust shall pay an additional dividend to the holders
of the Series A Preferred Shares on the date on which the dividend on the
Common Shares is paid, in an amount equal to the difference between (y) the
dividend calculated pursuant to clause (ii) of this paragraph (a) and (z)
the amount of dividends previously declared on the Series A Preferred
Shares with respect to such Dividend Period. The dividends shall begin to
accrue and shall be fully cumulative from the first day of the applicable
Dividend Period, whether or not in any Dividend Period or Periods there
shall be funds of the Trust legally available for the payment of such
dividends, and shall be payable quarterly, when, as and if declared by the
Board of Trustees, in arrears on Dividend Payment Dates. Each such dividend
shall be payable in arrears to the holders of record of Series A Preferred
Shares as they appear in the records of the Trust at the close of business
on such record dates, not less than 10 nor more than 50 days preceding such
Dividend Payment Dates thereof, as shall be fixed by the Board of Trustees.
Accrued and unpaid dividends for any past Dividend Periods may be declared
and paid at any time and for such interim periods, without reference to any
regular Dividend Payment Date, to holders of record on such date, not less
than 10 nor more than 50 days preceding the payment date thereof, as may be
fixed by the Board of Trustees. Any dividend payment made on Series A
Preferred Shares shall first be credited against the earliest accrued but
unpaid dividend due with respect to Series A Preferred Shares which remains
payable.
(b) The amount of dividends referred to in clause (i) of Section 3(a)
payable for each full Dividend Period on the Series A Preferred Shares
shall be computed by dividing the annual dividend rate by four. The initial
Dividend Period for the Series A Preferred Shares will include a partial
dividend for the period from the Issue Date until the last day of the
calendar quarter immediately following such Issue Date. The amount of
dividends payable for such period, or any other period shorter than a full
Dividend Period, on the Series A Preferred Shares shall be computed by
dividing the number of days in such period by 365 and multiplying the
result by the Series A Preferred dividend rate determined in accordance
with Section 3(a). Holders of Series A Preferred Shares shall not be
entitled to any dividends, whether payable in cash, property or shares, in
excess of cumulative dividends, as herein provided, on the Series A
Preferred Shares. No interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on the Series A
Preferred Shares which may be in arrears.
<PAGE>
(c) So long as any Series A Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any class or series of
Parity Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series A
Preferred Shares for all Dividend Periods terminating on or prior to the
dividend payment date on such class or series of Parity Shares. When
dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends declared upon Series A Preferred
Shares and all dividends declared upon any other class or series of Parity
Shares shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series A Preferred Shares and
accumulated and unpaid on such Parity Shares.
(d) So long as any Series A Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of,
or options, warrants or rights to subscribe for or purchase shares of,
Fully Junior Shares) shall be declared or paid or set apart for payment or
other distribution shall be declared or made or set apart for payment upon
Junior Shares, nor shall any Junior Shares be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition
of Common Shares made for purposes of an employee incentive or benefit plan
of the Trust or any subsidiary) for any consideration (or any moneys be
paid to or made available for a sinking fund for the redemption of any
Junior Shares) by the Trust, directly or indirectly (except by conversion
into or exchange for Fully Junior Shares), unless in each case (i) the full
cumulative dividends on all outstanding Series A Preferred Shares and any
other Parity Shares of the Trust shall have been or contemporaneously are
declared and paid or declared and set apart for payment for all past
Dividend Periods with respect to the Series A Preferred Shares and all past
dividend periods with respect to such Parity Shares and (ii) sufficient
funds shall have been or contemporaneously are declared and paid or
declared and set apart for the payment of the dividend for the current
Dividend Period with respect to the Series A Preferred Shares and the
current dividend period with respect to such Parity Shares.
(e) No distributions on Series A Preferred Shares shall be declared by
the Board of Trustees or paid or set apart for payment by the Trust at such
time as the terms and provisions of any agreement of the Trust, including
any agreement relating to its indebtedness, prohibits such declaration,
payment or setting apart for payment or provides that such declaration,
payment or setting apart for payment would constitute a breach thereof or a
default thereunder, or if such declaration or payment shall be restricted
or prohibited by law.
<PAGE>
(f) In determining whether a distribution by dividend, redemption or
other acquisition of Shares or otherwise is permitted under Maryland law,
no effect shall be given to amounts that would be needed, if the Trust were
to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential
rights on dissolution are superior to those receiving the distribution.
Section 4. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
the Trust, whether voluntary or involuntary, subject to the prior
preferences and other rights of any series of shares of beneficial interest
ranking senior to the Series A Preferred Shares of Beneficial Interest upon
liquidation, distribution or winding up of the Trust, before any payment or
distribution of the assets of the Trust (whether capital or surplus) shall
be made to or set apart for the holders of Junior Shares, the holders of
the Series A Preferred Shares shall be entitled to receive Twenty Six
Dollars and Fifty Cents ($26.50) (the "Liquidation Preference") per Series
A Preferred Share plus an amount equal to all dividends (whether or not
earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment; provided, that the dividend payable with respect to the
--------
Dividend Period containing the date of final distribution shall be equal to
the greater of (i) the dividend provided in Section 3(a)(i) or (ii) the
dividend determined pursuant to Section 3(a)(ii) for the preceding Dividend
Period. If, upon any liquidation, dissolution or winding up of the Trust,
the assets of the Trust, or proceeds thereof, distributable among the
holders of the Series A Preferred Shares shall be insufficient to pay in
full the preferential amount aforesaid and liquidating payments on any
other shares of any class or series of Parity Shares, then such assets, or
the proceeds thereof, shall be distributed among the holders of Series A
Preferred Shares and any such other Parity Shares ratably in accordance
with the respective amounts that would be payable on such Series A
Preferred Shares and any such other Parity Shares if all amounts payable
thereon were paid in full. For the purposes of this Section 4, (i) a
consolidation or merger of the Trust with one or more corporations, real
estate investment trusts or other entities, (ii) a sale, lease or
conveyance of all or substantially all of the Trust's property or business
or (iii) a statutory share exchange shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Trust.
(b) Subject to the rights of the holders of shares of any series or
class or classes of shares of beneficial interest ranking on a parity with
or prior to the Series A Preferred Shares upon liquidation, dissolution or
winding up, upon any liquidation, dissolution or winding up of the Trust,
after payment shall have been made in full to the holders of the Series A
Preferred Shares, as provided in this Section 4, the holders of Series A
Preferred Shares shall have no other claim to the remaining assets of the
Trust
<PAGE>
and any other series or class or classes of Junior Shares shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled
to receive any and all assets remaining to be paid or distributed, and the
holders of the Series A Preferred Shares shall not be entitled to share
therein.
Section 5. Redemption at the Option of the Trust.
-------------------------------------
(a) The Series A Preferred Shares shall not be redeemable by the
Trust prior to December 29, 2004./1/ On and after December 29, 2004, the
Trust, at its option, may redeem the Series A Preferred Shares, in whole at
any time or from time to time in part out of funds legally available
therefor at a redemption price payable in cash equal to 100% of the
Liquidation Preference per Series A Preferred Share (plus all accumulated,
accrued and unpaid dividends as provided below).
(b) Upon any redemption of Series A Preferred Shares pursuant to
this Section 5, the Trust shall pay all accrued and unpaid dividends, if
any, thereon to the Call Date, without interest. If the Call Date falls
after a dividend payment record date and prior to the corresponding
Dividend Payment Date, then each holder of Series A Preferred Shares at the
close of business on such dividend payment record date shall be entitled to
the dividend payable on such shares on the corresponding Dividend Payment
Date notwithstanding any redemption of such shares before such Dividend
Payment Date. Except as provided above, the Trust shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on Series A
Preferred Shares called for redemption.
(c) If full cumulative dividends on the Series A Preferred Shares
and any other class or series of Parity Shares of the Trust have not been
declared and paid or declared and set apart for payment, the Series A
Preferred Shares may not be redeemed under this Section 5 in part and the
Trust may not purchase or acquire Series A Preferred Shares, otherwise than
pursuant to a purchase or exchange offer made on the same terms to all
holders of Series A Preferred Shares.
(d) Notice of the redemption of any Series A Preferred Shares under
this Section 5 shall be mailed by first-class mail to each holder of record
of Series A Preferred Shares to be redeemed at the address of each such
holder as shown on the Trust's records, not less than 30 nor more than 90
days prior to the Call Date. Neither the failure to mail any notice
required by this paragraph (d), nor any defect therein or in the mailing
thereof, to any particular holder, shall affect the sufficiency of the
notice or the validity of the
- ------------------------
/1/ Seventh anniversary of the Initial Closing Date.
<PAGE>
proceedings for redemption with respect to the other holders. Each such
mailed notice shall state, as appropriate: (1) the Call Date; (2) the
number of Series A Preferred Shares to be redeemed and, if fewer than all
the shares held by such holder are to be redeemed, the number of such
shares to be redeemed from such holder; (3) the redemption price; (4) the
place or places at which certificates for such shares are to be
surrendered; (5) the then-current Conversion Price; and (6) that dividends
on the shares to be redeemed shall cease to accrue on such Call Date except
as otherwise provided herein. Notice having been mailed as aforesaid, from
and after the Call Date (unless the Trust shall fail to make available an
amount of cash necessary to effect such redemption), (i) except as
otherwise provided herein, dividends on the Series A Preferred Shares so
called for redemption shall cease to accrue, (ii) such shares shall no
longer be deemed to be outstanding, and (iii) all rights of the holders
thereof as holders of Series A Preferred Shares shall cease (except the
rights to convert and to receive the cash payable upon such redemption,
without interest thereon, upon surrender and endorsement of their
certificates if so required and to receive any dividends payable thereon).
The Trust's obligation to provide cash in accordance with the preceding
sentence shall be deemed fulfilled if, on or before the Call Date, the
Trust shall deposit with a bank or trust company (which may be an affiliate
of the Trust) that has an office in the Borough of Manhattan, City of New
York, and that has, or is an affiliate of a bank or trust company that has,
capital and surplus of at least $50,000,000, necessary for such redemption,
in trust, with irrevocable instructions that such cash be applied to the
redemption of the Series A Preferred Shares so called for redemption. No
interest shall accrue for the benefit of the holders of Series A Preferred
Shares to be redeemed on any cash so set aside by the Trust. Subject to
applicable escheat laws, any such cash unclaimed at the end of two years
from the Call Date shall revert to the general funds of the Trust, after
which reversion the holders of such shares so called for redemption shall
look only to the general funds of the Trust for the payment of such cash.
(e) As promptly as practicable after the surrender in accordance with
such notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Trust shall so require and if the
notice shall so state), such shares shall be exchanged for any cash
(without interest thereon) for which such shares have been redeemed. If
fewer than all the outstanding Series A Preferred Shares are to be
redeemed, shares to be redeemed shall be selected by the Trust from
outstanding Series A Preferred Shares not previously called for redemption
pro rata (as nearly as may be), by lot or by any other method determined by
the Trust in its sole discretion to be equitable. If fewer than all the
Series A Preferred Shares evidenced by any certificate are redeemed, then
new certificates evidencing the unredeemed shares shall be issued without
cost to the holder thereof.
<PAGE>
(f) Subject to any waivers of the Ownership Limit granted by the
Trust's Board of Trustees, nothing in this Section 5 shall restrict the
Trust's right to purchase Shares-in-Trust pursuant to Article VII, Section
2(G) of the Declaration.
Section 6. Conversion. Holders of Series A Preferred Shares shall have the
right to convert all or a portion of such shares into Common Shares, as follows:
(a) Subject to and upon compliance with the provisions of this Section
6, a holder of Series A Preferred Shares shall have the right, at his or
her option, upon the earliest to occur of (i) the sixty first day after
such holder provides the Trust with written notice of its intent to convert
Series A Preferred Shares; provided that such holder may not provide such
notice prior to November 1, 1998, (ii) the first day on which a Change of
Control occurs, (iii) the occurrence of a REIT Termination Event, or (iv)
such date as determined by the Trust (the "Conversion Date"), to convert
all or any portion of such shares (or such shares as determined by the
Trust if pursuant to clause (iv) above) into the number of fully paid and
non-assessable shares of Common Shares obtained by dividing the aggregate
Liquidation Preference of such shares (inclusive of accrued but unpaid
dividends) by the Conversion Price (as in effect at the time and on the
date provided for in the last paragraph of paragraph (b) of this Section 6)
by surrendering such shares to be converted, such surrender to be made in
the manner provided in paragraph (b) or this Section 6; provided, however,
-------- -------
that the right to convert shares called for redemption pursuant to Section
5 shall terminate at the close of business on the fifth Business Day prior
to the Call Date fixed for such redemption, unless the Trust shall default
in making payment of the cash payable upon such redemption under Section 5.
"Change of Control" means each occurrence of any of the following: (i)
the acquisition, directly or indirectly, by any individual or entity or
group (as such term is used in Section 13(d)(3) of the Exchange Act) of
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act,
except that such individual or entity shall be deemed to have beneficial
ownership of all shares that any such individual or entity has the right to
acquire, whether such right is exercisable immediately or only after
passage of time) of more than 25 % of the Trust's outstanding shares of
beneficial interest with voting power, under ordinary circumstances, to
elect Trustees of the Trust; (ii) other than with respect to the election,
resignation or replacement of any trustee designated, appointed or elected
by the holders of the Series A Preferred Shares (each a "Preferred
Trustee"), during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Trustees of the Trust
(together with any new trustees whose election by such Board of Trustees or
whose nomination for election by the shareholders of the Trust was approved
by a vote of 66 2/3% of the trustees of the Trust (excluding Preferred
Trustees) then still in office who were either trustees at the beginning of
such period, or whose election or nomination for election was previously so
approved) cease
<PAGE>
for any reason to constitute a majority of the Board of Trustees then in
office; and (iii) (A) the Trust consolidating with or merging into another
entity or conveying, transferring or leasing all or substantially all of
its assets (including, but not limited to, real property investments) to
any individual or entity, or (B) any entity consolidating with or merging
into the Trust, which in either event (A) or (B) is pursuant to a
transaction in which the outstanding voting shares of beneficial interest
of the Trust is reclassified or changed into or exchanged for cash,
securities or other property; provided, however, that the events described
in clause (iii) shall not be deemed to be a Change of Control (a) if the
sole purpose of such event is that the Trust is seeking to change its
domicile or to change its form of organization from a trust to a
corporation or (b) if the holders of the exchanged securities of the Trust
immediately after such transaction beneficially own at least a majority of
the securities of the merged or consolidated entity normally entitled to
vote in elections of trustees.
(b) In order to exercise the conversion right, the holder of each
Series A Preferred Share to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Trust or in
blank, at the office of the Transfer Agent, accompanied by written notice
to the Trust that the holder thereof irrevocably elects to convert such
Series A Preferred Shares. Unless the shares issuable on conversion are to
be issued in the same name as the name in which such Series A Preferred
Share is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the Trust,
duly executed by the holder or such holder's duly authorized attorney and
an amount sufficient to pay any transfer or similar tax (or evidence
reasonably satisfactory to the Trust demonstrating that such taxes have
been paid).
Holders of Series A Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment
record date and prior to such Dividend Payment Date. However, Series A
Preferred Shares surrendered for conversion during the period between the
close of business on any dividend payment record date and the opening of
business on the corresponding Dividend Payment Date (except shares
converted after the issuance of notice of redemption with respect to a Call
Date during such period, such Series A Preferred Shares being entitled to
such dividend on the Dividend Payment Date) must be accompanied by payment
of an amount equal to the dividend payable on such shares on such Dividend
Payment Date. A holder of Series A Preferred Shares on a dividend payment
record date who (or whose transferee) tenders any such shares for
conversion into Common Shares on the corresponding Dividend Payment Date
will receive the dividend payable by the Trust on such Series A Preferred
Shares on such date, and the converting holder need not include payment of
the amount of such dividend upon surrender of Series A Preferred Shares for
conversion. Except as provided above, the
<PAGE>
Trust shall make no payment or allowance for unpaid dividends, whether or
not in arrears, on converted shares or for dividends on the Common Shares
issued upon such conversion.
As promptly as practicable after the surrender of certificates for
Series A Preferred Shares as aforesaid, the Trust shall issue and shall
deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full Common Shares issuable
upon the conversion of such shares in accordance with provisions of this
Section 6, and any fractional interest in respect of a Common Share arising
upon such conversion shall be settled as provided in paragraph (c) of this
Section 6.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
Series A Preferred Shares shall have been surrendered and such notice shall
have been received by the Trust as aforesaid (and if applicable, payment of
an amount equal to the dividend payable on such shares shall have been
received by the Trust as described above), and the person or persons in
whose name or names any certificate or certificates for Common Shares shall
be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby at such time on such
date and such conversion shall be at the Conversion Price in effect at such
time on such date unless the share transfer books of the Trust shall be
closed on that date, in which event such person or persons shall be deemed
to have become such holder or holders of record at the close of business on
the next succeeding day on which such share transfer books are open, but
such conversion shall be at the Conversion Price in effect on the date on
which such shares shall have been surrendered and such notice received by
the Trust.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series A Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise
be deliverable upon the conversion of a Series A Preferred Share, the Trust
shall pay to the holder of such share an amount in cash based upon the
Current Market Price of the Common Shares on the Trading Day immediately
preceding the date of conversion. If more than one share shall be
surrendered for conversion at one time by the same holder, the number of
full Common Shares issuable upon conversion thereof shall be computed on
the basis of the aggregate number of Series A Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time
as follows:
(i) If the Trust shall after the Issue Date (A) pay a dividend or
make a distribution on its shares of beneficial interest in Common
Shares, (B) subdivide its outstanding Common Shares into a greater
number of shares, (C) combine its
<PAGE>
outstanding Common Shares into a smaller number of shares or (D) issue
any shares of beneficial interest by reclassification of its Common
Shares, the Conversion Price in effect at the opening of business on
the day following the date fixed for the determination of shareholders
entitled to receive such dividend or distribution or at the opening of
business on the Business Day next following the day on which such
subdivision, combination or reclassification becomes effective, as the
case may be, shall be adjusted so that the holder of any Series A
Preferred Share thereafter surrendered for conversion shall be
entitled to receive the number of Common Shares that such holder would
have owned or have been entitled to receive after the happening of any
of the events described above as if such Series A Preferred Shares had
been converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a
subdivision, combination or reclassification. An adjustment made
pursuant to this subparagraph (i) shall become effective immediately
after the opening of business on the Business Day next following the
record date (except as provided in paragraph (h) below) in the case of
a dividend or distribution and shall become effective immediately
after the opening of business on the Business Day next following the
effective date in the case of a subdivision, combination or
reclassification.
(ii) If the Trust shall issue after the Issue Date rights,
options or warrants to all holders of Common Shares entitling them
(for a period expiring within 45 days after the record date mentioned
below) to subscribe for or purchase Common Shares at a price per share
less than 95% (100% if a stand-by underwriter is used and charges the
Trust a commission) of the Fair Market Value per Common Share on the
record date for the determination of shareholders entitled to receive
such rights, options or warrants, then the Conversion Price in effect
at the opening of business on the Business Day next following such
record date shall be adjusted to equal the price determined by
multiplying (A) the Conversion Price in effect immediately prior to
the opening of business on the Business Day next following the date
fixed for such determination by (B) a fraction, the numerator of which
shall be the sum of (x) the number of Common Shares outstanding on the
close of business on the date fixed for such determination and (y) the
number of shares that the aggregate proceeds to the Trust from the
exercise of such rights, options or warrants for Common Shares would
purchase at 95% of such Fair Market Value (or 100% in the case of a
stand-by underwriting), and the denominator of which shall be the sum
of (x) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (y) the number
of additional Common Shares offered for subscription or purchase
pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately after the opening of business on the day
next following such record date (except as provided in paragraph (h)
<PAGE>
below). In determining whether any rights, options or warrants entitle
the holders of Common Shares to subscribe for or purchase Common
Shares at less than 95 % of such Fair Market Value (or 100% in the
case of a stand-by underwriting), there shall be taken into account
any consideration received by the Trust upon issuance and upon
exercise of such rights, options or warrants, the value of such
consideration, if other than cash, to be determined by the Board of
Trustees whose determination shall be conclusive.
(iii) If the Trust shall distribute to all holders of its Common
Shares any securities of the Trust (other than Common Shares) or
evidence of its indebtedness or assets (excluding cumulative cash
dividends or distributions paid with respect to the Common Shares
after December 31, 1996 which are not in excess of the following: the
sum of (A) the Trust's cumulative undistributed Funds from Operations
at December 31, 1996, plus (B) the cumulative amount of Funds from
Operations, as determined by the Board of Trustees, after December 31,
1996, minus (C) the cumulative amount of dividends accrued or paid in
respect of the Series A Preferred Shares or any other class or series
of preferred shares of beneficial interest of the Trust after the
Issue Date or rights, options or warrants to subscribe for or purchase
any of its securities (excluding those rights, options and warrants
issued to all holders of Common Shares entitling them for a period
expiring within 45 days after the record date referred to in
subparagraph (ii) above to subscribe for or purchase Common Shares,
which rights and warrants are referred to in and treated under
subparagraph (ii) above) (any of the foregoing being hereinafter in
this subparagraph (iii) collectively called the "Securities" and
----------
individually a "Security"), then in each such case the Conversion
--------
Price shall be adjusted so that it shall equal the price determined by
multiplying (x) the Conversion Price in effect immediately prior to
the close of business on the date fixed for the determination of
shareholders entitled to receive such distribution by (y) a fraction,
the numerator of which shall be the Fair Market Value per Common Share
on the record date mentioned below less the then fair market value (as
determined by the Board of Trustees, whose determination shall be
conclusive) of the portion of the Securities or assets or evidences of
indebtedness so distributed or of such rights, options or warrants
applicable to one Common Share, and the denominator of which shall be
the Fair Market Value per Common Share on the record date mentioned
below. Such adjustment shall become effective immediately at the
opening of business on the Business Day next following (except as
provided in paragraph (h) below) the record date for the determination
of shareholders entitled to receive such distribution. For the
purposes of this subparagraph (iii), the distribution of a Security,
which is distributed not only to the holders of the Common Shares on
the date fixed for the determination of shareholders entitled to such
distribution of such Security, but also is distributed with each
Common Share delivered to a
<PAGE>
Person converting a Series A Preferred Share after such determination
date, shall not require an adjustment of the Conversion Price pursuant
to this subparagraph (iii); provided that on the date, if any, on
--------
which a person converting a Series A Preferred Share would no longer
be entitled to receive such Security with a Common Share (other than
as a result of the termination of all such Securities), a distribution
of such Securities shall be deemed to have occurred and the Conversion
Price shall be adjusted as provided in this subparagraph (iii) (and
such day shall be deemed to be "the date fixed for the determination
of the shareholders entitled to receive such distribution" and "the
record date" within the meaning of the two preceding sentences).
(iv) In case a tender or exchange offer (which term shall not
include open market repurchases by the Trust) made by the Trust or any
subsidiary of the Trust for all or any portion of the Common Shares
shall expire and such tender or exchange offer shall involve the
payment by the Trust or such subsidiary of consideration per Common
Share having a fair market value (as determined in good faith by the
Board of Trustees, whose determination shall be conclusive and
described in a resolution of the Board of Trustees), at the last time
(the "Expiration Time") tenders or exchanges may be made pursuant to
---------------
such tender or exchange offer, that exceeds the Current Market Price
per Common Share on the Trading Day next succeeding the Expiration
Time, the Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph, by a fraction of which
the numerator shall be the number of Common Shares outstanding
(including any tendered or exchanged shares) at the Expiration Time,
multiplied by the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, and the denominator shall be
the sum of (A) the fair market value (determined as aforesaid) of the
aggregate consideration payable to shareholders based upon the
acceptance (up to any maximum specified in the terms of the tender or
exchange offer) of all shares validly tendered or exchanged and not
withdrawn as of the Expiration Time (the shares deemed so accepted, up
to any maximum, being referred to as the "Purchased Shares") and (B)
----------------
the product of the number of Common Shares outstanding (less any
Purchased Shares) at the Expiration Time and the Current Market Price
per Common Share on the Trading Day next succeeding the Expiration
Time, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time.
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase or decrease
of at least 1% in
<PAGE>
such price; provided, however, that any adjustments that by reason of
-------- -------
this subparagraph (v) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment until
made; and provided, further, that any adjustment shall be required and
-------- -------
made in accordance with the provisions of this Section 6 (other than
this subparagraph (v)) not later than such time as may be required in
order to preserve the tax-free nature of a distribution to the holders
of Common Shares. Notwithstanding any other provisions of this Section
6, the Trust shall not be required to make any adjustment of the
Conversion Price for the issuance of any Common Shares pursuant to any
plan providing for the reinvestment of dividends or interest payable
on securities of the Trust and the investment of additional optional
amounts in Common Shares under such plan. All calculations under this
Section 6 shall be made to the nearest cent (with $.005 being rounded
upward) or to the nearest one-tenth of a share (with .05 of a share
being rounded upward), as the case may be. Anything in this paragraph
(d) to the contrary notwithstanding, the Trust shall be entitled, to
the extent permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this paragraph (d), as it in
its discretion shall determine to be advisable in order that any share
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase shares or
securities, or distribution of other assets (other than cash
dividends) hereafter made by the Trust to its shareholders shall not
be taxable.
(e) If the Trust shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all of its Common Shares, sale of all
or substantially all of the Trust's assets or recapitalization of the
Common Shares and excluding any transaction as to which subparagraph (d)(i)
of this Section 6 applies) (each of the foregoing being referred to herein
as a "Transaction"), in each case as a result of which all or substantially
-----------
all of the Common Shares are convened into the right to receive shares,
securities or other property (including cash or any combination thereof),
each Series A Preferred Share which is not redeemed or converted into the
right to receive shares, securities or other property prior to such
Transaction shall thereafter be convertible into the kind and amount of
shares, securities and other property (including cash or any combination
thereof) receivable upon the consummation of such Transaction by a holder
of that number of Common Shares into which one Series A Preferred Share was
convertible immediately prior to such Transaction, assuming such holder of
Common Shares (i) is not a Person with which the Trust consolidated or into
which the Trust merged or which merged into the Trust or to which such sale
or transfer was made, as the case may be ("Constituent Person"), or an
------------------
affiliate of a Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of shares, securities and other
property (including cash) receivable upon such Transaction (provided that
if the kind or amount of shares, securities and other property (including
cash) receivable upon such Transaction is not the same for each
<PAGE>
Common Share held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such
rights of election shall not have been exercised ("Non-Electing Share"),
------------------
then for the purpose of this paragraph (e) the kind and amount of shares,
securities and other property (including cash) receivable upon such
Transaction by each Non-Electing Share shall be deemed to be the kind and
amount so receivable per share by holders of a plurality of the Non-
Electing Shares). The Trust shall not be a party to any Transaction unless
the terms of such Transaction are consistent with the provisions of this
paragraph (e), and it shall not consent or agree to the occurrence of any
Transaction until the Trust has entered into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of the
holders of the Series A Preferred Shares that will contain provisions
enabling the holders of the Series A Preferred Shares that remain
outstanding after such Transaction to convert into the consideration
received by holders of Common Shares at the Conversion Price in effect
immediately prior to such Transaction. The provisions of this paragraph (e)
shall similarly apply to successive Transactions.
(f) If:
(i) the Trust shall declare a dividend (or any other
distribution) on its Common Shares (other than cash dividends or
distributions paid with respect to the Common Shares after December
31, 1996 not in excess of the sum of the Trust's cumulative
undistributed Funds from Operations at December 31, 1996, plus the
cumulative amount of Funds from Operations, as determined by the Board
of Trustees, after December 31, 1996, minus the cumulative amount of
dividends accrued or paid in respect of the Series A Preferred Shares
or any other class or series of preferred shares of beneficial
interest of the Trust after the Issue Date); or
(ii) the Trust shall authorize the granting to all holders of
Common Shares of rights, options or warrants to subscribe for or
purchase any shares of any class or any other rights, options or
warrants; or
(iii) there shall be any reclassification of the Common Shares
(other than an event to which subparagraph (d)(i) of this Section 6
applies) or any consolidation or merger to which the Trust is a party
(other than a merger in which the Trust is the surviving entity) and
for which approval of any shareholders of the Trust is required, or a
statutory share exchange, or a self tender offer by the Trust for all
or substantially all of its outstanding Common Shares or the sale or
transfer of all or substantially all of the assets of the Trust as an
entirety; or
<PAGE>
(iv) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Trust;
then the Trust shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of Series A Preferred Shares at their
addresses as shown on the records of the Trust, as promptly as possible,
but at least 10 days prior to the applicable date hereinafter specified, a
notice stating (A) the date on which a record is to be taken for the
purpose of such dividend, distribution or granting of rights, options or
warrants, or, if a record is not to be taken, the date as of which the
holders of Common Shares of record to be entitled to such dividend,
distribution or rights, options or warrants are to be determined or (B)
the date on which such reclassification, consolidation, merger, statutory
share exchange, sale, transfer, liquidation, dissolution or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Shares of record shall be entitled to exchange their
Common Shares for securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, statutory share exchange,
sale, transfer, liquidation, dissolution or winding up. Failure to give or
receive such notice or any defect therein shall not affect the legality or
validity of the proceedings described in this Section 6.
(g) Whenever the Conversion Price is adjusted as herein provided,
the Trust shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment
which certificate shall be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after delivery of such
certificate, the Trust shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the
effective date of such adjustment and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Series A
Preferred Share at such holder's last address as shown on the records of
the Trust.
(h) In any case in which paragraph (d) of this Section 6 provides
that an adjustment shall become effective on the day next following the
record date for an event, the Trust may defer until the occurrence of such
event (A) issuing to the holder of any Series A Preferred Share converted
after such record date and before the occurrence of such event the
additional Common Shares issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares
issuable upon such conversion before giving effect to such adjustment and
(B) paying to such holder any amount of cash in lieu of any fraction
pursuant to paragraph (c) of this Section 6.
(i) There shall be no adjustment of the Conversion Price in case
of the issuance of any shares of beneficial interest of the Trust in a
reorganization, acquisition or
<PAGE>
other similar transaction except as specifically set forth in this
Section 6. If any action or transaction would require adjustment of
the Conversion Price pursuant to more than one paragraph of this
Section 6, only one adjustment shall be made and such adjustment shall
be the amount of adjustment that has the highest absolute value.
(j) If the Trust shall take any action affecting the Common
Shares, other than action described in this Section 6, that in the
opinion of the Board of Trustees would materially and adversely affect
the conversion rights of the holders of the Series A Preferred Shares,
the Conversion Price for the Series A Preferred Shares may be
adjusted, to the extent permitted by law, in such manner, if any, and
at such time, as the Board of Trustees, in its sole discretion, may
determine to be equitable in the circumstances.
(k) The Trust covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Shares, for the purpose of
effecting conversion of the Series A Preferred Shares, the full number
of Common Shares deliverable upon the conversion of all outstanding
Series A Preferred Shares not theretofore converted. For purposes of
this paragraph (k), the number of Common Shares that shall be
deliverable upon the conversion of all outstanding Series A Preferred
Shares shall be computed as if at the time of computation all such
outstanding shares were held by a single holder.
Any Common Shares issued upon conversion of the Series A
Preferred Shares shall be validly issued, fully paid and
non-assessable. Before taking any action that would cause an
adjustment reducing the Conversion Price below the then-par value of
the Common Shares deliverable upon conversion of the Series A
Preferred Shares, the Trust will take any action that, in the opinion
of its counsel, may be necessary in order that the Trust may validly
and legally issue fully paid and (subject to any customary
qualification based upon the nature of a real estate investment trust)
non-assessable Common Shares at such adjusted Conversion Price.
The Trust shall endeavor to list the Common Shares required to be
delivered upon conversion of the Series A Preferred Shares, prior to
such delivery, upon each national securities exchange, if any, upon
which the outstanding Common Shares are listed at the time of such
delivery.
The Trust shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the
issuance of any securities that the Trust shall be obligated to
deliver upon conversion of the Series A Preferred Shares. The
certificates evidencing such securities shall bear such legends
restricting transfer thereof in the absence of registration under
applicable securities laws or an exemption therefrom as the Trust may
in good faith deem appropriate.
<PAGE>
(l) The Trust will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of
Common Shares or other securities or property on conversion of the
Series A Preferred Shares pursuant hereto; provided, however, that the
-------- -------
Trust shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issue or delivery of Common
Shares or other securities or property in a name other than that of
the holder of the Series A Preferred Shares to be converted, and no
such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Trust the amount of
any such tax or established, to the reasonable satisfaction of the
Trust, that such tax has been paid.
Section 7. Fixed Charge Coverage; Limitation on Issuance of Additional
-----------------------------------------------------------
Preferred Shares and Indebtedness.
- ---------------------------------
(a) Without the written consent of the holders of a majority of
the issued and outstanding shares of Series A Preferred Shares, none
of the Trust, the Operating Partnership or any of their subsidiaries
may issue any additional preferred securities of any such entity or
incur any indebtedness (other than trade payables or accrued expenses
incurred in the ordinary course of business) if, immediately following
such issuance and after giving effect to such issuance and the
application of the net proceeds therefrom, the Trust's Consolidated
EBITDA to Consolidated Fixed Charges for the four fiscal quarters
immediately preceding such issuance would be less than 1.75 to 1.0.
(b) "Consolidated EBITDA" for any period means the consolidated
net income of the Trust (before extraordinary income or gains) as
reported in the Trust's financial statements filed with the Securities
and Exchange Commission increased by the sum of the following (without
duplication):
(i) all income and state franchise taxes paid or accrued
according to GAAP for such period (other than income taxes
attributable to extraordinary, unusual or non-recurring gains or
losses except to the extent that such gains were not included in
Consolidated EBITDA),
(ii) all interest expense paid or accrued in accordance
with GAAP for such period (including financing fees and
amortization of deferred financing fees or amortization of
original issue discount). Such interest shall also include non-
recurring terms such as pre-payment penalties, make-whole
premiums, accelerated amortization of financing costs due to
early termination and costs of
<PAGE>
unwinding interest rate hedging contracts. All such interest will
be calculated net of the impact of continuing interest rate
hedging agreements.
(iii) depreciation and depletion reflected in such reported
net income,
(iv) amortization reflected in such reported net income
including, without limitation, amortization of capitalized debt
issuance costs (only to the extent that such amounts have not
been previously included in the amount of Consolidated EBITDA
pursuant to clause (b) above), goodwill, other intangibles and
management fees, and
(v) any other non-cash charges or discretionary prepayment
penalties, to the extent deducted from consolidated net income
(including, but not limited to, income allocated to minority
interests).
(c) "Consolidated Fixed Charges" for any period means the sum of:
(i) all interest expense paid or accrued in accordance
with GAAP for such period (including financing fees and
amortization of deferred financing fees or amortization of
original issue discount), but excluding non-recurring items such
as pre-payment penalties, make-whole premiums, accelerated
amortization of financing costs due to early termination and
costs of unwinding interest rate hedging contracts.
(ii) preferred shares of beneficial interest dividend
requirements for such period, whether or not declared or paid,
and
(iii) regularly scheduled amortization of principal during
such period (other than any balloon payments at maturity).
Section 8. Shares To Be Retired. All Series A Preferred Shares which
--------------------
shall have been issued and reacquired in any manner by the Trust shall be
restored to the status of authorized but unissued preferred shares of beneficial
interest, without discretion as to class or series, and subject to applicable
limitations set forth in the Declaration may thereafter be reissued as shares of
any series of preferred shares of beneficial interest.
<PAGE>
Section 9. Ranking. Any class or series of shares of beneficial interest of
-------
the Trust shall be deemed to rank:
(a) prior to the Series A Preferred Shares, as to the payment of dividends
and as to distribution of assets upon liquidation, dissolution or winding up, if
the holders of such class or series shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in preference or priority to the holders of Series A
Preferred Shares;
(b) on a parity with the Series A Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof shall be different from those
of the Series A Preferred Shares, if the holders of such class or series and the
Series A Preferred Shares shall be entitled to the receipt of dividends and of
amounts distributable upon liquidation, dissolution or winding up in proportion
to their respective amounts of accrued and unpaid dividends per share or
liquidation preferences, without preference or priority one over the other
("Parity Shares");
-------------
(c) junior to the Series A Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such class or series shall be Junior Shares; and
(d) junior to the Series A Preferred Shares, as to the payment of dividends
and as to the distribution of assets upon liquidation, dissolution or winding
up, if such class or series shall be Fully Junior Shares.
<PAGE>
Section 10. Voting. Except as expressly provided in these Articles
------
Supplementary, the holders of Series A Preferred Shares shall have no voting
rights. If and whenever (i) two consecutive quarterly dividends payable on the
Series A Preferred Shares shall be in arrears (which shall, with respect to any
such quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, (ii) for two consecutive quarterly dividend
periods the Trust fails to pay dividends on the Common Shares in an amount per
share at least equal to $0.38 (subject to adjustment consistent with any
adjustment of the Conversion Price pursuant to Section 6(a) of this Article) or
(iii) for two consecutive quarters the Trust fails to maintain a ratio of
Consolidated EBITDA to Consolidated Fixed Charges of at least 1.75, then the
number of trustees then constituting the Board of Trustees shall be increased by
two and the holders of Series A Preferred Shares, voting as a single class,
shall be entitled to elect the two additional trustees to serve on the Board of
Trustees at any annual meeting of shareholders or special meeting held in place
thereof, or at a special meeting of the holders of the Series A Preferred Shares
called as hereinafter provided. Whenever, as the case may be, (i) all arrears in
dividends on the Series A Preferred Shares then outstanding shall have been paid
and the Trust has paid dividends thereon for two consecutive quarters, (ii) the
Trust has paid dividends on the Common Shares in an amount per share at least
equal to $0.38 (subject to adjustment consistent with any adjustment of the
Conversion Price pursuant to Section 6(a) of this Article) for two consecutive
quarters or (iii) the Trust has maintained a ratio of Consolidated EBITDA to
Consolidated Fixed Charges of at least 1.75 for two consecutive quarters, then
the right of the holders of the Series A Preferred Shares to elect such
additional trustees shall cease (but subject always to the same provision for
the vesting of such voting rights in the case of any similar future arrearage in
quarterly dividends or failure to maintain a ratio of Consolidated EBITDA to
Consolidated Fixed Charges of at least 1.75), and the terms of office of all
persons elected as trustees by the holders of the Series A Preferred Shares
shall forthwith terminate and the number of the Board of Trustees shall be
reduced accordingly. At any time after such voting power shall have been so
vested in the holders of Series A Preferred Shares, the Secretary of the Trust
may, and upon the written request of any holder of Series A Preferred Shares
(addressed to the Secretary at the principal office of the Trust) shall, call a
special meeting of the holders of the Series A Preferred Shares for the election
of the trustees to be elected by them as herein provided, such call to be made
by notice similar to that provided in the Bylaws of the Trust for a special
meeting of the shareholders or as required by law. If any such special meeting
required to be called as above provided shall not be called by the Secretary
within 20 days after receipt of any such request, then any holder of Series A
Preferred Shares may call such meeting, upon the notice above provided, and for
that purpose shall have access to the records of the Trust. The trustees elected
at any such special meeting shall hold office until the next annual meeting of
the shareholders or special meeting held in lieu thereof if such office shall
not have previously terminated as above provided. If any vacancy shall occur
among the trustees elected by the holders of the Series A Preferred Shares, a
successor shall be elected by the Board of Trustees, upon the nomination of the
then-remaining trustee elected by the holders of the Series A Preferred Shares
or the successor of such remaining trustee, to serve until the next annual
meeting of the shareholders or special meeting held in place thereof if the term
of such trustee shall not have previously terminated as provided above.
<PAGE>
So long as any Series A Preferred Shares are outstanding, in addition to
any other vote or consent of shareholders required by law or by the Declaration,
the affirmative vote of at least 51% of the votes entitled to be cast by the
holders of the Series A Preferred Shares given in person or by proxy, either in
writing without a meeting or by vote at any meeting called for the purpose,
shall be necessary for effecting or validating:
(a) Any amendment, alteration or repeal of any of the provisions of
the Declaration or these Articles Supplementary that materially and
adversely affects the voting powers, rights or preferences of the holders
of the Series A Preferred Shares; provided, however, that the amendment of
-------- -------
the provisions of the Declaration so as to authorize or create or to
increase the authorized amount of, any Fully Junior Shares or Junior Shares
that are not senior in any respect to the Series A Preferred Shares shall
not be deemed to materially adversely affect the voting powers, rights or
preferences of the holders of Series A Preferred Shares; or
(b) A share exchange that affects the Series A Preferred Shares, a
consolidation with or merger of the Trust into another entity, or a
consolidation with or merger of another entity into the Trust, unless in
each such case each Series A Preferred Share (i) shall remain outstanding
without a material and adverse change to its terms and rights or (ii) shall
be converted into or exchanged for convertible preferred shares of the
surviving entity having preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms
or conditions of redemption thereof identical to that of a Series A
Preferred Share (except for changes that do not materially and adversely
affect the holders of the Series A Preferred Shares);
provided, however, that no such vote of the holders of Series A Preferred Shares
- -------- -------
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series A Preferred Shares at the time outstanding to the
extent such redemption is authorized by Section 5 of this Article.
For purposes of the foregoing provisions of this Section 10, each Series A
Preferred Share shall have one (1) vote per share, except that when any other
series of Preferred Shares shall have the right to vote with the Series A
Preferred Shares as a single class on any matter, then the Series A Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $26.50 (or less pursuant to Section 4(a)) of stated liquidation
preference. Except as otherwise required by applicable law or as set forth
herein, the Series A Preferred Shares shall not have any relative,
participating, optional or other special voting rights and powers other than as
set forth herein, and the consent of the holders thereof shall not be required
for the taking of any Trust action.
<PAGE>
Section 11. Record Holders. The Trust and the Transfer Agent may deem and
--------------
treat the record holder of any Series A Preferred Shares as the true and lawful
owner thereof for all purposes, and neither the Trust nor the Transfer Agent
shall be affected by any notice to the contrary.
<PAGE>
IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary to be
duly executed by its Vice President and Treasurer and attested by its Assistant
Secretary this 18th day of December, 1997.
PRENTISS PROPERTIES TRUST
Signed: /s/ Michael A. Ernst
---------------------------------
By: Michael A. Ernst
Its: Vice President and Treasurer
Attest:
Signed: /s/ Kevin Dilbeck
------------------------------
By: Kevin Dilbeck
Its: Assistant Secretary
<PAGE>
Exhibit 4.1
PRENTISS PROPERTIES ACQUISITION PARTNERS, L.P.
First Amendment to the Second Amended and
Restated Agreement of Limited Partnership of
Prentiss Properties Acquisition Partners, L.P.
Establishing the Series A Cumulative
Convertible Redeemable Preferred Units of Partnership
Interest and Fixing Distribution and
Other Preferences and Rights of Such Units
RECITALS
A. The Board of Trustees of Prentiss Properties Trust (the "Trust") has
adopted a resolution designating and classifying 3,773,585 unissued and
unclassified preferred shares of beneficial interest of the Trust as Series A
Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest (the
"Series A Preferred Units").
B. Pursuant to Section 4.02 and Article XI of the Second Amended and
Restated Agreement of Limited Partnership (the "Agreement") of Prentiss
Properties Acquisition Partners, L.P. (the "Partnership"), Prentiss Properties
I, Inc. as the sole general partner of the Partnership (the "General Partner"),
desires to amend the Agreement to establish the Series A Cumulative Convertible
Redeemable Preferred Units of Partnership Interest (the "Series A Preferred
Units") with economic interests substantially similar to those of the Series A
Preferred Shares.
NOW, THEREFORE, the General Partner hereby adopts the following amendment
to the Partnership Agreement:
Section 4.02 is amended by adding Section 4.02(d), as follows:
(d) Series A Cumulative Convertible Redeemable Preferred Units of Partnership
Interest.
<PAGE>
Section 1. Number of Units and Designation. This series of preferred units
-------------------------------
of partnership interest shall be designated as Series A Cumulative Convertible
Redeemable Preferred Units of Partnership Interest and the number of units which
shall constitute such series shall not be more than 3,773,585 units, which
number may be decreased (but not below the aggregate number thereof then
outstanding and/or which have been reserved for issuance) from time to time by
the General Partner.
Section 2. Definitions. For purposes of the Series A Preferred Units, the
-----------
following terms shall have the meanings indicated:
"Business Day" shall mean any day, other than a Saturday or Sunday,
that is neither a legal holiday nor a day on which banking institutions in
New York City, New York are authorized or required by law, regulation or
executive order to close.
"Call Date" shall mean the date specified in the notice to holders
required under Section 5(d) as the Call Date.
"Change of Control" shall have the meaning set forth in Section 6(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Units" shall mean all the units of partnership interest in the
Partnership that are not specifically designated as preferred units
pursuant to Section 4.02.
"Constituent Person" shall have the meaning set forth in Section 6(e).
"Conversion Date" shall have the meaning set forth in Section 6.
"Conversion Price" shall mean the conversion price per Common Unit for
which the Series A Preferred Units are convertible, as such Conversion
Price may be adjusted pursuant to Section 6. The initial conversion price
shall be $26.50.
"Current Market Price" of publicly traded Common Units or any other
Partnership Units or other security of the Partnership or any other issuer
for any day shall mean the last reported sales price, regular way, on such
day, or, if no sale takes place on such day, the average of the reported
closing bid and asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange ("NYSE") or, if such security is
----
not listed or admitted for trading on the NYSE, on the principal national
securities exchange on which such security is listed or admitted for
trading or, if not listed or admitted for trading on any national
securities exchange, on the Nasdaq National Market ("NASDAQ") or, if such
------
security is not quoted on NASDAQ, the average of the closing bid and asked
prices on such day in the over-the-counter market as reported by the
National Association of Securities Dealers, Inc. (the "NASD") or, if bid
----
and asked prices
<PAGE>
for such security on such day shall not have been reported through the
NASD, the average of the bid and asked prices on such day as furnished by
any NYSE member firm regularly making a market in such security selected
for such purpose by the Board of Trustees. If the Common Units are not
publicly traded, then the Current Market Price of such Common Units shall
be equal to the Current Market Price of common shares of beneficial
interest of the Trust ("Common Shares"), multiplied by the then-current
Conversion Factor.
"Distribution Payment Date" shall mean (i) for any Distribution Period
with respect to which the Partnership pays a distribution on the Common
Units, the date on which such distribution is paid, or (ii) for any
Distribution Period with respect to which the Partnership does not pay a
distribution on the Common Units, a date to be set by the General Partner,
which date shall not be later than the thirtieth calendar day after the end
of the applicable Distribution Period.
"Distribution Periods" shall mean quarterly distribution periods
commencing on January 1, April 1, July 1 and October 1 of each year and
ending on and including the day preceding the first day of the next
succeeding Distribution Period with respect to any Series A Preferred Units
(other than the initial Distribution Period, which shall commence on the
Issue Date for such Series A Preferred Units and end on and include the
last day of the calendar quarter immediately following such Issue Date, and
other than the Distribution Period during which any Series A Preferred
Units shall be redeemed pursuant to Section 5 or converted pursuant to
Section 6, which shall end on and include the Call Date with respect to the
Series A Preferred Units being redeemed).
"Expiration Time" shall have the meaning set forth in Section
6(d)(iv).
"Fair Market Value" shall mean the average of the daily Current Market
Prices of a Common Unit on the five (5) consecutive Trading Days selected
by the General partner commencing not more than 20 Trading Days before, and
ending not later than, the earlier of the day in question and the day
before any "ex date" with respect to the issuance or distribution requiring
such computation. The term "ex date," when used with respect to any
issuance or distribution, means the first day on which the Common Units
trade regular way, without the right to receive such issuance or
distribution, on the exchange or in the market, as the case may be, used to
determine that day's Current Market Price.
"Fully Junior Units" shall mean the Common Units and any other class
or series of units of partnership interest in the Partnership now or
hereafter issued and outstanding over which the Series A Preferred Units
have preference or priority in both (i) the payment of distributions and
(ii) the distribution of assets on any liquidation, dissolution or winding
up of the Trust.
"Funds from Operations" shall mean net income (loss) (computed in
accordance with generally accepted accounting principles) excluding gains
(or losses) from debt
<PAGE>
restructuring, and distributions in excess of earnings allocated to other
minority interests (as reflected in the financial statements of the
Partnership) plus depreciation/amortization of assets unique to the real
estate industry, all computed in a manner consistent with the revised
definition of Funds From Operations adopted by the National Association of
Real Estate Investment Trusts ("NAREIT"), in its White Paper dated March
------
1995, as such definitions may be modified from time to time, as determined
by the General Partner in good faith.
"Issue Date" shall mean the date on which the Series A Preferred Units
are issued.
"Issue Price" shall mean $26.50 per Series A Preferred Share.
"Junior Units" shall mean the Common Units and any other class or
series of Partnership Units now or hereafter issued and outstanding over
which the Series A Preferred Units have preference or priority in the
payment of distributions or in the distribution of assets on any
liquidation, dissolution or winding up of the Trust.
"Non-Electing Unit" shall have the meaning set forth in Section 6(e).
"Parity Units" shall have the meaning set forth in Section 9(b).
"Person" shall mean any individual, firm, partnership, corporation,
limited liability company, trust or other entity, and shall include any
successor (by merger or otherwise) of such entity.
"Purchased Units" shall have the meaning set forth in Section
6(d)(iv).
"REIT Termination Event" shall mean the earliest to occur of:
(i) the filing of a federal income tax return by the Trust for any
taxable year on which the Trust does not compute its income as a
real estate investment trust;
(ii) the approval by the unitholders of the Trust of a proposal for
the Trust to cease to qualify as a real estate investment trust;
(iii) a determination by the Board of Trustees of the Trust, based on
the advice of counsel, that the Trust has ceased to qualify as a
real estate investment trust; or
(iv) a "determination" within the meaning of Section 1313(a) of the
Code that the Trust has ceased to qualify as a real estate
investment trust.
"Securities" and "Security" shall have the meanings set forth in
Section 6(d)(iii).
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Preferred Units" shall have the meaning given such term in
the preamble to this First Amendment.
"Set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Partnership in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration or other action of the General Partner, the
allocation of funds to be so paid on any series or class of Partnership
Units of the Trust; provided, however, that if any funds for any class or
-------- -------
series of Junior Shares or any class or series of shares of beneficial
interest ranking on a parity with the Series A Preferred Units as to the
payment of distributions are placed in a separate account of the Trust or
delivered to a disbursing, paying or other similar agent, then "set apart
for payment" with respect to the Series A Preferred Units shall mean
placing such funds in a separate account or delivering such funds to a
disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in question
are traded on the NYSE, or if such securities are not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on NASDAQ, or if such
securities are not quoted on NASDAQ, in the securities market in which the
securities are traded.
"Transaction" shall have the meaning set forth in Section 6(e).
"Transfer Agent" shall mean the Trust, or such other agent or agents
of the Trust as may be designated by the Board of Trustees or their
designee as the transfer agent, registrar and distribution disbursing agent
for the Series A Preferred Units.
Capitalized terms not otherwise defined herein have the meanings ascribed to
them in the Partnership Agreement.
Section 3. Distributions.
-------------
(a) Subject to the preferential rights of the holders of any Preferred
Units that rank senior in the payment of distributions to the Series A Preferred
Units, the holders of Series A Preferred Units shall be entitled to receive,
when, as and if determined by the General Partner in its sole discretion, out of
funds legally available for the payment of distributions, cumulative
preferential distributions payable in cash in an amount per share equal to the
greater of (i) an annual distribution of $1.60 or (ii) the regular cash
distributions (determined on each Distribution Payment Date) on the Common
Units, or portion thereof, into which a Series A Preferred Share
<PAGE>
is convertible. The distributions referred to in clause (ii) of the preceding
sentence shall equal the number of Common Units, or portion thereof, into which
one Series A Preferred Unit will be convertible on or after the Conversion Date,
multiplied by the most current quarterly distribution on one Common Unit on or
before the applicable Distribution Payment Date. If the Partnership pays a
regular cash distribution on the Common Units with respect to a Distribution
Period after the date on which the Distribution Payment Date is declared
pursuant to clause (ii) of the definition of Distribution Payment Date and the
distribution calculated pursuant to clause (ii) of this paragraph (a) with
respect to such Distribution Period is greater than the distribution previously
declared on the Series A Preferred Units with respect to such Distribution
Period, the Partnership shall pay an additional distribution to the holders of
the Series A Preferred Units on the date on which the distribution on the Common
Units is paid, in an amount equal to the difference between (y) the distribution
calculated pursuant to clause (ii) of this paragraph (a) and (z) the amount of
distributions previously declared on the Series A Preferred Units with respect
to such Distribution Period. The distributions shall begin to accrue and shall
be fully cumulative from the first day of the applicable Distribution Period,
whether or not in any Distribution Period or Periods there shall be funds of the
Partnership legally available for the payment of such distributions, and shall
be payable quarterly, when, as and if the General Partner, in its sole
discretion, determines, in arrears on Distribution Payment Dates. Each such
distribution shall be payable in arrears to the holders of record of Series A
Preferred Units as they appear in the records of the Partnership at the close of
business on such record dates, not less than 10 nor more than 50 days preceding
such Distribution Payment Dates thereof, as shall be fixed by the General
Partner. Accrued and unpaid distributions for any past Distribution Periods may
be declared and paid at any time and for such interim periods, without reference
to any regular Distribution Payment Date, to holders of record on such date, not
less than 10 nor more than 50 days preceding the payment date thereof, as may be
fixed by the General Partner. Any distribution payment made on Series A
Preferred Units shall first be credited against the earliest accrued but unpaid
distribution due with respect to Series A Preferred Units which remains payable.
(b) The amount of distributions referred to in clause (i) of Section 3(a)
payable for each full Distribution Period on the Series A Preferred Units shall
be computed by dividing the annual distribution rate by four. The initial
Distribution Period for the Series A Preferred Units will include a partial
distribution for the period from the Issue Date until the last day of the
calendar quarter immediately following such Issue Date. The amount of
distributions payable for such period, or any other period shorter than a full
Distribution Period, on the Series A Preferred Units shall be computed by
dividing the number of days in such period by 365 and multiplying the result by
the Series A Preferred distribution rate determined in accordance with Section
3(a). Holders of Series A Preferred Units shall not be entitled to any
distributions, whether payable in cash, property or shares, in excess of
cumulative distributions, as herein provided, on the Series A Preferred Units.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distribution or distributions on the Series A Preferred Units which may be
in arrears.
<PAGE>
(c) So long as any Series A Preferred Units are outstanding, no
distributions, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any class or series of Parity
Units for any period unless full cumulative distributions have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series A Preferred Units for
all Distribution Periods terminating on or prior to the Distribution Payment
Date on such class or series of Parity Units. When distributions are not paid in
full or a sum sufficient for such payment is not set apart, as aforesaid, all
distributions declared upon Series A Preferred Units and all distributions
declared upon any other class or series of Parity Units shall be declared
ratably in proportion to the respective amounts of distributions accumulated and
unpaid on the Series A Preferred Units and accumulated and unpaid on such Parity
Units.
(d) So long as any Series A Preferred Units are outstanding, no
distributions (other than distributions paid solely in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Fully Junior Units)
shall be declared or paid or set apart for payment or other distribution shall
be declared or made or set apart for payment upon Junior Units, nor shall any
Junior Units be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of Common Units made for purposes of
an employee incentive or benefit plan of the Partnership or any subsidiary or
affiliate) for any consideration (or any moneys be paid to or made available for
a sinking fund for the redemption of any Junior Units) by the Partnership,
directly or indirectly (except by conversion into or exchange for Fully Junior
Units), unless in each case (i) the full cumulative distributions on all
outstanding Series A Preferred Units and any other Parity Units of the
Partnership shall have been or contemporaneously are declared and paid or
declared and set apart for payment for all past Distribution Periods with
respect to the Series A Preferred Units and all past distribution periods with
respect to such Parity Units and (ii) sufficient funds shall have been or
contemporaneously are declared and paid or declared and set apart for the
payment of the distribution for the current Distribution Period with respect to
the Series A Preferred Units and the current distribution period with respect to
such Parity Units.
(e) No distributions on Series A Preferred Units shall be declared by the
General Partner or paid or set apart for payment by the Partnership at such time
as the terms and provisions of any agreement of the Partnership, including any
agreement relating to its indebtedness, prohibits such declaration, payment or
setting apart for payment or provides that such declaration, payment or setting
apart for payment would constitute a breach thereof or a default thereunder, or
if such declaration or payment shall be restricted or prohibited by law.
Section 4. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Partnership, whether voluntary or involuntary, subject to the prior preferences
and other rights of any series of
<PAGE>
Partnership Units ranking senior to the Series A Preferred Units of Beneficial
Interest upon liquidation, distribution or winding up of the Partnership, before
any payment or distribution of the assets of the Partnership (whether capital or
surplus) shall be made to or set apart for the holders of Junior Units, the
holders of the Series A Preferred Units shall be entitled to receive Twenty Six
Dollars and Fifty Cents ($26.50) (the "Liquidation Preference") per Series A
Preferred Units plus an amount equal to all distributions (whether or not earned
or declared) accrued and unpaid thereon to the date of final distribution to
such holders; but such holders shall not be entitled to any further payment;
provided, that the distribution payable with respect to the Distribution Period
- --------
containing the date of final distribution shall be equal to the greater of (i)
the distribution provided in Section 3(a)(i) or (ii) the distribution determined
pursuant to Section 3(a)(ii) for the preceding Distribution Period. If, upon any
liquidation, dissolution or winding up of the Partnership, the assets of the
Partnership, or proceeds thereof, distributable among the holders of the Series
A Preferred Units shall be insufficient to pay in full the preferential amount
aforesaid and liquidating payments on any other shares of any class or series of
Parity Units, then such assets, or the proceeds thereof, shall be distributed
among the holders of Series A Preferred Units and any such other Parity Units
ratably in accordance with the respective amounts that would be payable on such
Series A Preferred Units and any such other Parity Units if all amounts payable
thereon were paid in full. For the purposes of this Section 4, (i) a
consolidation or merger of the Partnership with one or more partnerships,
corporations, real estate investment trusts or other entities or (ii) a sale,
lease or conveyance of all or substantially all of the Partnership's property or
business shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, of the Partnership.
(b) Subject to the rights of the holders of shares of any series or class
or classes of units ranking on a parity with or prior to the Series A Preferred
Units upon liquidation, dissolution or winding up, upon any liquidation,
dissolution or winding up of the Partnership, after payment shall have been made
in full to the holders of the Series A Preferred Units, as provided in this
Section 4, the holders of Series A Preferred Units shall have no other claim to
the remaining assets of the Partnership and any other series or class or classes
of Junior Units shall, subject to the respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets remaining to be paid
or distributed, and the holders of the Series A Preferred Units shall not be
entitled to share therein.
Section 5. Redemption at the Option of the Partnership.
-------------------------------------------
(a) The Series A Preferred Units shall not be redeemable by the Partnership
prior to December 29, 2004. On and after December 29, 2004, the Partnership, at
its option, may redeem the Series A Preferred Units, in whole at any time or
from time to time in part out of funds legally available therefor at a
redemption price payable in cash equal to 100% of the Liquidation Preference per
Series A Preferred Units (plus all accumulated, accrued and unpaid distributions
as provided below).
<PAGE>
(b) Upon any redemption of Series A Preferred Units pursuant to this
Section 5, the Partnership shall pay all accrued and unpaid distributions, if
any, thereon to the Call Date, without interest. If the Call Date falls after a
distribution payment record date and prior to the corresponding Distribution
Payment Date, then each holder of Series A Preferred Units at the close of
business on such distribution payment record date shall be entitled to the
distribution payable on such shares on the corresponding Distribution Payment
Date notwithstanding any redemption of such shares before such Distribution
Payment Date. Except as provided above, the Partnership shall make no payment or
allowance for unpaid distributions, whether or not in arrears, on Series A
Preferred Units called for redemption.
(c) If full cumulative distributions on the Series A Preferred Units and
any other class or series of Parity Units of the Partnership have not been
declared and paid or declared and set apart for payment, the Series A Preferred
Units may not be redeemed under this Section 5 in part and the Partnership may
not purchase or acquire Series A Preferred Units, otherwise than pursuant to a
purchase or exchange offer made on the same terms to all holders of Series A
Preferred Units.
(d) Notice of the redemption of any Series A Preferred Units under this
Section 5 shall be mailed by first-class mail to each holder of record of Series
A Preferred Units to be redeemed at the address of each such holder as shown on
the Partnership's records, not less than 30 nor more than 90 days prior to the
Call Date. Neither the failure to mail any notice required by this paragraph
(d), nor any defect therein or in the mailing thereof, to any particular holder,
shall affect the sufficiency of the notice or the validity of the proceedings
for redemption with respect to the other holders. Each such mailed notice shall
state, as appropriate: (1) the Call Date; (2) the number of Series A Preferred
Units to be redeemed and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such holder; (3)
the redemption price; (4) the then-current Conversion Price; and (5) that
distributions on the shares to be redeemed shall cease to accrue on such Call
Date except as otherwise provided herein. Notice having been mailed as
aforesaid, from and after the Call Date (unless the Partnership shall fail to
make available an amount of cash necessary to effect such redemption), (i)
except as otherwise provided herein, distributions on the Series A Preferred
Units so called for redemption shall cease to accrue, (ii) such shares shall no
longer be deemed to be outstanding, and (iii) all rights of the holders thereof
as holders of Series A Preferred Units shall cease (except the rights to convert
and to receive the cash payable upon such redemption, without interest thereon,
upon surrender and endorsement of their certificates if so required and to
receive any distributions payable thereon). The Partnership's obligation to
provide cash in accordance with the preceding sentence shall be deemed fulfilled
if, on or before the Call Date, the Partnership shall deposit with a bank or
trust company (which may be an affiliate of the Partnership) that has an office
in the Borough of Manhattan, City of New York, and that has, or is an affiliate
of a bank or trust company that has, capital and surplus of at least
$50,000,000, necessary for such redemption, in trust, with irrevocable
instructions that such cash be applied to
<PAGE>
the redemption of the Series A Preferred Units so called for redemption. No
interest shall accrue for the benefit of the holders of Series A Preferred Units
to be redeemed on any cash so set aside by the Partnership. Subject to
applicable escheat laws, any such cash unclaimed at the end of two years from
the Call Date shall revert to the general funds of the Partnership, after which
reversion the holders of such shares so called for redemption shall look only to
the general funds of the Partnership for the payment of such cash.
As promptly as practicable after the Call Date, such Series A Preferred
Units shall be exchanged for any cash (without interest thereon) for which such
Series A Preferred Units have been redeemed, such exchange to be evidenced by
appropriate amendments of Exhibit A to the Agreement and payment to the holder
thereof (as shown on the records of the Partnership) of such cash. If fewer than
all the outstanding Series A Preferred Units are to be redeemed, shares to be
redeemed shall be selected by the Partnership from outstanding Series A
Preferred Units not previously called for redemption pro rata (as nearly as may
be), by lot or by any other method determined by the Partnership in its sole
discretion to be equitable.
Section 6. Conversion. Holders of Series A Preferred Units shall have the
----------
right to convert all or a portion of such units into Common Units, as follows:
(a) Subject to and upon compliance with the provisions of this Section
6, a holder of Series A Preferred Units shall have the right, at his or her
option, upon the earliest to occur of (i) the sixty first day after such
holder provides the General Partner with written notice that the Series A
Preferred Units are convertible into Common Units in accordance with the
provisions of this Agreement; provided that such holder may not provide
such notice prior to November 1, 1998, (ii) the first day on which a Change
of Control occurs, (iii) the occurrence of a REIT Termination Event, or
(iv) such date as determined by the General Partner (the "Conversion
Date"), to convert all or any portion of such units (or such units as
determined by the General Partner if pursuant to clause (iv) above) into
the number of Common Units obtained by dividing the aggregate Liquidation
Preference of such units (inclusive of accrued but unpaid distributions) by
the Conversion Price (as in effect at the time and on the date provided for
in the last paragraph of paragraph (b) of this Section 6), such conversion
to be made in the manner provided in paragraph (b) of this Section 6;
provided, however, that the right to convert units called for redemption
-------- -------
pursuant to Section 5 shall terminate at the close of business on the fifth
Business Day prior to the Call Date fixed for such redemption, unless the
Partnership shall default in making payment of the cash payable upon such
redemption under Section 5.
"Change of Control" means each occurrence of any of the following: (i)
-----------------
the acquisition, directly or indirectly, by any individual or entity or
group (as such term is used in Section 13(d)(3) of the Exchange Act) of
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act,
except that such individual or entity shall be deemed to
<PAGE>
have beneficial ownership of all shares that any such individual or entity
has the right to acquire, whether such right is exercisable immediately or only
after passage of time) of more than 25% of the Trust's outstanding shares of
beneficial interest with voting power, under ordinary circumstances, to elect
trustees of the Trust; (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Trustees of the Trust (together with any new trustees whose election by such
Board of Trustees or whose nomination for election by the unitholders of the
Trust was approved by a vote of 66 2/3% of the trustees of the Trust then still
in office who were either trustees at the beginning of such period, or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Trustees then in office; and
(iii) (A) the Trust or the Partnership consolidating with or merging into
another entity or conveying, transferring or leasing all or substantially all of
its assets (including, but not limited to, real property investments) to any
individual or entity, or (B) any entity consolidating with or merging into the
Trust or the Partnership, which in either event (A) or (B) is pursuant to a
transaction in which the outstanding voting shares of beneficial interest of the
Trust or voting units of the Partnership are reclassified or changed into or
exchanged for cash, securities or other property; provided, however, that the
events described in clause (iii) shall not be deemed to be a Change of Control
(a) if the sole purpose of such event is that the Trust or the Partnership is
seeking to change its domicile or to change its form of organization from a
trust to a corporation or (b) if, in the case of the Trust, the holders of the
exchanged securities of the Trust immediately after such transaction
beneficially own at least a majority of the securities of the merged or
consolidated entity normally entitled to vote in elections of its trustees or
directors.
(b) In order to exercise the conversion right, the holder of each Series A
Preferred Unit to be converted shall irrevocably instruct the General Partner in
a writing duly executed by the holder or the holder's duly authorized attorney,
with signature guaranteed, to convert such units into Common Units. The General
Partner, in its sole discretion, may require such holder to provide additional
instruments of transfer as its deems necessary or desirable to effect the
conversion. Each instruction shall be accompanied by an amount sufficient to pay
any transfer or similar tax (or evidence reasonably satisfactory to the General
Partner demonstrating that such taxes have been paid).
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which such instruction and such notice
shall have been received by the General Partner as aforesaid (and if applicable,
payment of an amount equal to the distribution payable on such units shall have
been received by the General Partner as described above) and such conversion
shall be at the Conversion Price in effect at such time on such date.
<PAGE>
Holders of Series A Preferred Units at the close of business on a
distribution payment record date shall be entitled to receive the distribution
payable on such units on the corresponding Distribution Payment Date
notwithstanding the conversion thereof following such distribution payment
record date and prior to such Distribution Payment Date. However, the holder of
Series A Preferred Units converted during the period between the close of
business on any distribution payment record date and the opening of business on
the corresponding Distribution Payment Date (except Series A Preferred Units
converted after the issuance of notice of redemption with respect to a Call Date
during such period, such Series A Preferred Units being entitled to such
distribution on the Distribution Payment Date) must pay to the Partnership an
amount equal to the distribution payable on such units on such Distribution
Payment Date. A holder of Series A Preferred Units on a distribution payment
record date who converts Series A Preferred Units into Common Units on the
corresponding Distribution Payment Date will receive the distribution payable by
the Partnership on such Series A Preferred Units on such date, and the
converting holder need not pay the amount of such distribution upon conversion.
Except as provided above, the Partnership shall make no payment or allowance for
unpaid distributions, whether or not in arrears, on converted units or for
distributions on the Common Units issued upon such conversion.
(c) In lieu of any fractional interest in a Common Unit that would
otherwise be deliverable upon the conversion of a Series A Preferred Share, the
General Partner, in its sole discretion, may cause the Partnership to pay to the
holder of such fractional unit an amount in cash based upon the Fair Market
Value of the Common Units on the Trading Day immediately preceding the date of
conversion. If more than one unit shall be surrendered for conversion at one
time by the same holder, the number of full Common Units issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
Series A Preferred Units so surrendered.
(d) The Conversion Price shall be adjusted from time to time as follows:
(i) If the Partnership shall after the Issue Date (A) make a
distribution on its Partnership Units in Common Units, (B) subdivide its
outstanding Common Units into a greater number of units, (C) combine its
outstanding Common Units into a smaller number of units or (D) issue any
Partnership Units by reclassification of its Common Units, the Conversion
Price in effect at the opening of business on the day following the date
fixed for the determination of unitholders entitled to receive such
distribution or distribution or at the opening of business on the Business
Day next following the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be adjusted
so that the holder of any Series A Preferred Units thereafter surrendered
for conversion shall be entitled to receive the number of Common Units that
such holder would have owned or have been entitled to receive after the
happening of
<PAGE>
any of the events described above as if such Series A Preferred Units had
been converted immediately prior to the record date in the case of a
distribution or distribution or the effective date in the case of a
subdivision, combination or reclassification. An adjustment made pursuant
to this subparagraph (i) shall become effective immediately after the
opening of business on the Business Day next following the record date
(except as provided in paragraph (h) below) in the case of a distribution
and shall become effective immediately after the opening of business on the
Business Day next following the effective date in the case of a
subdivision, combination or reclassification.
(ii) If the Partnership shall issue after the Issue Date rights,
options or warrants to all holders of Common Units entitling them (for a
period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase Common Units at a price per share less than 95%
(100% if a stand-by underwriter is used and charges the Partnership a
commission) of the Fair Market Value per Common Unit on the record date for
the determination of unitholders entitled to receive such rights, options
or warrants, then the Conversion Price in effect at the opening of business
on the Business Day next following such record date shall be adjusted to
equal the price determined by multiplying (A) the Conversion Price in
effect immediately prior to the opening of business on the Business Day
next following the date fixed for such determination by (B) a fraction, the
numerator of which shall be the sum of (x) the number of Common Units
outstanding on the close of business on the date fixed for such
determination and (y) the number of shares that the aggregate proceeds to
the Partnership from the exercise of such rights, options or warrants for
Common Units would purchase at 95% of such Fair Market Value (or 100% in
the case of a stand-by underwriting), and the denominator of which shall be
the sum of (x) the number of Common Units outstanding on the close of
business on the date fixed for such determination and (y) the number of
additional Common Units offered for subscription or purchase pursuant to
such rights, options or warrants. Such adjustment shall become effective
immediately after the opening of business on the day next following such
record date (except as provided in paragraph (h) below). In determining
whether any rights, options or warrants entitle the holders of Common Units
to subscribe for or purchase Common Units at less than 95% of such Fair
Market Value (or 100% in the case of a stand-by underwriting), there shall
be taken into account any consideration received by the Partnership upon
issuance and upon exercise of such rights, options or warrants, the value
of such consideration, if other than cash, to be determined by the General
Partner whose determination shall be conclusive.
<PAGE>
(iii) If the Partnership shall distribute to all holders of its Common
Units any securities of the Partnership (other than Common Units) or
evidence of its indebtedness or assets (excluding cumulative cash
distributions or distributions paid with respect to the Common Units after
December 31, 1996 which are not in excess of the following: the sum of (A)
the Partnership's cumulative undistributed Funds from Operations at
December 31, 1996, plus (B) the cumulative amount of Funds from Operations,
as determined by the General Partner, after December 31, 1996, minus (C)
the cumulative amount of distributions accrued or paid in respect of the
Series A Preferred Units or any other class or series of preferred units of
the Partnership after the Issue Date or rights, options or warrants to
subscribe for or purchase any of its securities (excluding those rights,
options and warrants issued to all holders of Common Units entitling them
for a period expiring within 45 days after the record date referred to in
subparagraph (ii) above to subscribe for or purchase Common Units, which
rights and warrants are referred to in and treated under subparagraph (ii)
above) (any of the foregoing being hereinafter in this subparagraph (iii)
collectively called the "Securities" and individually a "Security"), then
---------- --------
in each such case the Conversion Price shall be adjusted so that it shall
equal the price determined by multiplying (x) the Conversion Price in
effect immediately prior to the close of business on the date fixed for the
determination of unitholders entitled to receive such distribution by (y) a
fraction, the numerator of which shall be the Fair Market Value per Common
Unit on the record date mentioned below less the then fair market value (as
determined by the General Partner, whose determination shall be conclusive)
of the portion of the Securities or assets or evidences of indebtedness so
distributed or of such rights, options or warrants applicable to one Common
Unit, and the denominator of which shall be the Fair Market Value per
Common Unit on the record date mentioned below. Such adjustment shall
become effective immediately at the opening of business on the Business Day
next following (except as provided in paragraph (h) below) the record date
for the determination of unitholders entitled to receive such distribution.
For the purposes of this subparagraph (iii), the distribution of a
Security, which is distributed not only to the holders of the Common Units
on the date fixed for the determination of unitholders entitled to such
distribution of such Security, but also is distributed with each Common
Unit delivered to a Person converting a Series A Preferred Unit after such
determination date, shall not require an adjustment of the Conversion Price
pursuant to this subparagraph (iii); provided that on the date, if any, on
--------
which a person converting a Series A Preferred Unit would no longer be
entitled to receive such Security with a Common Unit (other than as a
result of the termination of all such Securities), a distribution of such
Securities shall be deemed to have occurred and the Conversion Price shall
be adjusted as provided in this subparagraph (iii) (and such day shall be
deemed to be "the date fixed for the determination of the unitholders
entitled to receive such distribution" and "the record date" within the
meaning of the two preceding sentences).
<PAGE>
(iv) In case a tender or exchange offer (which term shall not include
open market repurchases by the Partnership) made by the Partnership or any
subsidiary of the Partnership for all or any portion of the Common Units
shall expire and such tender or exchange offer shall involve the payment by
the Partnership or such subsidiary of consideration per Common Unit having
a fair market value (as determined in good faith by the General Partner,
whose determination shall be conclusive), at the last time (the "Expiration
----------
Time") tenders or exchanges may be made pursuant to such tender or exchange
----
offer, that exceeds the Current Market Price per Common Unit on the Trading
Day next succeeding the Expiration Time, the Conversion Price shall be
reduced so that the same shall equal the price determined by multiplying
the Conversion Price in effect immediately prior to the effectiveness of
the Conversion Price reduction contemplated by this subparagraph, by a
fraction of which the numerator shall be the number of Common Units
outstanding (including any tendered or exchanged units) at the Expiration
Time, multiplied by the Current Market Price per Common Unit on the Trading
Day next succeeding the Expiration Time, and the denominator shall be the
sum of (A) the fair market value (determined as aforesaid) of the aggregate
consideration payable to unitholders based upon the acceptance (up to any
maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the Expiration
Time (the shares deemed so accepted, up to any maximum, being referred to
as the "Purchased Units") and (B) the product of the number of Common Units
---------------
outstanding (less any Purchased Units) at the Expiration Time and the
Current Market Price per Common Unit on the Trading Day next succeeding the
Expiration Time, such reduction to become effective immediately prior to
the opening of business on the day following the Expiration Time.
(v) No adjustment in the Conversion Price shall be required unless
such adjustment would require a cumulative increase or decrease of at least
1% in such price; provided, however, that any adjustments that by reason of
-------- -------
this subparagraph (v) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment until made; and
provided, further, that any adjustment shall be required and made in
-------- -------
accordance with the provisions of this Section 6 (other than this
subparagraph (v)) not later than such time as may be required in order to
preserve the tax-free nature of a distribution to the holders of Common
Units. Notwithstanding any other provisions of this Section 6, the
Partnership shall not be required to make any adjustment of the Conversion
Price for the issuance of any Common Units pursuant to any plan providing
for the reinvestment of distributions or interest payable on securities of
the Partnership and the investment of additional optional amounts in Common
Units under such plan. All calculations under this Section 6 shall be made
to the nearest cent (with $.005 being rounded upward) or to the nearest
one-tenth of a unit (with .05 of a
<PAGE>
unit being rounded upward), as the case may be. Anything in this paragraph
(d) to the contrary notwithstanding, the Partnership shall be entitled, to
the extent permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this paragraph (d), as it in its
discretion shall determine to be advisable in order that any share
distributions, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase shares or
securities, or distribution of other assets (other than cash distributions)
hereafter made by the Partnership to its partners shall not be taxable.
(e) If the Partnership shall be a party to any transaction (including
without limitation a merger, consolidation, self tender offer for all or
substantially all of its Common Units, sale of all or substantially all of the
Partnership's assets or recapitalization of the Common Units and excluding any
transaction as to which subparagraph (d)(i) of this Section 6 applies) (each of
the foregoing being referred to herein as a "Transaction"), in each case as a
-----------
result of which all or substantially all of the Common Units are converted into
the right to receive shares, securities or other property (including cash or any
combination thereof), each Series A Preferred Unit which is not redeemed or
converted into the right to receive shares, securities or other property prior
to such Transaction shall thereafter be convertible into the kind and amount of
shares, securities and other property (including cash or any combination
thereof) receivable upon the consummation of such Transaction by a holder of
that number of Common Units into which one Series A Preferred Unit was
convertible immediately prior to such Transaction, assuming such holder of
Common Units (i) is not a Person with which the Partnership consolidated or into
which the Partnership merged or which merged into the Partnership or to which
such sale or transfer was made, as the case may be ("Constituent Person"), or an
------------------
affiliate of a Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of shares, securities and other
property (including cash) receivable upon such Transaction (provided that if the
kind or amount of shares, securities and other property (including cash)
receivable upon such Transaction is not the same for each Common Unit held
immediately prior to such Transaction by other than a Constituent Person or an
affiliate thereof and in respect of which such rights of election shall not have
been exercised ("Non-Electing Unit"), then for the purpose of this paragraph (e)
-----------------
the kind and amount of shares, securities and other property (including cash)
receivable upon such Transaction by each Non-Electing Unit shall be deemed to be
the kind and amount so receivable per unit by holders of a plurality of the
Non-Electing Units). The Partnership shall not be a party to any Transaction
unless the terms of such Transaction are consistent with the provisions of this
paragraph (e), and it shall not consent or agree to the occurrence of any
Transaction until the Partnership has entered into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of the
holders of the Series A Preferred Units that will contain provisions enabling
the holders of the Series A Preferred Units that remain outstanding after such
Transaction to convert into the consideration received by holders of Common
Units at the Conversion
<PAGE>
Price in effect immediately prior to such Transaction. The provisions of this
paragraph (e) shall similarly apply to successive Transactions.
(f) If:
(i) the Partnership shall declare a distribution on its Common Units
(other than cash distributions or distributions paid with respect to the
Common Units after December 31, 1996 not in excess of the sum of the
Partnership's cumulative undistributed Funds from Operations at December
31, 1996, plus the cumulative amount of Funds from Operations, as
determined by the General Partner, after December 31, 1996, minus the
cumulative amount of distributions accrued or paid in respect of the Series
A Preferred Units or any other class or series of preferred units of the
Partnership after the Issue Date); or
(ii) the Partnership shall authorize the granting to all holders of
Common Units of rights, options or warrants to subscribe for or purchase
any units of any class or any other rights, options or warrants; or
(iii) there shall be any reclassification of the Common Units (other
than an event to which subparagraph (d)(i) of this Section 6 applies) or
any consolidation or merger to which the Partnership is a party (other than
a merger in which the Partnership is the surviving entity) and for which
approval of any partners of the Partnership is required, or a self tender
offer by the Partnership for all or substantially all of its outstanding
Common Units or the sale or transfer of all or substantially all of the
assets of the Partnership as an entirety; or
(iv) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Partnership;
then the General Partner shall cause to be mailed to the holders of Series A
Preferred Units at their addresses as shown on the records of the Partnership,
as promptly as possible, but at least 10 days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such distribution, or granting of rights, options or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Units of record to be entitled to such distribution, or rights,
options or warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Units of record shall be entitled to
exchange their Common Units for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up. Failure to give or receive such notice
or any defect therein shall not affect the legality or validity of the
proceedings described in this Section 6.
<PAGE>
(g) Whenever the Conversion Price is adjusted as herein provided, the
General Partner shall promptly (i) execute and file in its records an officer's
certificate setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment which certificate
shall be conclusive evidence of the correctness of such adjustment absent
manifest error, and (ii) prepare a notice of such adjustment of the Conversion
Price setting forth the adjusted Conversion Price and the effective date of such
adjustment and shall mail such notice of such adjustment of the Conversion Price
to the holder of each Series A Preferred Unit at such holder's last address as
shown on the records of the Partnership.
(h) In any case in which paragraph (d) of this Section 6 provides that an
adjustment shall become effective on the day next following the record date for
an event, the Partnership may defer until the occurrence of such event (A)
issuing to the holder of any Series A Preferred Unit converted after such record
date and before the occurrence of such event the additional Common Units
issuable upon such conversion by reason of the adjustment required by such event
over and above the Common Units issuable upon such conversion before giving
effect to such adjustment and (B) paying to such holder any amount of cash in
lieu of any fraction pursuant to paragraph (c) of this Section 6.
(i) There shall be no adjustment of the Conversion Price in case of the
issuance of any shares of beneficial interest of the Partnership in a
reorganization, acquisition or other similar transaction except as specifically
set forth in this Section 6. If any action or transaction would require
adjustment of the Conversion Price pursuant to more than one paragraph of this
Section 6, only one adjustment shall be made and such adjustment shall be the
amount of adjustment that has the highest absolute value.
(j) If the Partnership shall take any action affecting the Common Units,
other than action described in this Section 6, that in the opinion of the
General Partner would materially and adversely affect the conversion rights of
the holders of the Series A Preferred Units, the Conversion Price for the Series
A Preferred Units may be adjusted, to the extent permitted by law, in such
manner, if any, and at such time, as the General Partner, in its sole
discretion, may determine to be equitable in the circumstances.
The Partnership shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the issuance of
any securities that the Partnership shall be obligated to deliver upon
conversion of the Series A Preferred Units.
(k) The Partnership will pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of Common Units or
other securities or property on conversion of the Series A Preferred Units
pursuant hereto; provided, however, that the Partnership shall not be required
-------- -------
to pay any tax that may be
<PAGE>
payable in respect of any transfer involved in the issue or delivery of Common
Units or other securities or property in a name other than that of the holder of
the Series A Preferred Units to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery has
paid to the Partnership the amount of any such tax or established, to the
reasonable satisfaction of the Partnership, that such tax has been paid.
Section 7. Ranking. Any class or series of Partnership Units shall be
-------
deemed to rank:
(a) prior to the Series A Preferred Units, as to the payment of
distributions and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of distributions or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority to the
holders of Series A Preferred Units;
(b) on a parity with the Series A Preferred Units, as to the payment of
distributions and as to distribution of assets upon liquidation, dissolution or
winding up, whether or not the distribution rates, Distribution Payment Dates or
redemption or liquidation prices per share thereof shall be different from those
of the Series A Preferred Units, if the holders of such class or series and the
Series A Preferred Units shall be entitled to the receipt of distributions and
of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid distributions per
share or liquidation preferences, without preference or priority one over the
other ("Parity Units");
------------
(c) junior to the Series A Preferred Units, as to the payment of
distributions or as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be Junior Shares; and
(d) junior to the Series A Preferred Units, as to the payment of
distributions and as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be Fully Junior Units.
Section 8. Voting. Except as expressly provided herein, the holders of
------
Series A Preferred Units shall have no voting rights.
So long as any Series A Preferred Units are outstanding, in addition to any
other vote or consent of partners required by law or by the Partnership
Agreement, the affirmative vote of at least 51% of the votes entitled to be cast
by the holders of the Series A Preferred Units given in
<PAGE>
person or by proxy, either in writing without a meeting or by vote at any
meeting called for the purpose, shall be necessary for effecting or validating:
(a) Any amendment, alteration or repeal of any of the provisions of
the Agreement that materially and adversely affects the voting powers,
rights or preferences of the holders of the Series A Preferred Units;
provided, however, that the amendment of the provisions of the Partnership
-------- -------
Agreement so as to authorize or create or to increase the authorized amount
of, any Parity Units, Fully Junior Units or Junior Units that are not
senior in any respect to the Series A Preferred Units shall not be deemed
to materially adversely affect the voting powers, rights or preferences of
the holders of Series A Preferred Units; or
(b) A consolidation with or merger of the Partnership into another
entity, or a consolidation with or merger of another entity into the
Partnership, unless in each such case each Series A Preferred Units (i)
shall remain outstanding without a material and adverse change to its terms
and rights or (ii) shall be converted into or exchanged for convertible
securities of the surviving entity having preferences, conversion or other
rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms or conditions of redemption thereof identical to
that of a Series A Preferred Unit (except for changes that do not
materially and adversely affect the holders of the Series A Preferred
Units);
provided, however, that no such vote of the holders of Series A Preferred Units
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shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series A Preferred Units at the time outstanding to the
extent such redemption is authorized by Section 5 hereof.
For purposes of the foregoing provisions of this Section 8, each Series A
Preferred Unit shall have one (1) vote per unit, except that when any other
series of Preferred Units shall have the right to vote with the Series A
Preferred Units as a single class on any matter, then the Series A Preferred
Units and such other series shall have with respect to such matters one (1) vote
per $26.50 (or less pursuant to Section 4(a) hereof) of stated liquidation
preference. Except as otherwise required by applicable law or as set forth
herein, the Series A Preferred Units shall not have any relative, participating,
optional or other special voting rights and powers other than as set forth
herein, and the consent of the holders thereof shall not be required for the
taking of any Partnership action.
<PAGE>
Record Holders. The General Partner may deem and treat the record holder of
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any Series A Preferred Units as the true and lawful owner thereof for all
purposes, and the General Partner shall not be affected by any notice to the
contrary.
<PAGE>
IN WITNESS WHEREOF, the General Partner has caused this Amendment to be
duly executed by its Vice President this 29th day of December, 1997.
PRENTISS PROPERTIES I, INC.
By:/S/ Michael A. Ernst
----------------------------
Vice President
