<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-12993
ALEXANDRIA REAL ESTATE EQUITIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 95-4502084
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
251 South Lake Avenue, Suite 700, Pasadena, California 91101
(Address of principal executive offices)
(626) 578-0777
(Registrant's telephone number, including area code)
N/A
- - - - - - - - - - - -
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
----- -----
As of August 12, 1997, 11,404,631 shares of common stock, par value $.01 per
share, were outstanding.
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets of Alexandria Real Estate
Equities, Inc. as of June 30, 1997 and December 31, 1996
Condensed Consolidated Statements of Operations of Alexandria Real
Estate Equities, Inc. for the three months ended June 30, 1997 and
1996 and the six months ended June 30, 1997 and 1996
Condensed Consolidated Statement of Stockholders' Equity of Alexandria
Real Estate Equities, Inc. for the six months ended June 30, 1997
Condensed Consolidated Statements of Cash Flows of Alexandria Real
Estate Equities, Inc. for the three months ended June 30, 1997 and
1996 and the six months ended June 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Item 2. CHANGES IN SECURITIES
Item 3. DEFAULTS UPON SENIOR SECURITIES
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 5. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Alexandria Real Estate Equities, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1997 1996
---------------------------
<S> <C> <C>
ASSETS
Rental properties, net $198,836 $146,960
Cash and cash equivalents 21,929 1,696
Tenant security deposit funds and other restricted cash 4,615 5,585
Tenant receivables and deferred rent 1,300 1,244
Loan fees and costs (net of accumulated amortization of
$57 and $131, respectively) 1,577 2,502
Other assets (net of accumulated amortization of $247
and $194, respectively) 1,756 2,405
---------------------------
Total assets $230,013 $160,392
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable and lines of credit $ 55,151 $113,182
Accounts payable, accrued expenses and tenant security
deposits 5,358 3,562
Dividends payable 1,454 1,550
Due to Health Science Properties Holding Corporation - 2,525
---------------------------
Total liabilities 61,963 120,819
Manditorily redeemable Series V cumulative convertible
preferred stock, $0.01 par value per share - 25,042
Stockholders' equity:
Preferred stock, $0.01 par value per share - 111
Common stock, $0.01 par value per share, 100,000,000
shares authorized; 11,404,631 and 1,000 shares issued
and outstanding at June 30, 1997 and December 31,
1996, respectively 114 -
Additional paid-in capital 184,579 16,195
Accumulated deficit (16,643) (1,775)
Total stockholders' equity 168,050 14,531
---------------------------
Total liabilities and stockholders' equity $230,013 $160,392
===========================
</TABLE>
See accompanying notes.
2
<PAGE>
Alexandria Real Estate Equities, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, JUNE 30,
1997 1996 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 5,725 $2,461 $ 10,900 $4,551
Tenant recoveries and other
income 2,018 702 4,004 1,222
----------------------------------------------------------------
7,743 3,163 14,904 5,773
Expenses:
Rental operations 2,003 671 3,833 1,225
General and administrative 593 364 1,176 770
Stock compensation 3,768 - 4,162 -
Post retirement benefit - - 632 -
Special bonus - - 353 -
Interest 2,066 1,200 4,575 2,118
Acquisition LLC financing costs 6,973 - 6,973 -
Write-off of unamortized loan
costs 2,146 - 2,146 -
Depreciation and amortization 1,106 480 2,109 893
----------------------------------------------------------------
18,655 2,715 25,959 5,006
----------------------------------------------------------------
Net (loss) income $ (10,912) $ 448 $ (11,055) $ 767
================================================================
Net income allocated to preferred
stockholders $ 1,459 $ 1 $ 3,036 $ 1
================================================================
Net (loss) income allocated to
common stockholders $ (12,371) $ 447 $ (14,091) $ 766
================================================================
Net loss per pro forma share of
common stock $ (1.79) $ (2.27)
========== ==========
Pro forma weighted average shares
of common stock outstanding 6,098,381 4,870,256
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
Alexandria Real Estate Equities, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
Series T SERIES T SERIES U SERIES U NUMBER OF
PREFERRED PREFERRED PREFERRED PREFERRED COMMON
SHARES STOCK SHARES STOCK SHARES
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 12 $ 1 220 $ 110 1,000
Accretion on Series V preferred stock - - - - -
Cash dividends on Series T and U preferred
stock - - - - -
Cash dividends on Series V preferred stock - - - - -
Cash dividends on common stock - - - - -
Stock option compensation expense - - - - -
Net income - - - - -
-----------------------------------------------------------------
Balance at March 31, 1997 12 1 220 110 1,000
Accretion on Series V preferred stock - - - - -
Cash dividends on Series U and V preferred
stock - - - - -
Exercise of compensatory stock options and
issuance of stock grants (including
compensation expense of $3,767) - - - - 209,615
Stock split - - - - 1,764,923
Issuance of common stock in connection with
initial public offering, net of offering costs - - - - 7,762,500
Conversion of Series U preferred stock - - (220) (110) 7,354
Conversion of Series V preferred stock - - - - 1,659,239
Redemption of Series T preferred stock (12) (1) - - -
Cash dividends on common stock - - - - -
Dividends declared on common stock - - - - -
Net loss - - - - -
-----------------------------------------------------------------
Balance at June 30, 1997 - $ - - $ - 11,404,631
=================================================================
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
---------------------------------------------
<C> <C> <C> <C>
Balance at December 31, 1996 $ $ 16,195 $ (1,775) $ 14,531
Accretion on Series V preferred stock - (887) - (887)
Cash dividends on Series T and U preferred
stock - - (2) (2)
Cash dividends on Series V preferred stock - - (688) (688)
Cash dividends on common stock - - (759) (759)
Stock option compensation expense - 394 - 394
Net income - - (143) (143)
---------------------------------------------
Balance at March 31, 1997 - 15,702 (3,367) 12,446
Accretion on Series V preferred stock - (1,024) - (1,024)
Cash dividends on Series U and V preferred
stock - - (436) (436)
Exercise of compensatory stock options and
issuance of stock grants (including
compensation expense of $3,767) 2 3,796 - 3,798
Stock split 18 (18) - -
Issuance of common stock in connection with
initial public offering, net of offering costs 78 139,078 - 139,156
Conversion of Series U preferred stock 109 - (1)
Conversion of Series V preferred stock 16 26,936 - 26,952
Redemption of Series T preferred stock - - - (1)
Cash dividends on common stock - - (474) (474)
Dividends declared on common stock - - (1,454) (1,454)
Net loss - - (10,912) (10,912)
---------------------------------------------
Balance at June 30, 1997 $ 114 $184,579 $(16,643) $168,050
=============================================
</TABLE>
See accompanying notes.
4
<PAGE>
Alexandria Real Estate Equities, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands, except shares and per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
------------------------
<S> <C> <C>
Net cash used in operating activities $ (662) $ (3,819)
INVESTING ACTIVITIES
Purchase of rental properties (52,102) (29,863)
Additions to rental properties (1,720) (85)
Net cash used in investing activities (53,822) (29,948)
FINANCING ACTIVITIES
Proceeds from secured notes payable 15,360 48,660
Proceeds from unsecured line of credit 2,500
Proceeds from issuance of common stock 139,185
Redemption of Series T preferred stock (1)
Issuance of Series U preferred stock 110
(Decrease) increase in due to Health Science Properties
Holding Corporation (2,525) 2,425
Principal reductions of secured notes payable (73,391) (16,080)
Principal reductions of unsecured line of credit (2,500)
Common dividends paid (2,785) (756)
Preferred dividends paid (1,126) (1)
------------------------
Net cash provided by financing activities 74,717 34,358
Net increase in cash and cash equivalents 20,233 591
Cash and cash equivalents at beginning of period 1,696 919
Cash and cash equivalents at end of period $ 21,929 $ 1,510
========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 11,495 $ 1,930
========================
</TABLE>
See accompanying notes.
5
<PAGE>
Alexandria Real Estate Equities, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Three months ended June 30, 1997
1. BACKGROUND, BASIS OF PRESENTATION AND THE INITIAL PUBLIC OFFERING
BACKGROUND
Alexandria Real Estate Equities, Inc. (formerly known as Health Science
Properties, Inc.), a Maryland corporation (the "Company"), was formed in October
1994 to acquire, manage, and selectively develop properties for lease to the
life science industry ("Life Science Facilities"). As of June 30, 1997 and
December 31, 1996, the Company owned 15 and 12 Life Science Facilities,
respectively.
The accompanying interim financial statements have been prepared by the
Company's management in accordance with generally accepted accounting principles
and in conformity with the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the interim financial statements
presented herein reflect all adjustments of a normal and recurring nature that
are necessary to fairly state the interim financial statements. The results of
operations for the interim period are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997. These financial
statements should be read in conjunction with the financial statements included
in the Company's prospectus dated May 27, 1997.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Alexandria Real Estate Equities, Inc. and all of its subsidiaries.
All significant intercompany balances and transactions have been eliminated.
THE INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS
On June 2, 1997, the Company completed an initial public offering (the
"Offering") of 6,750,000 shares of common stock, $.01 par value per share. The
Offering price was $20.00 per share, resulting in gross proceeds of
$135,000,000. On June 26, 1997, the underwriters exercised their over-allotment
option in connection with the Offering and the Company issued an additional
1,012,500 shares of common stock, resulting in additional gross proceeds of
$20,250,000. The aggregate net proceeds of the Offering (including exercise of
the over-allotment option), net of underwriting discounts and commissions,
advisory fees and offering costs, were approximately $139,156,000.
6
<PAGE>
Alexandria Real Estate Equities, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
1. Background, Basis of Presentation and the Initial Public Offering (continued)
THE INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS (CONTINUED)
The following transactions also occurred in June 1997 in connection with the
Offering:
. The Company paid off debt of approximately $77,698,000, including (i)
mortgage debt of $72,698,000, (ii) debt of $2,500,000 outstanding under its
prior unsecured line of credit, and (iii) debt of $2,500,000 to Health
Science Properties Holding Corporation ("Holdings"). Holdings owned all of
the Company's common stock prior to the Offering and 15.5% of the common
stock of the Company after the Offering.
. The Company obtained two new mortgage loans totaling $15,360,000.
. The Company acquired an entity that owns three Life Science Facilities
from affiliates of PaineWebber Incorporated, the lead managing underwriter
for the Offering, for an aggregate of $58,844,000 ($51,871,000 of which has
been recorded as the purchase price of the properties and $6,973,000 of
which has been recorded as a financing cost (see Note 6)).
. Each previously outstanding share of the Company's common stock was
split into 1,765.923 shares of common stock.
. All of the previously outstanding Series T preferred stock was redeemed
at its stated value ($1,200 in the aggregate).
. All of the outstanding shares of the Company's Series U preferred stock
and Series V preferred stock were converted into shares of common stock
(7,354 shares in the aggregate for Series U and 1,659,239 in the aggregate
for Series V).
. Officers, directors and certain employees of the Company were granted
an aggregate of 152,615 shares of the Company's common stock. In addition,
officers, directors and certain employees of the Company were granted
options to purchase 57,000 shares of the Company's common stock in
substitution for stock options previously issued by Holdings (see Note 5).
These options were exercised in connection with the Offering.
7
<PAGE>
Alexandria Real Estate Equities, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
1. BACKGROUND, BASIS OF PRESENTATION AND THE INITIAL PUBLIC OFFERING (CONTINUED)
THE INITIAL PUBLIC OFFERING AND RELATED TRANSACTIONS (CONTINUED)
. Officers, directors and employees of the Company were granted options
to purchase an aggregate of 600,000 shares of common stock of the Company
at the Offering price under the Company's 1997 stock option plan.
2. RENTAL PROPERTIES, NET
Rental properties, net consist of the following:
<TABLE>
<CAPTION>
JUNE 30, December 31,
1997 1996
-----------------------------
(In Thousands)
<S> <C> <C>
Land $ 36,758 $ 28,383
Buildings and improvements 166,005 121,236
Tenant and other improvements 2,213 1,535
-----------------------------
204,976 151,154
Less accumulated depreciation (6,140) (4,194)
$198,836 $146,960
=============================
</TABLE>
3. UNSECURED LINE OF CREDIT
In connection with the Offering, the Company obtained an unsecured line of
credit providing for borrowings of up to $150,000,000, consisting of a
$100,000,000 activated portion and a $50,000,000 portion that may be activated
at the Company's discretion (upon the payment of an activation fee), provided no
default exists under the line of credit facility. Borrowings under the line of
credit bear interest at a floating rate which is based on the Company's election
of either a LIBOR based rate or the higher of the bank's reference rate and the
Federal Funds rate plus 0.5%. For each LIBOR based advance, the Company must
elect to fix the rate for a period of time of one, two, three or six months.
8
<PAGE>
Alexandria Real Estate Equities, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
3. UNSECURED LINE OF CREDIT (CONTINUED)
The line of credit contains financial covenants, including, among other things,
maintenance of minimum market net worth, a total liabilities to gross asset
value ratio, and a fixed charge coverage ratio. In addition, the terms of the
line of credit restrict, among other things, certain investments, indebtedness,
distributions and mergers. Borrowings under the line of credit are limited to an
amount based on a pool of unencumbered assets. Based on the pool of unencumbered
assets at June 30, 1997, borrowings under the line of credit would be limited to
approximately $82 million. No borrowings were outstanding under the line of
credit at June 30, 1997.
The line of credit expires May 31, 2000 and provides for annual extensions
(provided there is no default) for one-year periods upon notice by the Company
and consent of the participating banks. In addition, at the Company's election,
the line of credit may be converted at any time to a term loan with principal
installments over two years from the date of such conversion.
In connection with obtaining the line of credit, the Company incurred $645,000
in fees and costs, which are being amortized over the term of the line of
credit. In addition, the Company is required to continue to pay certain
periodic fees for the line of credit, depending on the usage of the facility.
In June 1997, the Company paid off its prior unsecured line of credit of
$2,500,000 with proceeds from the Offering (see Note 1).
4. SECURED NOTES PAYABLE
Secured notes payable as of June 30, 1997 are as follows:
<TABLE>
<S> <C>
Notes payable secured by first deeds of trust on four
rental properties bearing interest at rates between
7.17% and 9.00%, payable in installments through 2016 $48,291,000
Note payable to the City of Seattle secured by a second
deed of trust on 1102/1124 Columbia Street, bearing
interest at a variable rate (approximately 6% at June
30, 1997), payable in annual installments through 2016 6,860,000
-----------
$55,151,000
===========
</TABLE>
9
<PAGE>
Alexandria Real Estate Equities, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
4. SECURED NOTES PAYABLE (CONTINUED)
The interest rate on the note payable to the City of Seattle is anticipated to
be fixed by September 1997 at a rate equal to 90 basis points over the
interpolated 20-year Treasury rate, which rate would have resulted in a fixed
interest rate of approximately 7.30% at June 30, 1997.
In June 1997, the Company paid off secured notes with a principal balance of
$72,698,000 with proceeds from the Offering and related transactions (see Note
1). In connection with the retirement of these loans, the Company wrote off
$2,146,000 of unamortized loan costs, including the cost of certain interest
rate cap agreements.
5. NON-CASH TRANSACTIONS
Stock compensation expense represents non-cash compensation expense associated
with stock grants and stock options issued to officers, directors and certain
employees of the Company in connection with the Offering (see Note 1). Stock
compensation expense of $394,000 was recognized in the three months ended March
31, 1997 for stock options issued during that period, and $3,768,000 was
recognized in the three months ended June 30, 1997 to record the stock grants
and the issuance and exercise of the substitute options.
In connection with the Offering, outstanding shares of the Company's Series U
preferred stock and Series V preferred stock were converted into shares of
common stock (see Note 1). The common stock issued was recorded at the book
value of the Series U preferred stock and the Series V preferred stock (an
aggregate of $27,061,000).
6. PURCHASE OF ACQUISITION LLC
In connection with the Offering, the Company acquired 100% of the membership
interests in ARE Acquisitions, LLC (formerly PW Acquisitions I, LLC)
("Acquisition LLC") from affiliates of PaineWebber Incorporated. Acquisition LLC
owns three Life Science Facilities which it acquired in January 1997 from
unaffiliated sellers. The Company's purchase price for the membership interests
(approximately $58,844,000) exceeded the cost incurred by Acquisition LLC to
acquire the properties (approximately $51,871,000). The Company's acquisition of
Acquisition LLC has been recorded as a financing transaction, with the excess of
the purchase price of Acquisition LLC over its cost to acquire the properties
($6,973,000) being reflected as a financing cost in the accompanying condensed
consolidated statement of operations.
10
<PAGE>
Alexandria Real Estate Equities, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
7. DIVIDEND
On June 27, 1997, the Company declared a cash dividend on common stock of
$1,454,000 ($0.1275 per share) for the partial calendar quarter ended June 30,
1997. The dividend was paid on July 18, 1997.
8. NET LOSS PER SHARE
Historical per share data is not meaningful because of various changes in the
Company's capital structure in connection with the Offering.
Pro forma shares of common stock outstanding on a historical basis include all
shares of common stock outstanding after giving effect to the 1,765.923 to 1
stock split, the issuance of the stock grants, the issuance and exercise of the
substitute stock options and the conversion of the Series U and Series V
preferred stock (see Note 1). In addition, shares issued to the public in
connection with the Offering have been weighted for the period of time they were
outstanding.
The following table sets forth the computation of net loss per pro forma share
of common stock outstanding.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1997
----------------------------------
<S> <C> <C>
Net loss $(10,912,000) $(11,055,000)
==================================
Pro forma shares of common stock on a historical
basis 3,642,131 3,642,131
Shares issued in the Offering, weighted for
period outstanding 2,456,250 1,228,125
----------------------------------
6,098,381 4,870,256
==================================
Net loss per share $ (1.79) $ (2.27)
==================================
</TABLE>
In February 1997, the Financing Accounting Standards Board (FASB), issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" which
is required to be adopted on December 31, 1997. At that time the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods.
11
<PAGE>
Alexandria Real Estate Equities, Inc.
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
8. NET LOSS PER SHARE (CONTINUED)
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The methodology required by
this pronouncement would not have a material impact on net loss per share
information presented by the Company for the three months ended June 30, 1997.
9. PURCHASE AGREEMENTS
In June and July 1997, the Company entered into agreements to purchase three
properties for an aggregate purchase price of $13.3 million. The Company
anticipates that these acquisitions will close in the three months ended
September 30, 1997.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain information and statements included in this Quarterly Report on Form
10-Q, including, without limitation, statements containing the words "believes,"
"anticipates," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve known and unknown risks and
uncertainties that could result in actual results of the Company differing
materially from expected results expressed or implied by such forward-looking
information and statements. In the context of forward-looking information and
statements provided in this Form 10-Q and in other reports, please refer to the
discussion of risk factors detailed in, as well as the other information
contained in, the Company's filings with the Securities and Exchange Commission,
including but not limited to, those risk factors set forth under the caption
"Risk Factors" in the Company's Registration Statement on Form S-11 (File No.
333-23545).
The following discussion should be read in conjunction with the financial
statements and notes appearing elsewhere in this report.
OVERVIEW
Since its formation in October 1994, the Company has devoted substantially all
of its resources to the acquisition and management of high quality,
strategically located Life Science Facilities leased principally to Life Science
Industry tenants in its target markets.
The Company receives income from rental revenue (including tenant recoveries)
from its properties. The Company acquired its current portfolio over the last
three years, with four of the Properties acquired in calendar year 1994, eight
acquired in 1996 (the "1996 Acquired Properties") and three acquired in 1997 in
connection with the Offering (the "1997 Acquired Properties"). As a result of
the Company's acquisition strategy, the financial data shows significant
increases in total revenue and expenses for the 1997 periods compared to the
1996 periods, largely attributable to the acquisitions in 1996 and 1997. For the
foregoing reasons, and due to the effects of the Offering and related
transactions, the Company does not believe its period-to-period historical
financial data are comparable. Accordingly, the Company has presented pro forma
financial information, which gives effect to the Offering and the acquisitions
made in 1996 and 1997, later in this discussion.
13
<PAGE>
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1997 ("Second Quarter 1997") to Three
Months Ended June 30, 1996 ("Second Quarter 1996")
Rental revenue increased by $3.3 million, or 132%, to $5.7 million for Second
Quarter 1997 compared to $2.5 million for Second Quarter 1996. The increase
resulted primarily from the 1996 Acquired Properties and the 1997 Acquired
Properties, which added $3.2 million of rental revenue in Second Quarter 1997.
Rental revenue from the Properties owned since January 1, 1996 (the "Same
Properties") increased by $55,000 or 3%. This increase resulted primarily from
the conversion and lease of 19,310 square feet of storage space at 10933 North
Torrey Pines Road to higher rent laboratory space in October 1996.
Tenant recoveries and other income increased by $1.3 million, or 187%, to $2.0
million for Second Quarter 1997 compared to $702,000 for Second Quarter 1996.
The increase resulted primarily from the 1996 Acquired Properties and the 1997
Acquired Properties, which added $1.2 million of tenant recoveries. Tenant
recoveries from the Same Properties increased by $29,000, or 6%, due to an
increase in operating expenses and the improved measurement and recovery of
tenant utility expenses. Other income increased by $134,000 for Second Quarter
1997 compared to Second Quarter 1996, resulting from an increase in interest
income due to increased amounts in capital improvement reserve accounts.
Rental operating expenses increased by $1.3 million, or 199%, to $2.0 million
for Second Quarter 1997 compared to $671,000 for Second Quarter 1996. The
increases resulted primarily from the 1996 Acquired Properties and the 1997
Acquired Properties, which added $1.3 million of rental operating expenses.
Operating expenses for the Same Properties increased by $50,000, or 8%.
General and administrative expenses increased by $229,000, or 63%, to $593,000
for Second Quarter 1997 compared to $364,000 for Second Quarter 1996, due to the
Company's larger scope of operations in 1997.
Interest expense increased by $866,000 or 72%, to $2.1 million for Second
Quarter 1997 compared to $1.2 million for Second Quarter 1996. The increase
resulted primarily from indebtedness incurred to acquire the 1996 Acquired
Properties.
Depreciation and amortization increased by $626,000, or 130%, to $1.1 million
for Second Quarter 1997 compared to $480,000 for Second Quarter 1996. The
increase resulted primarily from depreciation associated with the 1996 Acquired
Properties and the 1997 Acquired Properties.
Stock compensation expense of $3.8 million was recorded in Second Quarter 1997
for the non-recurring, non-cash expense associated with stock grants and options
issued to officers, directors and certain employees of the Company in connection
with the Offering.
14
<PAGE>
Acquisition LLC financing costs of $6,973,000 were expensed in Second Quarter
1997, representing the portion of the purchase price of Acquisition LLC in
excess of the cost incurred by Acquisition LLC to acquire its three Life Science
Facilities (see Note 6 to condensed financial statements).
Write-off of unamortized loan costs in Second Quarter 1997 represents the write-
off of loan costs associated with $72,698,000 of secured notes repaid with
proceeds of the Offering.
As a result of the foregoing, there was a net loss of $10.9 million for Second
Quarter 1997 compared to net income of $448,000 for Second Quarter 1996.
Comparison of Six Months Ended June 30, 1997 ("Six Months 1997") to Six Months
Ended June 30, 1996 ("Six Months 1996")
Rental revenue increased by $6.3 million, or 140%, to $10.9 million for Six
Months 1997 compared to $4.6 million for Six Months 1996. The increase resulted
primarily from the 1996 Acquired Properties and the 1997 Acquired Properties,
which added $6.2 million of rental revenue in Six Months 1997. Rental revenue
from the Same Properties increased by $120,000, or 3%. This increase resulted
primarily from the conversion and lease of 19,310 square feet of storage space
at 10933 North Torrey Pines Road to higher rent laboratory space in October
1996.
Tenant recoveries and other income increased by $2.8 million, or 227%, to $4.0
million for Six Months 1997 compared to $1.2 for Six Months 1996. The increase
resulted primarily from the 1996 Acquired Properties and the 1997 Acquired
Properties, which added $2.6 million of tenant recoveries. Tenant recoveries for
the Same Properties were relatively unchanged. Other income increased by
$189,000 for Six Months 1997 compared to Six Months 1996, resulting from an
increase in interest income due to increased amounts in capital improvement
reserve accounts.
Rental operating expenses increased by $2.6 million, or 213%, to $3.8 million
for Six Months 1997 compared to $1.2 million for Six Months 1996. The increases
resulted almost entirely from the 1996 Acquired Properties and the 1997 Acquired
Properties. Operating expenses for the Same Properties were relatively
unchanged.
General and administrative expenses increased by $406,000, or 53%, to $1.2
million for Six Months 1997 compared to $770,000 for Six Months 1996 due to the
Company's larger scope of operations in 1997.
The special bonus of $353,000 in Six Months 1997 was awarded to an officer of
the Company in connection with the Offering and accrued for the period ended
March 31, 1997. Post-retirement benefit expense of $632,000 in Six Months 1997
reflects an adjustment for the non-cash accrual associated with a one-time post
retirement benefit for
15
<PAGE>
an officer of the Company. Stock compensation expense of $4.2 million was
recorded in Six Months 1997 for the non-recurring, non-cash expense related to
the issuance of stock grants and options to officers, directors and certain
employees of the Company principally in connection with the Offering.
Acquisition LLC financing costs of $6,973,000 were expensed in Six Months 1997,
representing the portion of the purchase price of Acquisition LLC in excess of
the cost incurred by Acquisition LLC to acquire its three Life Science
Facilities (see Note 6 to condensed financial statements).
Write-off of unamortized loan costs in Six Months 1997 represents the write-off
of loan costs associated with $72,698,000 of secured notes repaid with proceeds
of the offering.
Interest expense increased by $2.5 million, or 116%, to $4.6 million for Six
Months 1997 compared to $2.1 million for Six Months 1996. The increase resulted
primarily from indebtedness incurred to acquire the 1996 Acquired Properties.
Depreciation and amortization increased by $1.2 million, or 136%, to $2.1
million for Six Months 1997 compared to $893,000 for Six Months 1996. The
increase resulted primarily from depreciation associated with the 1996 Acquired
Properties and the 1997 Acquired Properties.
As a result of the foregoing, there was a net loss of $11.1 million for Six
Months 1997 compared to net income of $767,000 for Six Months 1996.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Aggregate net proceeds of the Offering (including exercise of the over-allotment
option), net of underwriting discounts and commissions, advisory fees, and
offering costs were approximately $139,156,000. The Company used net proceeds
from the Offering, as well as proceeds from (i) an $8,500,000 17-year self
amortizing mortgage loan on 1431 Harbor Bay Parkway and (ii) a $6,860,000 second
mortgage loan on 1120/1724 Columbia Street, to repay debt of approximately
$77,698,000. As a result, total secured debt was reduced to approximately
$55,151,000, as follows:
<TABLE>
<CAPTION>
PRINCIPAL
BALANCE AT INTEREST MATURITY
COLLATERAL JUNE 30, 1997 RATE DATE
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
3535/3565 General Atomics
Court, San Diego, CA $18,270,000 9.00% December 2014
1431 Harbor Bay Parkway
Alameda, CA 8,500,000 7.17% January 2014
1102/1124 Columbia Street
Seattle, WA (first deed of trust) 21,521,000 7.75% May 2016
1102/1124 Columbia Street
Seattle, WA (second deed of
trust) 6,860,000 (1) July 2016
-----------
$55,151,000
===========
</TABLE>
(1) The interest rate on the second deed of trust on 1102/1124 Columbia Street
is anticipated to be fixed by September 1997 at a rate equal to 90 basis
points over the interpolated 20-year Treasury rate, which would have
resulted in a fixed interest rate of approximately 7.30% as of June 30,
1997.
As of June 30, 1997, $1,664,000 was held in a restricted cash account pursuant
to the terms of the Company's second mortgage loan on 1102/1124 Columbia Street.
In addition, approximately $3.4 million has been set aside in a restricted cash
account to complete the conversion of existing space into higher rent generic
laboratory space (as well as certain related improvements to the property) at
1102/1124 Columbia Street pursuant to an agreement between the Company and a
tenant. The Company also holds approximately $792,000 in security deposit
reserve accounts based on the terms of certain lease agreements.
Although cash from operations required to fund interest expense has decreased
substantially as a result of the Company's reduction in overall debt following
the Offering, such reduction has been offset by an increased requirement to use
cash from operations to meet annual REIT distribution requirements. The Company
expects to make distributions and to pay amortization of principal and interest
on its debt from cash available for distribution, which is expected to exceed
cash historically available for
17
<PAGE>
distribution as a result of the reduction in debt described above. Initially,
cash accumulated will be invested by the Company primarily in interest-bearing
accounts and other short-term, interest-bearing securities that are consistent
with the Company's qualification for taxation as a REIT. After the Company
begins utilizing its line of credit facility to fund the cost of acquisitions,
amounts accumulated may also be utilized to reduce borrowings outstanding under
the line of credit.
The Company expects to meet its short-term liquidity requirements generally
through net cash provided by operations. The Company believes that its net cash
provided by operations will be sufficient to allow the Company to make
distributions necessary to enable the Company to continue to qualify as a REIT.
The Company also believes that net cash provided by operations will be
sufficient to fund its recurring non-revenue enhancing capital expenditures,
tenant improvements and leasing commissions.
The Company expects to meet certain long-term liquidity requirements, such as
property acquisitions, scheduled debt maturities, renovations, expansions and
other non-recurring capital improvements, through long-term secured and
unsecured indebtedness, including borrowings under the line of credit, and the
issuance of additional equity securities.
In connection with the Offering, the Company obtained an unsecured line of
credit providing for borrowings of up to $150,000,000, consisting of a
$100,000,000 activated portion and a $50,000,000 portion that may be activated
at the Company's discretion (upon payment of an activation fee), provided no
default exists under the line of credit facility. The line of credit provides
for borrowings bearing interest at a floating rate which is based on the
Company's election of either a LIBOR based rate or the higher of the bank's
reference rate and the Federal Funds rate plus 0.5%. For each LIBOR based
advance the Company must elect to fix the rate for a period of time of one, two,
three or six months.
The line of credit contains financial covenants, including, among other things,
maintenance of minimum market net worth, a total liabilities to gross asset
value ratio, and a fixed charge coverage ratio. In addition, the terms of the
line of credit restrict, among other things, certain investments, indebtedness,
distributions and mergers. Borrowings under the line of credit are limited to an
amount based on a pool of unencumbered assets. Based on the pool of unencumbered
assets at June 30, 1997, borrowings under the line of credit would be limited to
approximately $82 million. The line of credit will be used primarily to finance
acquisitions and capital improvements. As of June 30, 1997 and August 12, 1997,
no borrowings were outstanding under the line of credit.
The line of credit expires May 31, 2000 and provides for annual extensions
(provided there is no default) for one-year periods upon notice by the Company
and consent of the participating banks. In addition, at the Company's election,
the line of credit may be converted at any time to a term loan with principal
installments over two years from the date of such conversion.
18
<PAGE>
The Phase I environmental assessments of the properties have not revealed any
environmental liabilities that the Company believes would have a material
adverse effect on the Company's financial condition or results of operations
taken as a whole, nor is the Company aware of any such material environmental
liabilities.
HISTORICAL CASH FLOWS
Historically, the Company's principal sources of funding for operations and
capital expenditures have been the proceeds from the Offering, cash flows from
operating activities, private stock offerings and secured debt financings.
Net cash used in operating activities for Six Months 1997 decreased by $3.1
million to $662,000 compared to $3.8 million for Six Months 1996. The decrease
resulted primarily from operating cash flows from the 1996 Acquired Properties.
Net cash used in investing activities increased by $23.9 million to $53.8
million for Six Months 1997 compared to net cash used in investing activities of
$29.9 million for Six Months 1996. The increase resulted primarily from the
acquisitions of the 1997 Acquired Properties.
Cash provided by financing activities increased by $40.3 million to $74.7
million for Six Months 1997 compared to $34.4 million for Six Months 1996. The
increase resulted primarily from $139.2 million in net proceeds from the
Offering and $15.4 million in proceeds from secured debt, offset by $78.4
million of principal reductions in debt, retired principally with proceeds from
the Offering. In addition, the Company paid dividends on common stock of $2.8
million and dividends on preferred stock of $1.1 million.
INFLATION
Approximately 80% of the Company's leases (on a square footage basis) are triple
net leases, requiring tenants to pay substantially all real estate taxes and
insurance, common area and other operating expenses (including increases
thereto). In addition, approximately 65% of the Company's leases (on a square
footage basis) contain effective annual rent escalations that are either fixed
(ranging from 2.5% to 4.0%) or indexed based on a CPI or other index.
Accordingly, the Company does not believe that its earnings or cash flow are
subject to any significant risk of inflation. An increase in inflation, however,
could result in an increase in the Company's variable rate borrowing cost,
including borrowings under the line of credit.
19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Due to the impact of the Offering and related transactions and the acquisitions
by the Company in 1996 and 1997, the historical results of operations are not
indicative of the Company's future results of operations. The following pro
forma condensed consolidated financial information presents the results of
operations of the Company as if the Offering (including the exercise of the
over-allotment option) and related transactions occurred on January 1, 1996. As
described in the pro forma financial statements included in the Company's
prospectus dated May 27,1997, pro forma results for 1997 do not include the
operations of two of the Company's properties (14225 Newbrook Drive and 1330
Piccard Drive) for the period prior to their acquisition by Acquisition LLC (on
January 13, 1997 and January 15, 1997, respectively). These properties were
owner occupied prior to purchase and, as a result, there were no historical
operating results as rental properties. The adjusted pro forma financial
information presented below assumes that the new leases entered into with the
sellers of such properties were in effect for the entire period presented. The
pro forma and adjusted pro forma financial information presented below is based
upon historical information and does not purport to present the actual results
that would have occurred had the transactions occurred on January 1, 1996, nor
to project the Company's results of operations for any future period.
Condensed Consolidated Pro Forma
Financial Information
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30
PRO FORMA
1997 1996
-----------------------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Total revenues $ 9,154 $ 6,408
Expenses:
Rental operations 1,992 1,482
General and administrative 663 700
Stock compensation 3,768
Interest 1,177 733
Depreciation and amortization 1,229 788
-----------------------------
8,829 3,703
-----------------------------
Net income $ 325 $ 2,705
=============================
Pro forma shares of common stock outstanding 11,404,631 11,404,631
=============================
Net income per pro forma share of common stock outstanding $ 0.03 $ 0.24
=============================
</TABLE>
20
<PAGE>
Condensed Consolidated Pro Forma
Financial Information (continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
ADJUSTED
PRO FORMA PRO FORMA
1997 1996 1997
----------------------------- -----------
(Dollars in thousands, except for share data)
<S> <C> <C> <C>
Total revenues $ 18,162 $ 11,430 $ 18,433
Expenses:
Rental operations 3,924 2,775 3,931
General and administrative 1,363 1,400 1,363
Special bonus 353 - 353
Stock compensation 4,162 - 4,162
Post retirement benefit 632 - 632
Interest 2,350 1,363 2,350
Depreciation and amortization 2,511 1,597 2,552
----------------------------- -----------
15,295 7,135 15,343
----------------------------- -----------
Net income $ 2,867 $ 4,295 $ 3,090
============================= ===========
Pro forma shares of common stock
outstanding 11,404,631 11,404,631 11,404,631
============================= ===========
Net income per pro forma share of common
stock outstanding $ 0.25 $ $0.38 $ 0.27
============================= ===========
</TABLE>
FUNDS FROM OPERATIONS
Management believes that funds from operations (FFO) is helpful to investors as
a measure of the performance of an equity REIT because, along with cash flows
from operating activities, financing activities and investing activities, it
provides investors with an understanding of the ability of the Company to incur
and service debt and to make capital expenditures. The Company computes FFO in
accordance with standards established by the Board of Governors of NAREIT in its
March 1995 White Paper (the "White Paper"), which may differ from the
methodology for calculating FFO utilized by other equity REITs, and,
accordingly, may not be comparable to such other REITs. Further, FFO does not
represent amounts available for management's discretionary use because of needed
capital replacement or expansion, debt service obligations, or other commitments
and uncertainties. The White Paper defines FFO as net income (loss) (computed in
accordance with generally accepted accounting principles ("GAAP")), excluding
gains (or losses) from debt restructuring and sales of property, plus real
estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures and significant non-recurring
events. FFO should not be considered as an alternative to net income (determined
in accordance with GAAP) as an indication of the Company's financial performance
or to cash flows from operating activities (determined in accordance with GAAP)
as a measure of the Company's liquidity, nor is it indicative of funds available
to fund the Company's cash needs, including its ability to make distributions.
21
<PAGE>
The following tables present the Company's FFO for the three months ended June
30, 1997 on an historical and pro forma basis, and for the six months ended June
30, 1997 on an historical, pro forma and adjusted pro forma basis. The adjusted
pro forma information for the six months ended June 30, 1997 assumes that leases
entered into with sellers of previously owner-occupied properties were in effect
for the entire period presented:
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30, 1997
HISTORICAL PRO FORMA
--------------------------
(In Thousands)
<S> <C> <C>
Net income (loss) $(10,912) $ 325
Add:
Stock compensation 3,768 3,768
Acquisition LLC financing costs 6,973
Write-off of unamortized loan costs 2,146
Depreciation and amortization 1,106 1,229
--------------------------
FFO $ 3,081 $5,322
==========================
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997
ADJUSTED
HISTORICAL PRO FORMA PRO FORMA
-------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net income (loss) $(11,055) $ 2,867 $ 3,090
Add:
Special bonus 353 353 353
Stock compensation 4,162 4,162 4,162
Post-retirement benefit 632 632 632
Acquisition LLC financing costs 6,973
Write-off of unamortized loan 2,146
costs
Depreciation and amortization 2,109 2,511 2,552
-------------------------------------------
FFO $ 5,320 $10,525 $10,789
===========================================
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
22
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the three months ended June 30, 1997, no legal proceedings were initiated
against or on behalf of the Company, the adverse determination of which would
have a material adverse effect upon the financial condition and results of
operations of the Company.
ITEM 2. CHANGES IN SECURITIES
During the three months ended June 30, 1997 and in connection with the Offering,
the Company issued (i) 7,354 shares of common stock, upon conversion of the
Company's Series U preferred stock, in reliance upon an exemption from
registration under Section 3(a) (9) of the Securities Act of 1933, as amended
(the "Securities Act"); (ii) 1,659,239 shares of common stock, upon conversion
of the Company's Series V preferred stock, in reliance upon an exemption from
registration under Section 3(a) (9) of the Securities Act; (iii) 209,615 shares
of common stock to officers, directors and certain employees of the Company in
reliance upon an exemption from registration under Section 4(2) of the
Securities Act; and (iv) options to purchase 600,000 shares of common stock, to
officers, directors and employees of the Company, in reliance upon an exemption
from registration under Section 4(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1997, the holders of capital stock of the Company entitled to vote on
the matters presented executed an Informal Action in Lieu of Annual Meeting,
pursuant to which such stockholders unanimously (i) ratified and approved all
actions of the directors since the last informal action of stockholders in lieu
of annual meeting; (ii) elected Joel S. Marcus, Jerry M. Sudarsky, Alan D. Gold,
Joseph Elmalch, Viren Mehta, David Petrone and Anthony M. Solomon as directors
of the Company, each to serve until the next annual meeting of stockholders and
until their successors are duly elected and qualify; (iii) approved the
Company's 1997 Stock Award and Incentive Plan; and (iv) approved an amendment to
the Company's charter, which, among other things, increased the authorized
capital stock, eliminated classification of the Board of Directors, and added
provisions permitting extraordinary actions to be authorized by a majority vote
and requiring the Board of Directors to use its best efforts to maintain the
Company's REIT qualification or to terminate the same if it believes such
qualification is no longer in the Company's best interest.
23
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Amendment and Restatement of the Registrant
3.2 Certification of Correction of the Registrant
3.3 Amended and Restated Bylaws of the Registrant
4.1 Specimen certificate representing shares of Common Stock (incorporated by
reference from Exhibit 4.1 of the Registrant's Registration Statement on
Form S-11 (File No. 333-23545)).
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
24
<PAGE>
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, thereunto duly authorized on August 13, 1997.
ALEXANDRIA REAL ESTATE EQUITIES, INC.
/s/ Joel S. Marcus
---------------------------------------
Joel S. Marcus
Chief Executive Officer
(Principal Executive Officer)
/s/ Peter J. Nelson
---------------------------------------
Peter J. Nelson
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
25
<PAGE>
EXHIBIT 3.1
ALEXANDRIA REAL ESTATE EQUITIES, INC.
-------------------------------------
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: Alexandria Real Estate Equities, Inc., a Maryland corporation
-----
(the "Corporation"), desires to amend and restate its charter as currently in
effect and as hereinafter amended.
SECOND: The following provisions are all the provisions of the
------
charter currently in effect and as hereinafter amended:
ARTICLE I
NAME
The name of the corporation (the "Corporation") is:
Alexandria Real Estate Equities, Inc.
ARTICLE II
PURPOSES
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging in
business as a real estate investment trust under the Internal Revenue Code of
1986, as amended, or any successor statute (the "Code")) for which corporations
may be organized under the general laws of the State of Maryland as now or
hereafter in force. For purposes of these Articles, "REIT" means a real estate
investment trust under Sections 856 through 860 of the Code.
ARTICLE III
PRINCIPAL OFFICE IN STATE
The address of the principal office of the Corporation in the State of
Maryland is c/o The Prentice-Hall Corporation System, Maryland, 11 East Chase
Street, Suite 7C, Baltimore, Maryland 21202.
ARTICLE IV
RESIDENT AGENT
The name of the resident agent of the Corporation in the State of
Maryland is c/o The Prentice-Hall Corporation System, Maryland, 11 East Chase
Street, Suite 7C, Baltimore, Maryland 21202. The resident agent is a Maryland
corporation.
<PAGE>
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1. Number and Classification of Directors. The business
--------------------------------------
and affairs of the Corporation shall be managed under the direction of the Board
of Directors. The number of directors of the Corporation shall be seven, which
number may be increased or decreased pursuant to the Bylaws, but shall never be
less than the minimum number required by the Maryland General Corporation Law
(the "MGCL") nor more than 15. The names of the directors who shall currently
serve until their successors are duly elected and qualify are:
Jerry M. Sudarsky
Joel S. Marcus
Alan D. Gold
Joe Elmaleh
Viren Mehta
David Petrone
Anthony Solomon
The directors may increase the number of directors and may fill any vacancy,
whether resulting from an increase in the number of directors or otherwise, on
the Board of Directors in the manner provided in the Bylaws. Each director
shall be elected to hold office for a term ending on the date of the next annual
meeting of stockholders and until a successor is duly elected and qualifies.
Section 5.2. Extraordinary Actions. Notwithstanding any provision of
---------------------
law permitting or requiring any action to be taken or authorized by the
affirmative vote of the holders of a greater number of votes, any such action
shall be effective and valid if taken or authorized by the affirmative vote of
holders of shares entitled to cast a majority of all the votes entitled to be
cast on the matter.
Section 5.3. Authorization by Board of Stock Issuance. The Board of
----------------------------------------
Directors may authorize the issuance from time to time of shares of stock of the
Corporation of any class or series, whether now or hereafter authorized, or
securities or rights convertible into shares of its stock of any class or
series, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable (or without consideration in the case of a stock
split or stock dividend), subject to such restrictions or limitations, if any,
as may be set forth in the charter or the Bylaws.
Section 5.4. Preemptive Rights. Except as may be provided by the
-----------------
Board of Directors in setting the terms of classified or reclassified shares of
stock pursuant to Section 6.4, no holder of shares of stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe for
any additional shares of stock of the Corporation or any other security of the
Corporation which it may issue or sell.
-2-
<PAGE>
Section 5.5. Indemnification. The Corporation shall have the power,
---------------
to the maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former director or officer of the Corporation or (b) any individual
who, while a director of the Corporation and at the request of the Corporation,
serves or has served as a director, officer, partner or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his status as a
present or former director or officer of the Corporation. The Corporation shall
have the power, with the approval of the Board of Directors, to provide such
indemnification and advancement of expenses to a person who served a predecessor
of the Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the Corporation.
Section 5.6. Determinations by Board. The determination as to any of
-----------------------
the following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the charter and the MGCL and in the absence
of actual receipt of an improper benefit in money, property or services or
active and deliberate dishonesty established by a court, shall be final and
conclusive and shall be binding upon the Corporation and every holder of shares
of its stock: the amount of the net income of the Corporation for any period
and the amount of assets at any time legally available for the payment of
dividends, redemption of its stock or the payment of other distributions on its
stock; the amount of paid-in surplus, net assets, other surplus, annual or other
net profit, net assets in excess of capital, undivided profits or excess of
profits over losses on sales of assets; the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or charges and
the propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or
discharged); the fair value, or any sale, bid or asked price to be applied in
determining the fair value, of any asset owned or held by the Corporation; and
any matters relating to the acquisition, holding and disposition of any assets
by the Corporation.
Section 5.7. REIT Qualification. If the Corporation elects to
------------------
qualify for federal income tax treatment as a REIT, the Board of Directors shall
use its reasonable best efforts to take such actions as are necessary or
appropriate to preserve the status of the Corporation as a REIT; however, if the
Board of Directors determines that it is no longer in the best interests of the
Corporation to continue to be qualified as a REIT, the Board of Directors may
revoke or otherwise terminate the Corporation's REIT election pursuant to
Section 856(g) of the Code. The Board of Directors also may determine that
compliance with any restriction or limitation on stock ownership and transfers
set forth in Article VII is no longer required for REIT qualification.
Section 5.8. Removal of Directors. Subject to the rights of holders
--------------------
of one or more classes or series of Preferred Stock to elect one or more
directors, any director, or the entire Board of Directors, may be removed from
office at any time, by the affirmative vote of the holders of at least a
majority of the votes entitled to be cast in the election of directors.
-3-
<PAGE>
Section 5.9. Advisor Agreements. Subject to such approval of
------------------
stockholders and other conditions, if any, as may be required by any applicable
statute, rule or regulation, the Board of Directors may authorize the execution
and performance by the Corporation of one or more agreements with any person,
corporation, association, company, trust, partnership (limited or general) or
other organization whereby, subject to the supervision and control of the Board
of Directors, any such other person, corporation, association, company, trust,
partnership (limited or general) or other organization shall render or make
available to the Corporation managerial, investment, advisory and/or related
services, office space and other services and facilities (including, if deemed
advisable by the Board of Directors, the management or supervision of the
investments of the Corporation) upon such terms and conditions as may be
provided in such agreement or agreements (including, if deemed fair and
equitable by the Board of Directors, the compensation payable thereunder by the
Corporation).
Section 5.10. Authority of Directors. It is acknowledged that
----------------------
AEW Partners II, L.P., a Delaware limited partnership ("AEW"), engages in
business competitive with the Corporation. It is further acknowledged that any
director of the Corporation which is an affiliate of AEW shall have no
obligation to present to the Corporation opportunities that may be pursued by
AEW, unless such opportunities were presented to such director in his or her
capacity as a director of the Corporation.
ARTICLE VI
STOCK
Section 6.1. Authorized Shares. The Corporation has authority to
-----------------
issue 100,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), 100,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock") (of which 12 shares are designated as Series T Preferred
Stock, $.01 par value per share ("Series T Preferred Stock"), 220 shares are
designated as Series U Preferred Stock, $.01 par value per share ("Series U
Preferred Stock"), 27,500 shares are designated as Series V Preferred Stock,
$.01 par value per share ("Series V Preferred Stock")), and 200,000,000 shares
of Excess Stock, $.01 par value per share ("Excess Stock"). The aggregate par
value of all authorized shares of stock having par value is $4,000,000.
Section 6.2. Common Stock. Subject to the provisions of Article VII,
------------
each share of Common Stock shall entitle the holder thereof to one vote. The
Board of Directors may reclassify any unissued shares of Common Stock from time
to time in one or more classes or series of stock.
Section 6.3. Preferred Stock.
---------------
Section 6.3(a). General. The Board of Directors may classify any
-------
unissued shares of Preferred Stock and reclassify any previously classified but
unissued shares of Preferred Stock of any series from time to time, in one or
more series of stock.
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Section 6.3(b). Series T Preferred Stock
------------------------
1. Fractional Shares; Stated Value. The Series T Preferred Stock is
issuable solely in whole shares that shall entitle the holder thereof to
exercise the voting rights, to participate in the distributions and to have the
benefit of all other rights of holders of the Series T Preferred Stock as set
forth in the charter of the Corporation. The Stated Value of each such share
of Series T Preferred Stock shall be $100.
2. Dividends.
(a) Subject to any preference rights with respect to the payment of
dividends attaching to any other stock of the Corporation ranking prior to the
Series T Preferred Stock, holders of each share of Series T Preferred Stock
shall be entitled to receive out of the assets of the Corporation, at the time
legally available therefor, dividends at an annual rate equal to 8.5% of the
Stated Value thereof, and no more, which shall be fully cumulative, shall accrue
from January 1, 1995, and shall be payable, in cash, semi-annually in arrears on
July 1 and January 1 of each year (as used in this Section 6.3(b), each such
date a "Dividend Payment Date"), commencing July 1, 1995, as set forth below
(except that, if any such date is a Saturday, Sunday or legal holiday, then such
dividend shall be payable on the next day that is not a Saturday, Sunday or
legal holiday), to holders of record as they appear upon the stock transfer
books of the Corporation at the close of business ten business days preceding
the related Dividend Payment Dates, or on such other date fixed by the Board (as
used in this Section 6.3(b), each such date a "Record Date"). Subject to
Section 6.3(b)(2)(d) hereof, dividends on account of arrearages for any past
Dividend Payment Date may be authorized, declared and paid at any time, without
reference to any regular Dividend Payment Date. Holders at the close of
business on a Record Date of shares of Series T Preferred Stock that are called
for redemption on a redemption date during the period between such Record Date
and the corresponding Dividend Payment Date shall not, in their capacity as
such, be entitled to receive the dividend payment on such Dividend Payment Date.
(b) The dividend payable on each share of Series T Preferred Stock
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months. The aggregate dividend paid to a holder of shares of Series T Preferred
Stock shall be based on the aggregate number of shares of Series T Preferred
Stock held by such holder at the close of business on the applicable Record Date
and rounded to the nearest whole cent (with one-half cent rounded upward).
Unless otherwise provided herein, dividends on each share of Series T Preferred
Stock shall accrue from and including January 1, 1995 to and excluding the
earliest to occur of (i) the date of redemption of such share and (ii) the date
of final distribution of assets upon Liquidation (as defined below). All
dividend payments made on shares of Series T Preferred Stock shall first be
credited against the earliest accumulated but unpaid dividends with respect to
such shares.
(c) If, on any Dividend Payment Date, the holders of the Series T
Preferred Stock shall not have received the full dividends provided for herein,
then such dividends shall cumulate, whether or not earned, authorized or
declared, with additional
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dividends thereon for each succeeding full dividend period during which such
dividend shall remain unpaid.
(d) No dividends or other distributions (other than a dividend or
distribution in Common Stock or any other stock of the Corporation ranking
junior to the Series T Preferred Stock as to dividends and upon a liquidation,
dissolution or winding up of the Corporation or other distribution of the
Corporation's assets among stockholders for the purpose of winding up the
Corporation's affairs, whether voluntary or involuntary (any such event, a
"Liquidation")) shall be authorized, declared, made or paid, or set apart for
payment or distribution, upon the Common Stock or upon any other stock of the
Corporation ranking junior to or on a parity with the Series T Preferred Stock
as to dividends, nor may any Common Stock or any other stock of the Corporation
ranking junior to or on a parity with the Series T Preferred Stock as to
dividends or upon Liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of such stock) by the Corporation (except by
conversion into or in exchange for Common Stock or any other stock of the
Corporation ranking junior to the Series T Preferred Stock as to dividends and
upon Liquidation), unless full accrued dividends on all outstanding shares of
the Series T Preferred Stock have been, or contemporaneously are, authorized,
declared and paid, or authorized, declared and a sum sufficient for the payment
thereof is set apart for the payment thereof, to the date of such authorization,
declaration, payment, distribution, setting apart, making monies available,
redemption, purchase or acquisition. Notwithstanding the foregoing, (i) nothing
herein shall prevent the Corporation from making contributions to, or purchasing
stock in connection with, any employee benefit or dividend reinvestment plans or
(ii) if at any time full accrued or accumulated dividends have not been
authorized, declared and paid on the Series T Preferred Stock and on any of the
Corporation's Preferred Stock ranking on a parity as to dividends with the
Series T Preferred Stock, partial dividends may be authorized, declared and paid
on the Series T Preferred Stock and such other Preferred Stock so long as such
dividends are authorized, declared and paid pro rata so that the amounts of
dividends authorized, declared and paid per share on the Series T Preferred
Stock and such other Preferred Stock will in all cases bear to each other the
same ratio that accrued or accumulated and unpaid dividends per share on the
Series T Preferred Stock and such other Preferred Stock bear to each other.
(e) Any reference to "distribution" contained in this Section
6.3(b)(2) shall not include any distribution made in connection with any
Liquidation.
3. Liquidation Preference. In the event of any Liquidation, and
subject to the rights, privileges, conditions and restrictions attaching to any
other stock of the Corporation ranking prior to the Series T Preferred Stock
upon Liquidation, each holder of a share of Series T Preferred Stock shall be
entitled to receive, and be paid out of the assets of the Corporation available
for distribution to its stockholders, an amount in cash per share equal to 100%
of the Stated Value thereof, plus all accrued and unpaid dividends on such share
to the date of final distribution to the holders of shares of Series T Preferred
Stock, whether or not authorized and declared, and no more, before any payment
shall be made or any assets distributed to the holders of Common Stock or any
other class or series of the Corporation's stock ranking junior to the Series T
Preferred Stock upon such Liquidation. If, upon any Liquidation
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the amounts payable with respect to the liquidation preference of the Series T
Preferred Stock and any other shares of the Corporation's stock ranking on a
parity with the Series T Preferred Stock upon such Liquidation are not paid in
full, holders of the Series T Preferred Stock and of such other shares will
share pro rata in the amounts payable and other property distributable with
respect to such Liquidation so that the per share amounts to which holders of
the Series T Preferred Stock and such other shares are entitled will in all
cases bear to each other the same ratio that the liquidation preferences of the
Series T Preferred Stock and such other stock bear to each other. After payment
in full of the preferences in respect of shares of the Series T Preferred Stock
upon Liquidation, the holders of such shares in their capacity as such shall not
be entitled to any further right or claim to any remaining assets of the
Corporation. For purposes hereof, a consolidation or merger of the Corporation
with or into another corporation, or a merger of any other corporation with or
into the Corporation, or the sale of all or substantially all of the
Corporation's property or business (other than in connection with a winding up
of its business) will not be considered a Liquidation.
4. Redemption at Option of the Corporation.
(a) Shares of the Series T Preferred Stock may be redeemed by the
Corporation, at its option, on any date set by the Board, in whole or from time
to time in part, out of assets legally available therefor, at a redemption price
per share of 100% of the Stated Value thereof plus, in each case, an amount
equal to all accrued and unpaid dividends thereon, whether or not authorized and
declared, to but excluding the date fixed for redemption (as used in this
Section 6.3(b), the "Redemption Price"). The aggregate Redemption Price paid to
a holder of shares of the Series T Preferred Stock shall be the product of the
aggregate number of shares of Series T Preferred Stock redeemed from such holder
and the per share Redemption Price, with such product being rounded to the
nearest whole cent (with one-half cent rounded upward), and shall be payable in
cash. In case of the redemption of less than all of the then outstanding shares
of Series T Preferred Stock, the Corporation shall designate the shares to be
redeemed pro rata so that the number of shares redeemed from each holder will in
all cases bear to each other the same ratio that the aggregate number of shares
held by each holder bear to each other. The Corporation shall not redeem less
than all of the shares of Series T Preferred Stock at any time outstanding
unless all dividends accumulated and in arrears upon all shares of Series T
Preferred Stock shall have been paid for all dividend periods ending on or prior
to the redemption date.
(b) Not more than sixty nor less than thirty days prior to the
redemption date fixed by the Board, notice by first class mail, postage prepaid,
shall be given to the holders of record of shares of the Series T Preferred
Stock to be redeemed, addressed to such holders at their last addresses as shown
upon the stock transfer books of the Corporation. Each such notice of redemption
shall specify (i) the date fixed for redemption, (ii) the number of shares of
Series T Preferred Stock to be redeemed, and if less than all shares held by
such holder are to be redeemed, the number of such shares to be redeemed from
such holder, (iii) the Redemption Price, (iv) the place or places of payment,
(v) that payment will be made upon presentation and surrender of the
certificates representing shares of the Series T Preferred Stock at the place
designated in such notice and (vi) that on and after the date fixed
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<PAGE>
for redemption dividends will cease to accrue on such shares (unless the
Corporation defaults in the payment of the Redemption Price).
(c) Any notice that is mailed as provided herein shall be conclusively
presumed to have been duly given, whether or not the holder of shares of the
Series T Preferred Stock receives such notice; and failure to give such notice
by mail, or any defect in such notice to the holders of any shares designated
for redemption, shall not affect the validity of the proceedings for the
redemption of any other shares of the Series T Preferred Stock. On or after the
date fixed for redemption as stated in such notice, each holder of shares of the
Series T Preferred Stock called for redemption shall surrender the certificate
representing such shares to the Corporation at the place designated in such
notice and shall thereupon be entitled to receive payment of the Redemption
Price for each such share. If less than all shares of the Series T Preferred
Stock represented by any surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares of Series T Preferred Stock,
such unredeemed shares shall remain outstanding and the rights of holders of
such shares of Series T Preferred Stock thereafter shall continue to be only
those of a holder of shares of the Series T Preferred Stock. Notice having been
given as aforesaid, if, on the date fixed for redemption, assets necessary for
the redemption shall be legally available therefor and shall have been
irrevocably deposited or set aside, then, notwithstanding that the certificates
representing any shares of the Series T Preferred Stock so called for redemption
shall not have been surrendered, (i) dividends with respect to the shares so
called for redemption shall cease to accrue on the date fixed for redemption,
(ii) such shares shall no longer be deemed outstanding, (iii) the holders
thereof shall cease to be stockholders of the Corporation to the extent of their
interest in such shares and (iv) all rights whatsoever with respect to the
shares so called for redemption (except the right of the holders to receive the
Redemption Price for each such share, without interest or any sum of money in
lieu of interest thereon, upon surrender of their certificates therefor at a
place designated in such notice) shall terminate. If assets legally available
for such purpose are not sufficient for redemption of all of the shares of
Series T Preferred Stock that were to be redeemed, then such assets shall be
applied pro rata to the redemption of all of the shares of Series T Preferred
Stock to be redeemed.
(d) Shares of the Series T Preferred Stock shall not be subject to the
operation of any mandatory redemption, purchase, retirement or sinking fund and
holders of shares of the Series T Preferred Stock shall have no right to require
redemption of the Series T Preferred Stock.
5. Voting Rights.
(a) General. In addition to the voting rights provided in Section
6.3(b)(5)(b) hereof, the holders of each share of Series T Preferred Stock shall
be entitled to one vote upon all matters upon which holders of the Common Stock
have the right to vote, such vote to be counted together with all other shares
of stock having general voting powers and not separately as a class. In all
cases where the holders of shares of Series T Preferred Stock have the right to
vote separately as a class, such holders shall be entitled to one vote for each
such share held by them respectively. Any shares of Series T Preferred Stock
held by the Corporation, or any subsidiary of the Corporation in which the
Corporation owns shares
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<PAGE>
entitled to cast a majority of all votes entitled to be cast, shall not have
voting rights, and shall not be counted in determining the presence of a quorum
or in calculating any percentage of shares, under this Section 6.3(b)(5).
(b) Class Voting Rights. So long as shares of the Series T Preferred
Stock are outstanding, the Corporation shall not, without the affirmative vote
or consent of the holders of at least a majority of all outstanding shares of
Series T Preferred Stock, voting separately as a class, amend any provision of
the charter of the Corporation so as to change the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption of the
Series T Preferred Stock. A class vote on the part of the Series T Preferred
Stock shall not be required (except as otherwise required by resolution of the
Board) in connection with any other matter.
6. Ranking. Any class or series of stock of the Corporation shall
be deemed to rank:
(a) prior to the Series T Preferred Stock, as to dividends or upon
Liquidation, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon Liquidation, as the case
may be, in preference or priority to the holders of Series T Preferred Stock;
(b) on a parity with the Series T Preferred Stock, as to dividends or
upon Liquidation, whether or not the dividend rates, dividend payment dates or
redemption or liquidation preferences per share thereof are different from those
of the Series T Preferred Stock, if the holders of such class or series of stock
and the Series T Preferred Stock shall be entitled to the receipt of dividends
or of amounts distributable upon Liquidation, as the case may be, in proportion
to their respective amounts of accumulated or accrued and unpaid dividends per
share or liquidation preferences, as the case may be, without preferences or
priority one over the other; and
(c) junior to the Series T Preferred Stock, as to dividends or upon
Liquidation, if such stock shall be Common Stock or any other class or series of
stock of the Corporation if the holders of Series T Preferred Stock shall be
entitled to receipt of dividends or of amounts distributable upon Liquidation,
as the case may be, in preference or priority to the holders of shares of such
stock.
7. Outstanding Shares. For purposes hereof, all shares of the
Series T Preferred Stock issued by the Corporation shall be deemed outstanding
except (i) as provided in Section 6.3(b)(4) hereof and (ii) from the date of
surrender of a certificate representing shares of Series T Preferred Stock, all
shares of Series T Preferred Stock represented by such certificate.
8. Status of Acquired Shares. Shares of the Series T Preferred
Stock redeemed or otherwise acquired by the Corporation constitute authorized
but unissued shares of Preferred Stock, and may thereafter be issued, but not
as shares of Series T Preferred Stock.
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Section 6.3(c) Series U Preferred Stock
------------------------
1. Fractional Shares; and Stated Value. The Series U Preferred
Stock is issuable solely in whole shares that shall entitle the holder thereof
to exercise the voting rights, to participate in the distributions and to have
the benefit of all other rights of holders of the Series U Preferred Stock as
set forth in the charter of the Corporation. The Stated Value of each such share
of Series U Preferred Stock shall be $500.
2. Dividends.
(a) Subject to any preference rights with respect to the payment of
dividends attaching to any other stock of the Corporation ranking prior to the
Series U Preferred Stock as to the payment of dividends, holders of each share
of Series U Preferred Stock shall be entitled to receive out of the assets of
the Corporation, at the time legally available therefor, dividends at an annual
rate equal to 8.5% of the Stated Value thereof, and no more, which shall be
fully cumulative, shall accrue from the date shares of the Series U Preferred
Stock are first issued by the Corporation (as used in this Section 6.3(c), the
"Issue Date"), and shall be payable, in cash, annually in arrears on January 1
of each year (as used in this Section 6.3(c), each such date a "Dividend Payment
Date"), commencing January 1, 1997, as set forth below (except that, if any such
date is a Saturday, Sunday or legal holiday, then such dividend shall be payable
on the next day that is not a Saturday, Sunday or legal holiday), to holders of
record as they appear upon the stock transfer books of the Corporation at the
close of business on such record dates, not more than sixty days nor less than
ten days preceding the related Dividend Payment Dates, as are fixed by the Board
(as used in this Section 6.3(c), each such date a "Record Date"). Subject to
subsection 2(d) of this Section 6.3(c), dividends on account of arrearages for
any past Dividend Payment Date may be authorized, declared and paid at any time,
without reference to any regular Dividend Payment Date. Holders at the close of
business on a Record Date of shares of Series U Preferred Stock that are called
for redemption on a redemption date during the period (as used herein, the "Ex-
Dividend Period") between such Record Date and the corresponding Dividend
Payment Date shall not, in their capacity as such, be entitled to receive the
dividend payment on such Dividend Payment Date.
(b) The dividend payable on each share of Series U Preferred Stock
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months. The aggregate dividend paid to a holder of shares of Series U Preferred
Stock shall be based on the aggregate number of shares of Series U Preferred
Stock held by such holder at the close of business on the applicable Record Date
and rounded to the nearest whole cent (with one-half cent rounded upward).
Unless otherwise provided herein, dividends on each share of Series U Preferred
Stock shall accrue from and including the Issue Date to and excluding the
earliest to occur of (i) the date of redemption of such share, (ii) the date of
conversion of such share and (iii) the date of final distribution of assets upon
any Liquidation. All dividend payments made on shares of Series U Preferred
Stock shall first be credited against the earliest accumulated but unpaid
dividends with respect to such shares.
(c) If, on any Dividend Payment Date, the holders of the Series U
Preferred Stock shall not have received the full dividends provided for herein,
then
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such dividends shall cumulate, whether or not earned, authorized or declared,
with additional dividends thereon for each succeeding full dividend period
during which such dividend shall remain unpaid.
(d) No dividends or other distributions (other than a dividend or
distribution in Common Stock or any other stock of the Corporation ranking
junior to the Series U Preferred Stock as to dividends and upon Liquidation)
shall be authorized, declared, made or paid, or set apart for payment or
distribution, upon the Common Stock, or upon any other stock of the Corporation
ranking junior to or on a parity with the Series U Preferred Stock as to
dividends, nor may any Common Stock or any other stock of the Corporation
ranking junior to or on a parity with the Series U Preferred Stock as to
dividends or upon Liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of such stock) by the Corporation (except by
conversion into or in exchange for Common Stock or any other stock of the
Corporation ranking junior to the Series U Preferred Stock as to dividends and
upon Liquidation), unless full accrued dividends on all outstanding shares of
the Series U Preferred Stock have been, or contemporaneously are, authorized,
declared and paid, or authorized, declared and a sum sufficient for the payment
thereof is set apart for the payment thereof, to the date of such authorization,
declaration, payment, distribution, setting apart, making monies available,
redemption, purchase or acquisition. Notwithstanding the foregoing, (i) nothing
herein shall prevent the Corporation from making contributions to, or purchasing
stock in connection with, any employee benefit or dividend reinvestment plans or
(ii) if at any time full accrued or accumulated dividends have not been
authorized, declared and paid on the Series U Preferred Stock and on any of the
Corporation's Preferred Stock ranking on a parity as to dividends with the
Series U Preferred Stock, partial dividends may be authorized, declared and paid
on the Series U Preferred Stock and such other Preferred Stock so long as such
dividends are authorized, declared and paid pro rata so that the amounts of
dividends authorized, declared and paid per share on the Series U Preferred
Stock and such other Preferred Stock will in all cases bear to each other the
same ratio that accrued or accumulated and unpaid dividends per share on the
Series U Preferred Stock and such other Preferred Stock bear to each other.
(e) Any reference to "distribution" contained in this subsection 2 of
this Section 6.3(c) shall not include any distribution made in connection with
any Liquidation.
3. Liquidation Preference. In the event of any Liquidation, and
subject to the rights, privileges, conditions and restrictions attaching to any
other stock of the Corporation ranking prior to the Series U Preferred Stock
upon Liquidation, each holder of a share of Series U Preferred Stock shall be
entitled to receive, and be paid out of the assets of the Corporation available
for distribution to its stockholders, an amount in cash per share equal to 100%
of the Stated Value thereof, plus all accrued and unpaid dividends on such share
to the date of final distribution to the holders of shares of Series U Preferred
Stock, whether or not authorized and declared, and no more, before any payment
shall be made or any assets distributed to the holders of Common Stock or any
other class or series of the Corporation's stock ranking junior to the Series U
Preferred Stock upon such Liquidation. If, upon any Liquidation the amounts
payable with respect to the liquidation preference of the Series U Preferred
Stock
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and any other shares of the Corporation's stock ranking on a parity with the
Series U Preferred Stock upon such Liquidation are not paid in full, holders of
the Series U Preferred Stock and of such other shares will share pro rata in the
amounts payable and other property distributable with respect to such
Liquidation so that the per share amounts to which holders of the Series U
Preferred Stock and such other shares are entitled will in all cases bear to
each other the same ratio that the liquidation preferences of the Series U
Preferred Stock and such other stock bear to each other. After payment in full
of the preferences in respect of shares of the Series U Preferred Stock upon
Liquidation, the holders of such shares in their capacity as such shall not be
entitled to any further right or claim to any remaining assets of the
Corporation. For purposes of this Section, a consolidation or merger of the
Corporation with or into another corporation, or a merger of any other
corporation with or into the Corporation, or the sale of all or substantially
all of the Corporation's property or business (other than in connection with a
winding up of its business) will not be considered a Liquidation.
4. Redemption at Option of the Corporation.
(a) Commencing on the fifth anniversary of the Issue Date, shares of
the Series U Preferred Stock may be redeemed by the Corporation, at its option,
on any date set by the Board, in whole or from time to time in part, out of
assets legally available therefor, at a redemption price per share of 135% of
the Stated Value thereof plus, in each case, an amount equal to all accrued and
unpaid dividends thereon, whether or not authorized and declared, to but
excluding the date fixed for redemption (as used in this Section 6.3(c), the
"Redemption Price"). The aggregate Redemption Price paid to a holder of shares
of the Series U Preferred Stock shall be the product of the aggregate number of
shares of Series U Preferred Stock redeemed from such holder and the per share
Redemption Price, with such product being rounded to the nearest whole cent
(with one-half cent rounded upward), and shall be payable in cash. In case of
the redemption of less than all of the then outstanding shares of Series U
Preferred Stock, the Corporation shall designate the shares to be redeemed pro
rata so that the number of shares redeemed from each holder will in all cases
bear to each other the same ratio that the aggregate number of shares held by
each holder bear to each other. The Corporation shall not redeem less than all
of the shares of Series U Preferred Stock at any time outstanding unless all
dividends accumulated and in arrears upon all shares of Series U Preferred Stock
shall have been paid for all dividend periods ending on or prior to the
redemption date.
(b) Not more than sixty nor less than thirty days prior to the
redemption date fixed by the Board, notice by first class mail, postage prepaid,
shall be given to the holders of record of shares of the Series U Preferred
Stock to be redeemed, addressed to such holders at their last addresses as shown
upon the stock transfer books of the Corporation. Each such notice of redemption
shall specify (i) the date fixed for redemption, (ii) the number of shares of
Series U Preferred Stock to be redeemed, and if less than all shares held by
such holder are to be redeemed, the number of such shares to be redeemed from
such holder, (iii) the Redemption Price, (iv) the place or places of payment,
(v) that payment will be made upon presentation and surrender of the
certificates representing shares of the Series U Preferred Stock at the place
designated in such notice and (vi) that on and after the date fixed for
redemption dividends will cease to accrue on such shares (unless the Corporation
defaults in the payment of the Redemption Price).
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(c) Any notice that is mailed as provided herein shall be conclusively
presumed to have been duly given, whether or not the holder of shares of the
Series U Preferred Stock receives such notice; and failure to give such notice
by mail, or any defect in such notice to the holders of any shares designated
for redemption, shall not affect the validity of the proceedings for the
redemption of any other shares of the Series U Preferred Stock. On or after the
date fixed for redemption as stated in such notice, each holder of shares of the
Series U Preferred Stock called for redemption shall surrender the certificate
representing such shares to the Corporation at the place designated in such
notice and shall thereupon be entitled to receive payment of the Redemption
Price for each such share. If less than all shares of the Series U Preferred
Stock represented by any surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares of Series U Preferred Stock,
such unredeemed shares shall remain outstanding and the rights of holders of
such shares of Series U Preferred Stock thereafter shall continue to be those of
a holder of shares of the Series U Preferred Stock. Notice having been given as
aforesaid, if, on the date fixed for redemption, assets necessary for the
redemption shall be legally available therefor and shall have been irrevocably
deposited or set aside, then, notwithstanding that the certificates representing
any shares of the Series U Preferred Stock so called for redemption shall not
have been surrendered, (i) dividends with respect to the shares so called for
redemption shall cease to accrue on the date fixed for redemption, (ii) such
shares shall no longer be deemed outstanding, (iii) the holders thereof shall
cease to be stockholders of the Corporation to the extent of their interest in
such shares and (iv) all rights whatsoever with respect to the shares so called
for redemption (except the right of the holders to receive the Redemption Price
for each such share, without interest or any sum of money in lieu of interest
thereon, upon surrender of their certificates therefor at a place designated in
such notice) shall terminate. If assets legally available for such purpose are
not sufficient for redemption of all of the shares of Series U Preferred Stock
that were to be redeemed, then such assets shall be applied pro rata to the
redemption of all of the shares of Series U Preferred Stock to be redeemed.
(d) Shares of the Series U Preferred Stock shall not be subject to the
operation of any mandatory redemption, purchase, retirement or sinking fund and
holders of shares of the Series U Preferred Stock shall have no right to require
redemption of the Series U Preferred Stock.
5. Mandatory Conversion.
(a) On the first date on which (i) shares of Common Stock are
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to an effective registration statement, and (ii) the Corporation has
entered into an underwriting agreement to sell shares of Common Stock (which
underwriting agreement sets forth the price at which such shares will be offered
for sale (as used in this Section 6.3(c), the "Offering Price")), the shares of
Series U Preferred Stock held by each holder not otherwise re deemed in
accordance herewith shall automatically convert as of the date immediately prior
thereto (as used in this Section 6.3(c), the "Conversion Date") without further
action on the part of the Corporation or any such holder, into that number of
fully paid and nonassessable shares of Common Stock (calculated to the nearest
1/100th of a share, with .5/100 rounded upwards) determined by dividing (i) the
product of (x) 135%, (y) the Stated Value thereof (plus all ac-
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crued and unpaid dividends thereon to but excluding the Conversion Date, unless
the Corporation shall elect to pay such amount in cash on such date) and (z) the
aggregate number of shares of Series U Preferred Stock held at such time by such
holder by (ii) the Offering Price.
(b) Each holder of shares of Series U Preferred Stock shall, as soon
as practicable after the Conversion Date, surrender all shares of Series U
Preferred Stock held by such holder and the Corporation shall, as soon as
practicable after such surrender, deliver at the offices of the Corporation to
such holder, or to the nominee or nominees of such holder, certificates
representing the number of full shares of Common Stock to which such holder
shall be entitled, together with a cash payment in respect of any accrued and
unpaid dividends and any fraction of a share of Common Stock, in each case as
provided below. Conversion of shares of Series U Preferred Stock shall be
deemed to have been effected on the Conversion Date, without regard to the time
of surrender of such shares of Series U Preferred Stock and (i) dividends with
respect to such shares of Series U Preferred Stock shall cease to accrue and
accumulate on the Conversion Date, (ii) such shares of Series U Preferred Stock
shall no longer be deemed outstanding, (iii) the holders thereof shall cease to
be stockholders of the Corporation to the extent of their interest in such
shares, (iv) all rights whatsoever with respect to shares of Series U Preferred
Stock shall terminate (except the right of a holder to receive certificates
representing the number of full shares of Common Stock to which such holder
shall be entitled, together with a cash payment in respect of any fraction of a
share of Common Stock as provided herein) and (v) the holders entitled to
receive the shares of Common Stock deliverable upon conversion of such shares of
Series U Preferred Stock shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date, unless the
stock transfer books of the Corporation shall be closed on such date, in which
event such person or persons shall be deemed to become such holder or holders of
record at the close of business on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion Price in
effect on the Conversion Date.
6. No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of shares of
Series U Preferred Stock. If a certificate or certificates representing more
than one share of Series U Preferred Stock shall be surrendered for conversion
at one time by the same record holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series U Preferred Stock so surrendered by such record
holder. In lieu of any fractional share of Common Stock that would otherwise be
issuable upon conversion of any shares of Series U Preferred Stock, the Corpora
tion shall pay a cash adjustment in respect of such fractional share in an
amount equal to the same fraction as the Offering Price, calculated to the
nearest whole cent, with one-half cent rounded upward.
7. Reservation of Shares; Transfer Taxes. The Corporation shall at
all times reserve and keep available, out of its authorized and unissued stock,
solely for the purpose of effecting the conversion of shares of Series U
Preferred Stock, such number of shares of Common Stock free of preemptive rights
as shall be sufficient to effect the conversion of all shares of Series U
Preferred Stock outstanding. The Corporation shall, in accordance with the laws
of the State of Maryland, use its reasonable best efforts to increase the
authorized
-14-
<PAGE>
number of shares of Common Stock if at such time the number of shares of
authorized and unissued Common Stock shall not be sufficient to permit the
conversion of all the then outstanding shares of Series U Preferred Stock. The
Corporation shall not be required to deliver shares of Common Stock upon
conversion if, in the opinion of its counsel, such delivery would violate the
laws of the State of Maryland or any other United States jurisdiction or any
jurisdiction outside the United States.
The Corporation shall pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock upon
conversion of the Series U Preferred Stock. The Corporation shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of Common Stock in a name other than that in
which the shares of Series U Preferred Stock so converted were registered, and
no such issue or delivery shall be made unless and until the person requesting
such issue has paid to the Corporation the amount of such tax or has established
to the satisfaction of the Corporation that such tax has been paid.
8. Voting Rights.
(a) General. Holders of shares of the Series U Preferred Stock shall
not have any voting rights except as set forth below. In connection with any
such right to vote, each holder of shares of the Series U Preferred Stock will
have one vote for each such share held. Any shares of Series U Preferred Stock
held by the Corporation, or any subsidiary of the Corporation in which the
Corporation owns shares entitled to cast a majority of all votes entitled to be
cast, shall not have voting rights, and shall not be counted in determining the
presence of a quorum or in calculating any percentage of shares, under this
Section 6.3(c).8.
(b) Class Voting Rights. So long as shares of the Series U Preferred
Stock are outstanding, the Corporation shall not, without the affirmative vote
or consent of the holders of at least a majority (or such higher percentage, if
any, as may then be required by applicable law) of all outstanding shares of
Series U Preferred Stock, voting separately as a class, (i) amend any provision
of the charter of the Corporation so as to change the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption of the
Series U Preferred Stock or (ii) create, authorize or issue, or reclassify any
authorized stock of the Corporation into, or increase the authorized amount of,
any class or series of stock of the Corporation ranking senior to the Series U
Preferred Stock as to dividends or upon Liquidation (other than up to $50.0
million aggregate liquidation preference of Preferred Stock, to accredited
investors who are not current holders of any class or series of stock of the
Corporation (or of any other securities of the Corporation convertible into, or
exchangeable or exercisable for, such stock of the Corporation) in an offering
exempt from the registration requirements of the Securities Act, such stock to
have the designation, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications, terms or conditions of redemption, and Stated Value thereof, as
determined by the Board). A class vote on the part of the Series U Preferred
Stock shall not be required (except as otherwise required by law or resolution
of the Board) in connection with any other matter, including, without
-15-
<PAGE>
limitation, the authorization, issuance or increase in the authorized amount of
any shares of any class or series of stock of the Corporation that either (A)
ranks junior to, or on a parity with, the Series U Preferred Stock as to
dividends and upon Liquidation or (B) is, at the time of such increase,
undesignated as to ranking with respect to dividends and upon Liquidation.
9. Ranking. Any class or series of stock of the Corporation shall
be deemed to rank:
(a) prior to the Series U Preferred Stock, as to dividends or upon
Liquidation, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon Liquidation, as the case
may be, in preference or priority to the holders of Series U Preferred Stock;
(b) on a parity with the Series U Preferred Stock, as to dividends or
upon Liquidation, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof are different from those of
the Series U Preferred Stock, if the holders of such class or series of stock
and the Series U Preferred Stock shall be entitled to the receipt of dividends
or of amounts distributable upon Liquidation, as the case may be, in proportion
to their respective amounts of accumulated or accrued and unpaid dividends per
share or liquidation prices, as the case may be, without preferences or priority
one over the other; and
(c) junior to the Series U Preferred Stock, as to dividends or upon
Liquidation, if such stock shall be Common Stock or any other class or series of
stock of the Corporation if the holders of Series U Preferred Stock shall be
entitled to receipt of dividends or of amounts distributable upon Liquidation,
as the case may be, in preference or priority to the holders of shares of such
stock.
For purposes hereof, the Series T Preferred Stock shall rank on parity
with the Series U Preferred Stock as to dividends and upon Liquidation.
10. Outstanding Shares. For purposes hereof, all shares of the
Series U Preferred Stock issued by the Corporation shall be deemed outstanding
except (i) as provided in subsections 4 and 5 of this Section 6.3(c) and
(ii) from the date of surrender of a certificate representing shares of
Series U Preferred Stock, all shares of Series U Preferred Stock represented
by such certificate.
11. Status of Acquired Shares. Shares of the Series U Preferred
Stock redeemed or otherwise acquired by the Corporation constitute authorized
but unissued shares of undesignated Preferred Stock, and may thereafter be
issued, but not as shares of Series U Preferred Stock.
Section 6.3(d). Series V Preferred Stock. Any term defined in this
------------------------
Section 6.3(d) shall only have the meaning as set forth in this Section 6.3(d)
notwithstanding any other definition contained elsewhere in the charter of the
Corporation.
-16-
<PAGE>
1. Designation, Notice, Fractional Shares, Taxes.
(a) Designation of Amount and Stated Value. The Series V Preferred
--------------------------------------
Stock is issuable solely in whole shares and shall entitle the holder thereof to
exercise the voting rights, to participate in distributions and to have the
benefits of all other rights of holders of the Series V Preferred Stock as set
forth herein. The stated value per share of the Series V Preferred Stock shall
be $1,000 ("STATED VALUE"). The number of shares which shall constitute such
------------
series shall not be more than 50,000 shares, par value $.01 per share, which
number of shares may be decreased (but not below the number thereof then
outstanding plus the number required to fulfill the Corporation's obligations
under options, warrants or similar rights to acquire Series V Preferred Stock
issued by the Corporation) from time to time by the Board of Directors of the
Corporation (the "BOARD OF DIRECTORS") by reclassifying any unissued shares as
------------------
shares of Preferred Stock or Common Stock.
(b) Notices. Any written notice required by the provisions of this
-------
Section 6.3(d) to be given to the holders of shares of Series V Preferred Stock
shall be given and shall be deemed to have been given (i) upon receipt if
delivered in person; (ii) one Business Day (as defined below) after transmission
of a facsimile, telegram or telex; or (iii) two Business Days after deposit in
United States registered mail or certified mail (postage prepaid, return receipt
requested); or (iv) one Business Day after delivery to a respectable overnight
courier, to the respective parties at such address appearing on the books of the
Corporation. Any notice to AEW Partners II, L.P. ("AEW") that calls for a
---
response by AEW shall be clearly marked on the envelope of any letter and the
cover page of any facsimile and the first page of any notice as follows:
"IMMEDIATE RESPONSE REQUIRED. DEADLINE FOR REPLY IS ________________. FAILURE
TO REPLY BY SUCH DATE WILL ELIMINATE AEW'S RIGHTS TO OBJECT."
(c) No Fractional Shares. No fractional shares or scrip representing
--------------------
fractions of Common Stock shall be issued upon conversion of Series V Preferred
Stock in accordance with this Section 6.3(d). Instead of any fractional
interest in a share of Common Stock that would otherwise be delivered upon
conversion of Series V Preferred Stock, the Corporation shall pay to the holder
of such share an amount in cash based upon the initial public offering price of
Common Stock or, if not determinable, an amount in cash equal to the fair market
value of such fractional interest as determined in good faith by the Board of
Directors. If more than one share of Series V Preferred Stock shall be
surrendered for conversion at any one time by the same holder, the number of
full shares of Common Stock issuable upon conversion thereof shall be computed
on the basis on the aggregate number of Series V Preferred Stock so surrendered.
(d) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series V Preferred Stock outstanding, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series V Preferred Stock and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then-outstanding shares of Series V Preferred
Stock,
-17-
<PAGE>
then, in addition to such other remedies as shall be available to the holder of
such Series V Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, reasonably be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes.
(e) Taxes. The Corporation will pay any and all documentary stamp or
-----
similar issue or transfer taxes payable in respect of the issue or delivery of
Common Stock or other securities or property on conversion of the Series V
Preferred Stock pursuant to this Section 6.3(d); provided, however, that the
-------- -------
Corporation 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 Stock or other
securities or property in a name other than that of the holder of the Series V
Preferred Stock 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
Corporation the amount of any such tax or established, to the reasonable
satisfaction of the Corporation, that such tax has been paid.
2. Cumulative Dividends.
(a) Rights to Payment. The holders of Series V Preferred Stock shall
-----------------
be entitled to receive quarterly cash dividends, when, as and if authorized by
the Board of Directors out of funds legally available for that purpose. The
quarterly dividend periods (the "DIVIDEND PERIODS") shall commence on January 1,
----------------
April 1, July 1 and October 1 of each year and end on and shall include March
31, June 30, September 30 and December 31 of such year, respectively (other than
the initial Dividend Period, which shall commence on the issue date of each such
share of Series V Preferred Stock). For each of the first twelve Dividend
Periods after the date on which each share of Series V Preferred Stock was
issued and sold and during the portion of the thirteenth Dividend Period equal
to the number of days from the first day of the Dividend Period during which
each such share of Series V Preferred Stock was issued to the date that such
share was issued, each holder of Series V Preferred Stock shall be entitled to
receive an amount per share equal to the accrued but unpaid dividends from all
prior Dividend Periods plus the greater of (i) $25.00 per full Dividend Period,
and (ii) 100% of the quarterly dividend (excluding any Securities Dividends (as
defined below)) payable per share of Common Stock during the corresponding
Common Stock dividend period (determined as of the date on which the applicable
Common Stock dividend for the corresponding Common Stock dividend period is
paid) multiplied by the Conversion Share Ratio then in effect (as defined in
subsection 4 of this Section 6.3(d)) (the "Assumed Common Dividend").
Thereafter, each holder of Series V Preferred Stock shall be entitled to receive
an amount per share equal to the accrued but unpaid dividends from all prior
Dividend Periods plus the greater of (i) $37.50 per full Dividend Period and
(ii) the Assumed Common Dividend. The calculation of any such quarterly
dividend shall be made to the nearest cent (with $.005 being rounded upward).
Such dividends shall begin to accumulate and shall be fully cumulative with
respect to each share of Series V Preferred Stock from the issue date of each
such share, whether or not authorized by the Board of Directors and whether or
not in any Dividend Period or Periods there shall be funds of the Corporation
legally available for the payment of such dividends until the earliest to occur
of (i) the date of redemption or conversion of such share and (ii) the date of
final distribution of assets upon the occurrence of a Liquidation Event (as
defined below). Notwithstanding any other provision hereof, (a) the
Corporation, upon approval of a majority of the Board of Directors,
-18-
<PAGE>
including the approval of the Series V Directors, may pay dividends to Parent on
the Common Stock before October 31, 1996 in an aggregate amount equal to the
lesser of (i) the aggregate amount of the Corporation's net income (for book
purposes) for the period from April 1, 1996 through September 9, 1996, and (ii)
$942,528, and (b) such dividends shall be excluded in the calculation of Assumed
Common Dividend.
Such dividends shall be payable quarterly in immediately available
funds, when, as and if authorized by the Board of Directors on a date which
shall not be later than the last day of the applicable Dividend Period;
provided, however, that if any dividend payment date falls on any day other than
- -------- -------
a Business Day (as defined below), the dividend payment due on such dividend
payment date shall be paid (without any effect on the amount due) on the
Business Day immediately following such dividend payment date (the "DIVIDEND
--------
PAYMENT DATE") or such other dates as provided herein, commencing on the first
- ------------
Dividend Payment Date after the date on which Series V Preferred Stock is first
issued (the "ISSUE DATE"). In addition to the above dividends, the holders of
----------
the Series V Preferred Stock shall be entitled to receive a pro rata share of
--- ----
all securities (including warrants, options and convertible securities) of
issuers other than the Corporation that are distributed to the holders of the
Corporation's Common Stock (the "Securities Dividends"). Such holder's pro rata
-------------------- --- ----
share, for purposes of this subsection 2, shall be a fraction of which the
numerator is the number of shares of Common Stock into which the Series V
Preferred Stock can be converted (by multiplying the number of shares of Series
V Preferred Stock held by such holder by the Conversion Share Ratio) and the
denominator is the sum of all shares of Common Stock outstanding immediately
before the issuance of the Securities Dividend plus all shares of Common Stock
then issuable upon conversion or exchange of all convertible or exchangeable
securities (including Series U and V Preferred Stock). Such Securities Dividend
shall be distributed to the holders of the Series V Preferred Stock (i) on the
same date that the distribution of Securities Dividends are made to the holders
of Common Stock and (ii) who are holders of Series V Preferred Stock on the
record date used to determine the record holders of the Common Stock for such
Securities Dividends.
A "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a
------------
day on which state or federally chartered banking institutions in Los Angeles,
California are not required to be opened. Each such dividend shall be payable
to the holders of record of Series V Preferred Stock, as they appear on the
stock records of the Corporation at the close of business on such record dates,
not more than 30 days preceding such Dividend Payment Dates thereof, as shall be
fixed by the Board of Directors. Accumulated and unpaid dividends for any past
Dividend Periods may be authorized 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 more than 30 days preceding the payment date thereof,
as may be fixed by the Board of Directors. Dividend payments shall be
aggregated per holder and shall be made to the nearest cent (with $.005 being
rounded upward).
(b) Computation and Limitations on Dividends. The amount of dividends
----------------------------------------
payable for the initial Dividend Period, or any other period shorter than a full
Dividend Period on the Series V Preferred Stock shall be computed on the basis
of twelve 30-day months and a 360-day year. Holders of Series V Preferred Stock
shall not be entitled to any dividends, whether payable in cash, property or
stocks in excess of the dividend set forth
-19-
<PAGE>
in this Section 6.3(d). No interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on the Series V
Preferred Stock that may be in arrears.
(c) Payment of Dividends on Series V Preferred Stock Relative to
------------------------------------------------------------
Dividends on Parity Shares. So long as any shares of Series V Preferred Stock
- --------------------------
are outstanding, no dividends shall be authorized or paid or Set Apart for
Payment (as defined below) on any class or series of Parity Shares (as defined
below) for any period unless full cumulative dividends have been or
contemporaneously are authorized and paid or authorized and a sum sufficient for
the payment thereof set apart for such payment on the Series V Preferred Stock
for all Dividend Periods terminating on or prior to the dividend payment date on
such class or series of Parity Shares.
"PARITY SHARES" shall mean shares on a parity with the Series V
-------------
Preferred Stock, 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 are
different from those of the Series V Preferred Stock, if the holders of such
class of stock or series and the Series V Preferred Stock 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
accumulated and unpaid dividends per share or Liquidation Preferences (as
defined in subsection 3(a) below), without preference or priority one over the
other.
"SET APART FOR PAYMENT" shall be deemed to include, without any action
---------------------
by the Corporation other than the following, the recording by the Corporation in
its accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to an authorization of dividends or other distribution by the Board of
Directors, the allocation of funds to be so paid on any series or class of stock
of the Corporation; provided, however, that if any funds for any class or series
-------- -------
of Junior Shares (defined below) or any Parity Shares are placed in a separate
account of the Corporation or delivered to a disbursing, paying or other similar
agent, then "Set Apart for Payment" with respect to the Series V Preferred Stock
shall mean placing such funds in a separate account or delivering such funds to
a disbursing, paying or other similar agent.
(d) Priority of Dividends on Series V Preferred Stock Over Junior
-------------------------------------------------------------
Shares. So long as any shares of Series V Preferred Stock are outstanding, no
- ------
dividends shall be authorized or paid or Set Apart for Payment or other
distribution authorized or made upon Junior Shares, nor shall any Junior Shares
be redeemed, purchased or otherwise acquired (other than a redemption, purchase
or other acquisition of Common Stock, as approved by a unanimous vote of the
Board of Directors or the Corporation's Compensation Committee) for any
consideration (or any moneys to be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Corporation, directly
or indirectly (except by conversion into or exchange for Fully Junior Shares),
unless (i) the full cumulative dividends on all outstanding Series V Preferred
Stock shall have been paid or authorized and Set Apart for Payment for all past
Dividend Periods with respect to the Series V Preferred Stock, (ii) sufficient
funds shall have been paid or authorized with respect to the dividend on the
Series V Preferred
-20-
<PAGE>
Stock for the current Dividend Period and (iii) such dividends per Junior Share
do not exceed the dividends paid during the corresponding Dividend Period on the
Series V Preferred Stock on an as-converted-to Common Stock basis unless the
holders of the Series V Preferred Stock shall simultaneously receive such higher
dividend on an as-converted-to Common Stock basis, in which case the amount paid
to the holders of Series V Preferred Stock on account of such higher dividend
shall be offset against the payment otherwise due on the next Dividend Payment
Date. "FULLY JUNIOR SHARES" shall mean the shares of Common Stock and any other
-------------------
class or series of stock of the Corporation now or hereafter issued and
outstanding over which the Series V Preferred Stock has 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 Corporation, including the Series
T Preferred Stock and the Series U Preferred Stock. "JUNIOR SHARES" or "JUNIOR
------------- ------
STOCK" shall mean the Fully Junior Shares and any other class or series of stock
- -----
of the Corporation now or hereafter issued and outstanding over which the Series
V Preferred Stock shall have preference or priority in the payment of dividends
or in the distribution of assets on any liquidation, dissolution or winding up
of the Corporation.
3. Liquidation Preference.
(a) Rights to Payment. In the event of any Liquidation Event (as
-----------------
defined below), before and in preference to any payment or distribution of any
of the assets or surplus funds of the Corporation made to or Set Apart for
Payment for the holders of Fully Junior Shares or shares which are Junior Shares
as to liquidation, each holder of the Series V Preferred Stock shall be entitled
to receive in immediately available funds to the extent available (i) the Stated
Value of the holder's shares of Series V Preferred Stock plus (ii) an amount per
share that will provide such holder with an Internal Rate of Return (as defined
below) equal to 15% on the Stated Value thereof (the "LIQUIDATION PREFERENCE");
----------------------
but such holders shall not be entitled to any further payment. "INTERNAL RATE
-------------
OF RETURN" shall be calculated using the effective annualized return with the
- ---------
Stated Value as the investment "out-flows," and all payments of dividends,
including Securities Dividends, and other distributions received with respect to
such share of Series V Preferred Stock as "in-flows"; provided that (i) the fact
--------
that such holders may from time to time borrow, finance or leverage the funds
invested in the purchase of Series V Preferred Stock shall not affect either
characterization or calculation of such investment amount (i.e., neither the
- -
receipt of the proceeds of any such financing nor the payment of any debt
service or costs related to such financing shall be taken into account); (ii)
neither the fact of any transfer of Series V Preferred Stock from the original
holders nor the amount of any consideration received by the original holders or
paid by the successor holder in connection with any transfer shall affect the
calculation of Internal Rate of Return; (iii) all items of investment/expense
and receipt shall be deemed to have been invested/expended or received on the
last day of the calendar month in which they occur; and (iv) all Securities
Dividends shall have a value equal to the fair market value of the Securities
Dividends as of the date of actual receipt as determined in good faith by the
Board of Directors.
A "LIQUIDATION EVENT" shall, unless the holders of a majority of the
-----------------
shares of Series V Preferred Stock otherwise agree, include (i) any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) any sale or transfer of all, or substantially all of the assets of the
Corporation and its subsidiaries (determined on a
-21-
<PAGE>
consolidated basis), (iii) a consolidation or merger of the Corporation in which
the Corporation or its parent, Health Science Properties Holding Corporation, a
Maryland corporation ("PARENT"), is not the surviving entity (other than for
------
purposes of reincorporation or in connection with an initial public offering of
the Common Stock of the Corporation (an "IPO")), and (iv) the acquisition by any
---
individual, firm, partnership, corporation or other entity or any successor by
merger of such entity (a "PERSON") of more than a majority of the outstanding
------
shares of Common Stock of the Corporation other than any acquisition by (A) any
holder of Series V Preferred Stock, (B) an acquisition as a result of the
conversion of the Series V Preferred Stock pursuant to subsections 4 and 5 of
this Section 6.3(d), (C) holders of the outstanding Common Stock of the
Corporation or its Parent as of the Issue Date, (D) management of the
Corporation or its Parent as of the Issue Date, (E) an underwriter in a public
offering or private placement of the Common Stock or (F) any affiliates or
members of the immediate families (their spouse, issues, brothers, sisters and
their respective issue and trusts for the benefit of such persons) of the
foregoing.
(b) Liquidation Relative to Parity Shares. If, upon any Liquidation
-------------------------------------
Event, the assets of the Corporation (or proceeds thereof) distributable among
the holders of the Series V Preferred Stock and any Parity Shares shall be
insufficient to pay in full the Liquidation Preference and liquidating payments
on such shares, then such assets, or the proceeds thereof, shall be distributed
among the holders of Series V Preferred Stock and any such other Parity Shares
ratably in accordance with the respective amounts that would be payable on such
Series V Preferred Stock and any such other Parity Shares if all amounts payable
thereon were paid in full. The holders of Series V Preferred Stock shall be
entitled to written notice at least thirty (30) days in advance of any
Liquidation Event or such shorter period if the Corporation does not have notice
of the Liquidation Event in which case written notice shall be given promptly
following the Corporation's receipt of notice of such event.
(c) Liquidation Rights of Parity and Junior Shares. Subject to the
----------------------------------------------
rights of the holders of shares of any series or class or classes of stock
ranking on a parity with or prior to the Series V Preferred Stock upon
liquidation, dissolution or winding up of the Corporation, after payment shall
have been made in full to the holders of the Series V Preferred Stock, as
provided in this subsection 3, 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 V Preferred Stock shall not be
entitled to share therein.
(d) No Effect on Conversion. Nothing hereinabove set forth shall
-----------------------
affect in any way the right of each holder of Series V Preferred Stock to
convert such shares at any time and from time to time into Common Stock in
accordance with subsection 4 of this Section 6.3(d).
4. Conversion at the Option of the Holder.
(a) Right to Convert. Subject to and upon compliance with the
----------------
provisions of this subsection 4, each share of Series V Preferred Stock shall be
convertible at the option of the holder (i) at any time after three Business
Days prior to the closing of a merger
-22-
<PAGE>
or consolidation of the Corporation (other than a merger or consolidation for
purposes of reincorporation or a merger or consolidation in which a shareholder
or shareholders of the Parent immediately prior to the merger or consolidation
owns more than 75% of the stock of the merged or consolidated company
outstanding after the transaction), (ii) at any time after the fourth
anniversary of the Issue Date, or (iii) upon consummation of an IPO in which the
shares of Series V Preferred Stock are proposed to be redeemed and converted in
accordance with subsection 5(a) hereof, in the case of (i) and (ii) above, into
such number of fully paid and nonassessable shares of Common Stock that is the
result of multiplying the number of Series V Preferred Stock to be converted by
the Conversion Share Ratio and, in the case of (iii) above, in accordance with
subsection 5(a) hereof. The "CONVERSION SHARE RATIO" shall be determined by
----------------------
dividing the Stated Value per share by the Conversion Share Price. The initial
"CONVERSION SHARE PRICE" shall be $30,000 and the initial Conversion Share Ratio
----------------------
shall be .033333, provided, however, that the Conversion Share Price and thus
-------- -------
the Conversion Share Ratio shall be subject to adjustments as set forth below.
(b) Mechanics of Conversion. In order to exercise the conversion
-----------------------
right set forth above, the holder of each share of Series V Preferred Stock to
be converted shall surrender the certificate or certificates representing such
shares to be converted, duly endorsed or assigned to the Corporation or in
blank, at the principal office of the Corporation, or any agent or agents of the
Corporation as may be designated by the Board of Directors or their designee as
the transfer agent for the Series V Preferred Stock (the "TRANSFER AGENT"),
--------------
accompanied by written notice to the Corporation of the number of shares the
holder thereof elects to convert. Unless the shares of Common Stock issuable on
conversion are to be issued in the same name as the name in which such Series V
Preferred Stock is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the Corporation,
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 Corporation demonstrating that such taxes have been paid)
and any required payment in respect of dividends as set forth below. Holders of
Series V Preferred Stock 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 V Preferred Stock 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 must be
accompanied by the payment of an amount equal to the dividend payable on such
shares on such dividend payment date multiplied by a fraction, the numerator of
which shall be the number of days between the conversion date and the dividend
payment date (assuming such date is the last day of the applicable Dividend
Period regardless of when actually paid) and the denominator of which shall be
the number of days in the Dividend Period during which the conversion occurred.
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 V Preferred
Stock shall have been surrendered (together with any required payments in
respect of dividends or transfer or similar taxes payable on such shares), and
the person or persons in whose name or names any certificate or certificates for
Common Stock 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.
-23-
<PAGE>
(c) Conversion Share Price Adjustments. The Conversion Share Price of
----------------------------------
Series V Preferred Stock shall be subject to adjustments from time to time as
follows:
(i) Special Definitions. For purposes of this subsection 4,
-------------------
the following definitions shall apply:
(1) "OPTIONS" shall mean rights, options or warrants to subscribe
-------
for, purchase or otherwise acquire either Common Stock or Convertible
Securities (other than options as approved by the Board of Directors or
Compensation Committee to acquire Common Stock and granted (or with respect
to the Corporation's substitute employee and non-employee director stock
option plans, reserved for issuance upon substitution of outstanding
options issued pursuant to the Parent's employee and non-employee director
stock option plans) under the Corporation's or the Parent's employee and
non-employee director stock option plans existing on the Issue Date or at
any time thereafter ("PERMITTED OPTIONS")).
-----------------
(2) "CONVERTIBLE SECURITIES" shall mean any evidence of
----------------------
indebtedness, shares (other than Common Stock, Series V Preferred Stock or
Series U Preferred Stock) or other securities convertible into, exercisable
or exchangeable for Common Stock (other than Options).
(3) "ADDITIONAL STOCK" shall mean all Common Stock issued (or
----------------
pursuant to subsection 4(c)(iii), deemed to be issued) by the Corporation
after the Issue Date, other than Common Stock issued or issuable at any
time: (A) upon conversion of this Series V Preferred Stock; (B) upon
exercise of Options; (C) upon conversion of Convertible Securities; (D)
upon issuance or exercise of Permitted Options; (E) as a dividend or
distribution on Series V Preferred Stock or any event for which adjustment
is made pursuant to subparagraph (c)(vi) hereof; (F) by way of dividend or
other distribution on Common Stock excluded from the definition of
Additional Stock by the foregoing clauses (A), (B), (C), (D), (E) or this
clause (F) or on Common Stock so excluded.
(ii) No Adjustment of Conversion Share Price. No adjustment of
---------------------------------------
the Conversion Share Price shall be made except as provided herein.
Notwithstanding any other provision hereof, no adjustment of the Conversion
Share Price shall be made (i) with respect to securities issued in any merger
involving solely Parent and the Corporation and approved in accordance with
Section 8 hereof, or (ii) with respect to issuances to holders of Series V
Preferred Stock solely with respect to their holdings of Series V Preferred
Stock.
(iii) Deemed Issue of Additional Shares of Common Stock.
-------------------------------------------------
(1) Options and Convertible Securities. Except as otherwise
----------------------------------
provided herein, in the event the Corporation at any time or from time to
time after the Issue Date shall issue any Options or Convertible
Securities, the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common
-24-
<PAGE>
Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be shares of Additional
Stock issued as of the time of such issue, provided that Additional Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to subsection 4(c)(v) hereof) of such Additional Stock
will be less than the Conversion Price in effect on the date of and
immediately prior to such issue and provided further that in any such case
in which Additional Stock is deemed to be issued:
(A) no further adjustment in the Conversion Share Price
shall be made upon the subsequent issue of Options or Convertible
Securities or shares of Common Stock upon the exercise of such Options
or conversion or exchange of such Convertible Securities for which
adjustment has been made as a result of a deemed issuance pursuant to
this subsection 4(c)(iii);
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase
or decrease in the consideration payable to the Corporation, or in the
number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Share Price computed
upon the original issue thereof, and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective,
be recomputed to reflect such increase or decrease insofar as it
affects such Options or rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the
original issue thereof, and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:
(I) in the case of Convertible Securities or Options
for Common Stock, the only Additional Stock issued was Common
Stock, if any, actually issued upon the exercise of such Options
or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for
the issue of all such Convertible Securities whether or not
actually converted or exchanged plus the additional
consideration, if any, actually received by the Corporation upon
such conversion or exchange, and
(II) in the case of Options for Convertible Securities,
only the Additional Stock, if any, actually issued upon the
exercise thereof were issued at the time of issue of such
Options,
-25-
<PAGE>
and the consideration received by the Corporation for the shares
of Additional Stock deemed to have been then issued was
consideration actually received by the Corporation for the issue
of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Corporation
upon the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(D) no readjustment pursuant to Clause (B) or (C) above
shall have the effect of increasing the Conversion Share Price to an
amount which exceeds the lower of (i) the Conversion Share Price on
the date immediately prior to the original adjustment date, or (ii)
the Conversion Price that would have resulted from any issuance of
Additional Stock between such date and such readjustment date; and
(E) in the case of any Options or Convertible Securities
which expire by their terms not more than ninety (90) days after the
date of issue thereof, no adjustment of the Conversion Share Price
shall be made until the expiration, conversion or exercise of all such
Options or Convertible Securities.
(iv) Adjustment of Conversion Share Price Upon Issuance of
-----------------------------------------------------
Additional Stock.
- ----------------
(1) Prior to the second anniversary of the Issue Date. If prior
-------------------------------------------------
to the second anniversary of the Issue Date the Corporation shall issue
Additional Stock (including Additional Stock deemed to be issued pursuant
to subsection 4(c)(iii)) for a consideration per share less than the
Conversion Share Price for the Series V Preferred Stock in effect on the
date of and immediately prior to such issue, then and in such event, such
Conversion Share Price shall be reduced, concurrently with such issue, to a
price equal to the consideration per share received by the Corporation for
such Additional Stock.
(2) On or after the second anniversary of the Issue Date. If on
----------------------------------------------------
or after the second anniversary of the Issue Date the Corporation shall
issue Additional Stock (including Additional Stock deemed to be issued
pursuant to subsection 4(c)(iii)) for a consideration per share less than
the Conversion Share Price for the Series V Preferred Stock in effect on
the date of and immediately prior to such issue, then and in such event,
such Conversion Share Price shall be reduced concurrently with such issue
to a price (calculated to the nearest cent) determined by multiplying such
Conversion Share Price by a fraction (i) the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issue (including all shares of Common Stock issuable upon conversion of the
outstanding Series U and Series V Preferred Stock and all outstanding
Permitted Options) plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the payment of
shares of Additional Stock so issued would purchase at such Conversion
Share Price; and (ii) the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock
-26-
<PAGE>
issuable upon conversion of the outstanding Series V and Series U Preferred
Stock and all outstanding Permitted Options) plus the number of shares of
Additional Stock so issued. An example of such an adjustment is set forth
on EXHIBIT A to the charter of the Corporation.
---------
(v) Determination of Consideration. For purposes of this
------------------------------
subsection 4(c), the consideration received by the Corporation for the issue of
any shares of Additional Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall (A) insofar as
-----------------
it consists of cash, be the gross aggregate amount of cash received by the
Corporation excluding amounts paid or payable for accrued interest or
accrued dividends; (B) insofar as it consists of property (other than cash)
or services, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and (C) in
the event Additional Stock is issued together with other shares of
securities or other assets of the Corporation for consideration which
covers both, be the proportion of such consideration so received which
relates to Additional Stock, computed as provided in Clause (A) and (B)
above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities: The consideration per
----------------------------------
share received by the Corporation for Additional Stock deemed to have been
issued pursuant to subsection 4(c)(iii)(1), relating to Options and
Convertible Securities, shall be determined by dividing: (i) the total
amount, if any, received or receivable by the Corporation as consideration
for the issue of such Options or Convertible Securities plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to the
Corporation upon the exercise of such Options to purchase the maximum
number of shares of Common Stock issuable thereunder or the conversion or
exchange of such Convertible Securities for the maximum number of shares of
Common Stock issuable in exchange therefor, or in the case of Options for
Convertible Securities, the exercise of Options for Convertible Securities
and the conversion or exchange of such Convertible Securities; by (ii) the
maximum number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such
Options or the Conversion or exchange of such Convertible Securities for
such minimum aggregate amount of additional consideration.
(vi) Adjustments for Subdivisions, Combinations or
--------------------------------------------------
Consolidation of Common Stock. In the event the outstanding shares of Common
- -----------------------------
Stock shall be subdivided (by stock split, or otherwise), into a greater number
of shares of Common Stock, or there shall be a dividend of Junior Stock
convertible into Common Stock paid to the holders of Junior Stock, the
Conversion Share Price then in effect shall, concurrently with the effectiveness
of such subdivision, be proportionately decreased. In the event the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise,
-27-
<PAGE>
into a lesser number of shares of Common Stock, the Conversion Share Price then
in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(vii) Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time or from time to time makes or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the Corporation other than shares of
Common Stock and an adjustment under this subsection 4 is not otherwise made,
then and in each such event, provision shall be made so that the holders of
Series V Preferred Stock shall receive upon conversion thereof, in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation which they would have received had their shares of
Series V Preferred Stock been converted into shares of Common Stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this subsection 4 with respect
to the rights of the holders of this Series V Preferred Stock.
(viii) Adjustments for Reclassification, Exchange and
----------------------------------------------
Substitution. If the Common Stock issuable upon conversion of the Series V
- ------------
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares, consolidation or merger provided for above), the Conversion Share Price
then in effect shall, concurrently with the effectiveness of such reorganization
or reclassification, be proportionately adjusted such that the shares of Series
V Preferred Stock shall be convertible into, in lieu of the number of shares
Common Stock which the holders would otherwise have been entitled to receive, a
number of shares of such other class or classes of stock equivalent to the
number of shares of such stock that would have been subject to receipt by the
holders upon conversion of the Series V Preferred Stock immediately before that
change.
(d) No Impairment. The Corporation will not take action without the
-------------
consent of the holders of a majority of the shares of Series V Preferred Stock,
by amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, with the intent of avoiding the observance or performance of
any of the terms to be observed or performed under this subsection 4 by the
Corporation but will at all times in good faith assist in the carrying out of
all provisions of this subsection 4.
(e) Certificate of Adjustments. Upon the occurrence of each
--------------------------
adjustment or readjustment of the Conversion Share Price of the Series V
Preferred Stock pursuant to this subsection 4, the Corporation, at its expense,
shall promptly compute or cause to be computed such adjustment or readjustment
in accordance with the terms hereof and furnish each holder of such Series V
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in reasonable detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series V Preferred Stock, furnish or cause to be furnished
to such holder a like certificate
-28-
<PAGE>
setting forth (i) such adjustments and readjustments, (ii) the Conversion Share
Price then in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of such Series V Preferred Stock.
(f) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities which does not
include Series V Preferred Stock for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase, or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
this Corporation shall mail to each holder of Series V Preferred Stock, at least
20 days prior to the date specified therein, a written notice (in accordance
with subsection 1(b) of this Section 6.3(d)) specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
5. Conversion and Redemption at the Option of the Corporation.
(a) Right to Convert Upon the closing of an IPO at any time during
----------------
the four years following the Issue Date and subject to the rights of the holder
of Series V Preferred Stock to approve the terms of an IPO in which the
Corporation would be unable to exercise its rights under this subsection 5(a),
the Corporation shall have the right, at its option, at any time, in whole but
not in part, to redeem (a "PARTIAL CASH EXCHANGE") no less than one-half of each
---------------------
holder's outstanding shares of Series V Preferred Stock for cash at the Cash
Return Redemption Price (defined below) and to convert the balance into that
number of fully paid and nonassessable shares of Common Stock determined by
dividing (i) the aggregate Cash Return Redemption Price for the shares to be
converted, by (ii) the per share price that the Common Stock is offered to the
public in the IPO.
Notwithstanding the Corporation's right to require a Partial Cash
Exchange, not later than 15 days after receipt of a written Notice of Exchange
(as defined below) of such Partial Cash Exchange, a holder of Series V Preferred
Stock may elect, in its sole discretion, to convert up to 100% of such holder's
shares of Series V Preferred Stock into that number of shares of Common Stock
determined by multiplying the number of shares of Series V Preferred Stock by
the Conversion Share Ratio if such holder provides written notice (in accordance
with subsection 1(b) of this Section 6.3(d)) of such election to the
Corporation. Such election may be conditioned upon consummation of the IPO. If
requested by the underwriter in an IPO, any shares of Common Stock issuable upon
a Partial Cash Exchange (including shares issuable if the holder elects to
convert 100% of such holder's shares of Series V Preferred Stock) shall be
subject to a lock-up of not greater than three hundred and sixty (360) days
provided that all officers, directors and substantially all 1% shareholders of
the Corporation are bound by the same lock-up terms.
The "CASH RETURN REDEMPTION PRICE" per share of Series V Preferred
----------------------------
Stock shall be the Stated Value plus an Internal Rate of Return (as defined in
subsection 3 of this Section 6.3(d)) of 20%; provided, however, that if such
-------- -------
conversion should occur prior to the
-29-
<PAGE>
first anniversary of the Issue Date, a minimum holding period of one year shall
be assumed for purposes of calculating the 20% Internal Rate of Return; and
provided further that for purposes of the determination of Internal Rate of
- -------- -------
Return in this subsection, any Securities Dividends shall be deemed to have no
value.
(b) Notice. In order to effect a Partial Cash Exchange, a written
------
notice of exchange (a "NOTICE OF EXCHANGE") of the Series V Preferred Stock
------------------
shall be given by the Corporation to each record holder of Series V Preferred
Stock to be exchanged not later than thirty (30) days prior to the effective
date of an IPO. For purposes of the calculation of the date of exchange and the
dates on which notices are given pursuant to this Section 5, a Notice of
Exchange shall be deemed to be given as provided in subsection 1(b) of this
Section 6.3(d). No defect in the Notice of Exchange or in the mailing thereof
or publication of its contents shall affect the validity of the Partial Cash
Exchange proceedings. The Corporation may only exercise its option under this
subsection 5(b) if, at the time a Notice of Exchange is given, there are no
accumulated and unpaid dividends on the Series V Preferred Stock being redeemed
for any completed Dividend Period for which the Dividend Payment Date has
passed. "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 The NASDAQ Stock Market, or if such
securities are not quoted on The NASDAQ Stock Market, in the applicable
securities market in which the securities are traded.
(c) Mechanics of Exchange. As promptly as practicable after a Notice
---------------------
of Exchange is given by the Corporation, the Corporation shall issue and shall
deliver to each holder of Series V Preferred Stock to be exchanged, against the
surrender of the certificate or certificates representing such shares of Series
V Preferred Stock (together with any required payments in respect of dividends
and transfer and similar taxes payable on such shares), a certificate or
certificates representing the number of full shares of Common Stock issuable
upon the Partial Cash Exchange of such shares in accordance with the provisions
of this subsection 5, and any fractional interest in respect of a Common Share
arising upon such exchange shall be settled as provided in subsection 5(d).
Each Partial Cash Exchange shall be deemed to have been effected immediately
prior to the first day of trading following an IPO, and the person or persons in
whose name or names any certificate or certificates for the Common Stock shall
be issuable upon such exchange shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date.
At such time on such date, all rights of the holders of the Series V Preferred
Stock to be exchanged as such holders shall cease, and such holders shall
thereupon and thereafter be deemed to be and be for all purposes the holders of
the Common Stock issued in exchange therefor regardless of whether the
certificate representing the Series V Preferred Stock is actually surrendered.
Holders of Series V Preferred Stock 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 Partial
Cash Exchange thereof following such dividend payment record date and prior to
such Dividend Payment Date. However, Series V Preferred Stock subject to a
Partial Cash Exchange 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 must be accompanied by
-30-
<PAGE>
payment of an amount equal to the dividend payable on such shares on such
Dividend Payment Date. A holder of Series V Preferred Stock on a dividend
payment record date whose (or whose transferee's) shares are subject to a
Partial Cash Exchange on the corresponding Dividend Payment Date will receive
the dividend payable by the Corporation on Series V Preferred Stock on such
date.
(d) Validity of Common Stock. Any shares of Common Stock issued upon
------------------------
conversion of shares of Series V Preferred Stock shall be validly issued, fully
paid and nonassessable. Before taking any action that would cause an adjustment
reducing the Conversion Share Price below the then-par value of the Common Stock
deliverable upon conversion of the shares of Series V Preferred Stock, the
Corporation will take any corporate action that, in the opinion of its counsel,
may be reasonably necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Share Price.
(e) Listing of Common Stock. The Corporation shall endeavor to list
-----------------------
the shares of Common Stock required to be delivered upon conversion of the
Series V Preferred Stock, prior to such delivery, upon each national securities
exchange, if any, upon which the outstanding shares of Common Stock are listed
at the time of such delivery.
(f) Compliance with Laws. Prior to the delivery of any securities
--------------------
that the Corporation shall deliver upon conversion of the Series V Preferred
Stock, the Corporation and the holders of such shares shall endeavor to comply
with all federal and state laws and regulations thereunder requiring the
registration of such securities with, or any approval of or consent to the
delivery thereof by, any governmental authority.
6. Mandatory Conversion. Unless all shares of Series V Preferred
Stock are earlier converted or redeemed pursuant to subsections 4, 5 or 7 of
this Section 6.3(d) and provided that the holders of Series V Preferred Stock
have approved the terms of an IPO as required in accordance with subsection 8
hereof, then on the first Trading Day of the Corporation's Common Stock (the
"CONVERSION DATE"), all outstanding shares of Series V Preferred Stock shall be
- ----------------
converted into that number of fully paid and nonassessable shares of Common
Stock that is the result of multiplying the number of shares of Series V
Preferred Stock held by each holder by the Conversion Share Ratio then in
effect. Each holder of shares of Series V Preferred Stock shall, as soon as
practicable after the Conversion Date, surrender all shares of Series V
Preferred Stock held by such holder and any payment in respect of dividends as
set forth in subsection 4(b) and the Corporation shall, as soon as practicable
after such surrender, deliver to such holder, or to the nominee or nominees of
such holder, certificates representing the number of full shares of Common Stock
to which such holder shall be entitled, together with a cash payment in respect
of any fraction of a share of Common Stock, in each case as provided herein.
Conversion of shares of Series V Preferred Stock shall be deemed to have been
effected on the Conversion Date, without regard to the time of surrender of such
shares of Series V Preferred Stock and (i) dividends with respect to such shares
of Series V Preferred Stock shall cease to accrue and accumulate on the
Conversion Date, (ii) such shares of Series V Preferred Stock shall no longer be
deemed outstanding, (iii) the holders thereof shall cease to be holders of
Series V Preferred Stock of the Corporation, (iv) all rights of the holders
-31-
<PAGE>
of Series V Preferred Stock shall terminate (except the right of a holder to
receive certificates representing the number of full shares of Common Stock to
which such holder shall be entitled, together with a cash payment in respect of
any fraction of a share of Common Stock as provided herein), and (v) the holder
entitled to receive the shares of Common Stock deliverable upon conversion of
such shares of Series V Preferred Stock shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the Conversion Date.
7. Redemption. The shares of Series V Preferred Stock shall be
subject to the redemption as follows:
(a) Redemption at the Option of the Corporation. Except as set forth
-------------------------------------------
in subsection 5, the Series V Preferred Stock may not be redeemed by the
Corporation prior to the third anniversary of the Issue Date. On and after such
third anniversary of the Issue Date, the Series V Preferred Stock may be
redeemed in whole (but not in part) at the option of the Corporation. The
Corporation shall give written notice to the holders of the Series V Preferred
Stock of its intent to redeem the Series V Preferred Stock not less than 30 nor
more than 60 days prior to the date set for redemption addressed to such holders
at their last address shown upon the transfer books of the Corporation. The
redemption price for each share of the Series V Preferred Stock to be redeemed
pursuant to this subsection (a) shall be the cash amount equal to the Stated
Value plus an Internal Rate of Return of 25% during the period from the Issue
Date until the third anniversary of the Issue Date and an Internal Rate of
Return of 20% during the period from and after the third anniversary date of the
Issue Date until the date of redemption. Such redemption shall be subject to
the limitations, if any, imposed by the MGCL, and shall be paid in immediately
available funds. The Series V Preferred Stock shall not be subject to the
operation of any mandatory purchase, retirement or sinking fund. Any notice
that is mailed as provided in this subsection 7(a) shall be conclusively
presumed to have been duly given, whether or not the holder of shares of the
Series V Preferred Stock receives such notice; and failure to give such notice
by mail, or any defect in such notice to the holders of any shares designated
for redemption, shall not affect the validity of the redemption of any other
shares of the Series V Preferred Stock.
On or after the date fixed for redemption as stated in such notice,
each holder of shares of the Series V Preferred Stock called for redemption
shall surrender the certificate representing such shares to the Corporation at
the place designated in such notice and shall thereupon be entitled to receive
payment of the redemption price for each such share. Notice having been given
as aforesaid, if, on the date fixed for redemption, the cash funds necessary for
the redemption shall be legally available therefor and shall have been
irrevocably deposited or set aside in trust with a bank or trust company, then,
notwithstanding that any certificates representing any shares of the Series V
Preferred Stock so called for redemption shall not have been surrendered, (i)
dividends with respect to the shares so called for redemption shall cease to
accrue on the date fixed for redemption, (ii) such shares shall no longer be
deemed outstanding, (iii) the holders thereof shall cease to be stockholders of
the Corporation to the extent of their interest in such shares and (iv) all
rights whatsoever with respect to the shares so called for redemption (except
the right of the holders to receive the redemption price for each such share,
without interest or any sum of money in lieu of interest thereon, upon surrender
of their certificates therefor at a place designated in such notice) shall
terminate.
-32-
<PAGE>
(b) Redemption at the Option of the Holder. The Series V Preferred
--------------------------------------
Stock may not be redeemed at the option of the holder thereof on or prior to the
first anniversary of the Issue Date. After the first anniversary of the Issue
Date, the Corporation will be required, at the option of the holder of the
Series V Preferred Stock, to redeem fully, but not in part, the shares of Series
V Preferred Stock held by such holder upon the occurrence of any one or more of
the following events: (i) a failure in two consecutive quarters to pay in full
the quarterly dividends on Series V Preferred Stock required by subsection 2 of
this Section 6.3(d) (including all dividends accumulated but unpaid for all
prior quarters); (ii) a default on the payment of principal or interest on any
institutional debt (or debts) having an outstanding balance (or balances)
aggregating greater than (a) $5 million for nonrecourse debt and (b) $2 million
for recourse debt (which default, in either case, shall not have been cured by
the Corporation within 30 Business Days from the time the Corporation receives
written notification of the default); (iii) failure to comply with subsection 8
hereof; (iv) from September 9, 1996 to December 31, 1996, the Corporation's FAD
(as defined below) fails to equal the required dividend payable on the
outstanding Series V Preferred Stock (calculated from the issue date of such
shares of Series V Preferred Stock to December 31, 1996) and an assumed annual
cash dividend on the outstanding Common Stock equal to at least $560 per share
(subject to adjustment for stock splits, stock dividends, combinations and the
like); (v) for calendar year 1997, the Corporation's FAD fails to equal the
required dividend payable on the outstanding Series V Preferred Stock and an
assumed annual cash dividend on the outstanding Common Stock equal to at least
$2,100 per share (subject to adjustment for stock splits, stock dividends,
combinations and the like); (vi) for calendar year 1998 and subsequent years,
the Corporation's FAD fails to equal the required dividend payable on the
outstanding Series V Preferred Stock and an assumed annual cash dividend on the
outstanding Common Stock equal to at least $2,400 per share (subject to
adjustment for stock splits, stock dividends, combinations and the like); or
(vii) failure of the Corporation to consummate an IPO by the fourth anniversary
of the Issue Date. For purposes of this Section 6.3(d), "FAD" shall mean Funds
---
From Operations (as defined below) minus "Non-Revenue Enhancing Capital
Expenditures" (as defined below). The calculation of FAD shall be made by the
Corporation and confirmed by the Corporation's independent public accounting
firm.
"FUNDS FROM OPERATIONS" or "FFO" shall be defined in accordance with
--------------------- ---
the FFO White Paper prepared in March 1995 by the National Association of Real
Estate Investment Trusts (the "WHITE PAPER") and shall mean the Corporation's
-----------
net income (computed in accordance with generally accepted accounting principles
in effect on December 31, 1995, applied in a manner consistent with the
Corporation's accounting policies and practices as of that date), excluding
gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships
and joint ventures will be calculated to reflect Funds From Operations on the
same basis. As the White Paper provides, only depreciation and amortization of
assets uniquely significant to the real estate industry will be added back.
Amounts added back would include real property depreciation, depreciation of
trade fixtures, including, for example, fume hoods and autoclaves, amortization
of capitalized leasing expenses, including leasing commissions, tenant
allowances or improvements, and the like. Specifically excluded are the add-
back of items such as the amortization of deferred financing costs, depreciation
of computer software, company office improvements, and other items commonly
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found in other industries and required to be recognized as expenses in the
calculation of net income. Items classified by generally accepted accounting
principles as extraordinary or unusual, along with significant non-recurring
items of income or expense that materially distort the comparative measurement
of the Corporation's performance over time, are not meant to be reductions or
increases in FFO, and should be disregarded in its calculation. The use of a
corporate form versus a partnership form for unconsolidated partnerships and
joint ventures should not affect the determination of whether an entity is to be
treated as a joint venture for purposes of the definition. Gains or losses on
sales of securities or undepreciated land shall be included in FFO, unless they
are unusual and non-recurring. Notwithstanding any other provision hereof,
dividends on the Series V Preferred Stock shall not be deducted from net income
in computing FAD.
"NON-REVENUE ENHANCING CAPITAL EXPENDITURES" shall mean those capital
------------------------------------------
expenditures (computed in accordance with generally accepted accounting
principles consistently applied) made with respect to existing real property
that the Corporation has owned and leased to others in order to continue (but
not those expenditures designed to enhance) the revenue-generating capacity of
the property; the following categories of capital expenditures shall not be
---
included for this purpose (and accordingly, the listed capital expenditures will
not be deducted from FFO in computing FAD): capital expenditures relating to
(i) acquisitions, (ii) deferred maintenance on acquisitions, (iii) tenant
improvements (including initial shell build out) and leasing commissions on
square footage that was not leased at the time of acquisition, (iv) development
of new properties or material new elements of existing properties, and (v)
improvements to bring a property into compliance with government regulations.
The redemption price for each share of the Series V Preferred Stock to
be redeemed pursuant to this subsection (b) shall be the cash amount equal to
the Stated Value plus an Internal Rate of Return of 20%, except that an Internal
Rate of Return of 15% shall be paid in connection with a redemption on account
of the failure of the Corporation to consummate an IPO of the Corporation's
Common Stock by the fourth anniversary of the Issue Date as specified in
subsection (vii) above. Notwithstanding subsections (iv), (v) and (vi) above,
the Corporation shall not be deemed to have failed the FAD tests set forth in
such sections if and to the extent that any such failure is based directly on
lost revenues or expenses incurred arising out of a casualty, civil unrest,
natural disaster or similar act of God as to which the Corporation was not
insured (and prudent institutional owners in the market or markets where the
affected assets are located would not have been insured) or the Corporation has
experienced a delay in the receipt of insurance proceeds for reasons beyond the
reasonable control of the Corporation, provided that no single casualty event
shall operate to excuse failure to satisfy a FAD test as to more than one
calendar year.
(c) Waiver. The Corporation shall promptly notify in writing each
------
holder of Series V Preferred Stock of the occurrence of any events set forth or
referred to in subsection (b) (a "TRIGGER EVENT") and such notice shall specify
-------------
the redemption price and place at which the holders may obtain payment of the
redemption price. Unless such holder submits to the Corporation a written
notice electing to redeem (the "ELECTION NOTICE") on or before 90 days after
----------------
receipt of the Corporation's notice, the holder shall be deemed to have waived
the
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right to have shares of Series V Preferred Stock redeemed as a result of such
occurrence. No such waiver shall constitute the waiver of rights with respect
to any subsequent occurrence.
(d) Redemption Date, Notice of Redemption. The redemption date shall
-------------------------------------
be 180 days after receipt of the Election Notice by the Corporation in the case
of a redemption at the option of a holder. On or before the redemption date,
each holder of shares called for redemption shall surrender the certificate or
certificates representing such shares to the Corporation at the place designated
in the redemption notice and shall thereupon be entitled to receive payment of
the redemption price on the redemption date. If on or before the redemption
date the Corporation has cash funds available or has deposited for such purpose
in trust with a bank or trust company sufficient funds to pay the redemption
price in full to the holders of all shares called for redemption, then,
notwithstanding that the certificates representing any shares of the Series V
Preferred Stock so called for redemption shall not have been surrendered, (i)
dividends with respect to the shares so called for redemption shall cease to
accrue on the date fixed for redemption, (ii) such shares shall no longer be
deemed outstanding, (iii) the holders thereof shall cease to be stockholders of
the Corporation to the extent of their interest in such shares and (iv) all
rights whatsoever with respect to the shares so called for redemption (except
the right of the holders to receive the redemption price for each such share,
without interest or any sum of money in lieu of interest thereon, upon surrender
of their certificates therefor at a place designated in such notice) shall
terminate.
(e) Continuing Rights to Conversion. All rights to convert
-------------------------------
shares in accordance with subsections 4, 5 and 6 of this Section 6.3(d) shall
remain valid and effective following the Corporation's notice of redemption,
provided that the right to convert shares of Series V Preferred Stock shall
terminate as to a holder's shares at the close of business on the 5th day prior
to the redemption date if such holder's conversion rights are not exercised in
accordance with subsections 4, 5 and 6 on or prior to such date. Any amounts so
deposited on account of the redemption price of shares converted subsequent to
the date of deposit shall be repaid to the Corporation forthwith upon conversion
of such shares of Series V Preferred Stock into shares of Common Stock.
Notwithstanding anything contained herein to the contrary, no shares of Series V
Preferred Stock shall be required to be redeemed by the Corporation if, prior to
the actual receipt by the Corporation of the Election Notice, the Trigger Event
has been cured.
(f) Payment In Cash. All redemption payments shall be made in cash.
---------------
If the Corporation fails to make a redemption payment because the payment is
prohibited by the MGCL or similar statute, then on the redemption date the
Corporation shall provide to the holders of Series V Preferred Stock, whose
shares are subject to redemption, payment of the maximum amount that may then be
legally paid, on a pro rata basis, together with a certificate of the chief
--- ----
executive or chief financial officer of the Corporation setting forth the
computation made under the applicable statutory provision to determine what
amount could be legally paid. Thereafter, until the shares subject to
redemption have been fully redeemed, within 15 days after the end of each month,
the Corporation shall provide the holders of Series V Preferred Stock whose
shares are subject to redemption, a similar certificate showing the computation
of the maximum legally permitted redemption payment that may be made as of the
end of such month, together with the maximum permitted payment, if any, on a pro
---
rata basis. All shares of Series
- ----
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<PAGE>
V Preferred Stock for which a redemption payment has not been made on a
redemption date shall be considered to be outstanding for all purposes. Nothing
in this subsection (f) is intended to limit the other rights of holders of the
Series V Preferred Stock relating to failure of the Corporation to make a
redemption payment.
8. Protective Provisions. In addition to any other approval that
may be required by law and the charter of the Corporation, (A) the Corporation
shall not take any of the following actions (other than the actions specified in
clause (vii) below) and the Corporation shall not permit any subsidiary of the
Corporation (the "Subsidiary") to take any of the actions specified in clauses
(i), (ii), (iii), (iv), (v), (vi) or (viii) below without first obtaining prior
written approval of (x) the holders of a majority of the outstanding shares of
Series V Preferred Stock or (y) if AEW does not own a majority of the
outstanding shares of Series V Preferred Stock, the directors elected by the
holders of Series V Preferred Stock and (B) the Corporation shall not take any
of the actions specified in clause (vii) below without first obtaining prior
unanimous approval of the board of directors:
(i) the issuance of or modification in a manner materially adverse
to the Corporation or Subsidiary of any debt if the principal amount of such
debt exceeds $10 million or the conversion to a term loan of any amounts owed to
PaineWebber Incorporated, provided that such approval will not be required upon
such issuance or modification necessary in connection with the redemption in
full of the Series V Preferred Stock in accordance with Section 7 hereof or an
IPO in which the shares of Series V Preferred Stock are converted and redeemed
in accordance with Section 5(a) hereof.
(ii) new investments, including a purchase of a real estate operating
company or REIT, with a purchase price equal to or greater than $10 million, or
any series of investments within any 90-day period with an aggregate purchase
price exceeding $25 million;
(iii) issuance of any equity securities by the Corporation or
Subsidiary in an IPO of Common Stock other than an IPO in which the shares of
Series V Preferred Stock are converted and redeemed in accordance with Section
5(a) hereof or redeemed in accordance with Section 7(a) hereof.
(iv) issuance of any equity security by the Subsidiary (other than to
the Corporation) or issuance of any equity security by the Corporation (other
than (i) securities issuable upon conversion, exercise or exchange of any Share
of Series V Preferred Stock, Convertible Security (provided the issuance of such
Convertible Security was made in accordance with the provisions of this Section
8), Option or Permitted Option, (ii) securities issuable in consideration of the
acquisition of assets or shares of another entity as long as the acquisition is
approved in accordance with this Section 8, (iii) securities issuable in
connection with any stock split or stock dividend payable in Common Stock or
(iv) Substitute Securities (as defined in the Series V Convertible Stock
Purchase Agreement, dated as of September 9, 1996, between the Corporation,
Health Science Properties Holding Corporation and AEW Partners II, L.P.)) unless
the following conditions are satisfied, (A) such securities do not rank senior
in liquidation preferences, dividend payment or redemption to the Series V
Preferred Stock, (B) the rights of such securities do not impair the voting or
approval rights of the holders of the
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<PAGE>
Series V Preferred Stock or prevent the holders of shares of Series V Preferred
Stock from electing a majority of the members of the Board of Directors under
circumstances set forth in Section 11 of this Section 6.3(d), (C) the holders of
the Series V Preferred Stock are offered transferable preemptive rights to
purchase their Pro Rata Portion (as defined below) of such securities on terms
no less favorable to the Corporation, and (D) if such securities are Common
Stock or securities convertible into Common Stock, and if the Common Stock
purchase price or Common Stock conversion share price is less than the then
Conversion Share Price then the Conversion Share Price will be adjusted as set
forth in Section 4 (and the Conversion Share Ratio adjusted accordingly),
provided however that prior approval will not be required upon issuance of any
equity securities fully to redeem the Series V Preferred Stock or as part of an
IPO in which the shares of Series V Preferred Stock are converted and redeemed
in accordance with Section 5(a) hereof.
(v) payment of dividends on any equity securities when the
Corporation's FAD fails to equal the required dividends payable on the
outstanding Series V Preferred Stock and the assumed dividends on the
outstanding Common Stock as set forth in any of Sections 7(b)(iv), 7(b)(v) or
7(b)(vi) hereof;
(vi) sale in any one transaction of any asset or assets with a sales
price in excess of $10 million, or any series of sales within a 90-day period
exceeding $25 million; provided, however, that such approval will not be
-------- -------
required in connection of such sale of assets necessary in connection with a
complete redemption of the Series V Preferred Stock in accordance with Section
7(a) hereof or as part of an IPO in which the shares of Series V Preferred Stock
are converted and redeemed in accordance with subsection 5(a) hereof;
(vii) institution of any bankruptcy action (as defined below)
provided, however, that such approval will not be required in connection with
such bankruptcy action if obtaining such approval is determined by a court of
competent jurisdiction to be unenforceable under applicable state or federal
law;
(viii) sale, consolidation or merger of the Corporation or
Subsidiary;
(ix) the voluntary termination of the Corporation's status as a
REIT for tax purposes;
(x) any substantial change in the Corporation's current business
strategies substantially as described in the Corporation's Confidential Offering
Memorandum dated September 11, 1995;
(xi) Jerry Sudarsky ceasing to serve as the full-time Chairman of
the Corporation (other than by reason of his death or disability) during the
period ending on the earlier of January 1, 1998 or consummation of a public
offering of the securities of the Corporation or Joel Marcus ceasing to serve as
the full-time Chief Executive Officer or Chief Operating Officer of the
Corporation (other than by reason of his death or disability);
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<PAGE>
(xii) the sale or disposition by Mr. Sudarsky or Mr. Marcus of 20%
or more of his stock ownership interest in the Parent as of the Issue Date. For
the purposes of this paragraph, shares held in (a) a trust for estate planning
purposes for the benefit of Mr. Sudarsky or Mr. Marcus or members of their
immediate families (spouse, issues and siblings), or (b) held by members of
their immediate families or (c) an entity wholly-owned by any of the foregoing,
shall be deemed to be held by Mr. Sudarsky or Mr. Marcus as the case may be;
(xiii) the distribution to any shareholder of the Corporation of any
securities of any issuer other than the Corporation other than by means of a pro
---
rata distribution to the holders of Common and Series V Preferred Stock (on an
- ----
as-converted-to Common Stock basis).
The term "Pro Rata Share" shall mean a fraction of the entire issuance
of equity securities the numerator of which shall be the sum of the number of
the shares of Common Stock then owned (or issuable upon conversion of Shares
then owned) by the holder of Series V Preferred Stock and the denominator of
which shall be the total number of the shares of Common Stock outstanding
immediately prior to the issuance of such equity securities assuming full
conversion or exercise of all outstanding Common Stock and Shares, Convertible
Securities, Options and Permitted Options.
Any offer of equity securities made to the holders of Series V
Preferred Stock shall be made by notice in writing at least 20 days prior to the
date on which the Corporation intends to issue and sell such securities. Such
notice shall set forth (i) the number and type of securities proposed to be
issued and sold and the terms of such securities, (ii) the approximate price at
which such securities are proposed to be sold and the terms of payment, (iii)
the number of securities offered to the holders of Series V Preferred Stock in
compliance with the provisions of this Section, and (iv) the proposed date of
issuance and sale of such securities. Not later than 10 Business Days after
receipt of such notice, each holder of Series V Preferred Stock shall notify the
Corporation in writing whether it elects to purchase all or any portion of its
Pro Rata Portion of the securities offered pursuant to such notice. If any
holder of Series V Preferred Stock does not so notify the Corporation, such
holder shall be deemed to have waived rights to purchase any of the securities.
If a holder of Series V Preferred Stock shall elect to purchase any such
securities, the securities which it shall have elected to purchase shall be
issued and sold to such holder by the Corporation at the same time and on the
same terms and conditions as the securities are issued and sold to third
parties. If, for any reason, the sale of securities to third parties is not
consummated, such holder's election shall terminate, subject to such holder's
ongoing subscription right with respect to issuances of securities at later
dates or times.
The term "bankruptcy action" shall mean:
(a) Commencing any case, proceeding or other action seeking protection
for the Corporation as a debtor under any existing or future law of any
jurisdiction relating to bankruptcy, insolvency, reorganization or relief of
debtors;
(b) Consenting to the entry of an order of relief in any involuntary
bankruptcy case against the Corporation;
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<PAGE>
(c) Filing an answer in any involuntary case described in clause (b)
above admitting the material allegations of the petition therein;
(d) Seeking or consenting to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator, custodian or any similar official
for the Corporation or for a substantial portion of its properties;
(e) Making any assignment for the benefit of the creditors of the
Corporation; and
(f) Admitting in writing the inability of the Corporation to generally
pay its debts as they mature or that the Corporation is generally not paying its
debts as they become due.
If any director of the Corporation votes against the initiation of any
bankruptcy action, such director shall not be liable for monetary damages to the
Corporation or its stockholders for voting against such bankruptcy action. This
exculpation shall be in addition to, and shall not in any way limit or modify
any other exculpation contained in the charter of the Corporation.
With respect to each of the above transactions, if their approval is
required, the holders of Series V Preferred Stock shall be provided with the
information regarding the proposed transaction at least 10 Business Days prior
to the scheduled approval date. If the holders of the Series V Preferred Stock
shall not deliver written notice objecting to the particular transaction before
the end of such 10 Business Day period, such holders shall be deemed to have
consented to such transaction.
The above requirements to obtain prior approval of certain actions
shall terminate if (i) the Corporation shall have an IPO in which the
Corporation issues primary shares of Common Stock with an aggregate offering
price of $100 million or more of new equity or (ii) at any time prior to or
following conversion into Common Stock if the holders of Series V Preferred
Stock own less than 15% of the total equity stock of the Corporation assuming a
conversion of Series V Preferred Stock in accordance with subsection 4 of this
Section 6.3(d). Notwithstanding the above, the requests to obtain prior
approval of certain actions and unless otherwise required by law, no approval
shall be required if the Board of Directors determines in good faith that such
action must be taken to establish or maintain the Corporation's qualification as
a real estate investment trust (as defined in Section 856 of the Internal
Revenue Code of 1986 ("REIT")).
----
9. Shares to Be Retired. All shares of Series V Preferred Stock
which shall have been issued and reacquired in any manner by the Corporation
shall be restored to the status of authorized but unissued shares of Preferred
Stock of the Corporation, without designation as to class or series.
10. Ranking. Any class or series of stock of the Corporation shall
be deemed to rank:
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<PAGE>
(a) prior to the Series V Preferred Stock, as to the payment of
dividends or 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 V Preferred Stock ("SENIOR SHARES");
-------------
(b) on a parity with the Series V Preferred Stock as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up if such stock or series shall be Parity Shares;
(c) junior to the Series V Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Junior Shares; and
(d) junior to the Series V Preferred Stock, as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Fully Junior Shares.
11. Voting Rights. Except as expressly provided below or otherwise
in this charter or required by law, the holders of Series V Preferred Stock
shall have no voting rights.
(a) Directors. Subject to subsection (c) below, the holders of shares
---------
of Series V Preferred Stock as a class shall have the right to elect two members
of the Board of Directors and the holders of Common Stock shall have the right
to elect the remaining directors; provided, however, that if at any time:
-------- -------
(i) the Corporation has failed in two consecutive quarters
to pay in full the quarterly dividends on Series V Preferred Stock as required
by subsection 2 of this Section 6.3(d) (including all dividends accumulated but
unpaid for all prior quarters);
(ii) the Corporation violates Section 8(xi) and (xii)
hereof;
(iii) the Corporation has failed to close an IPO of its
Common Stock by the fourth anniversary of the Issue Date; or
(iv) the Corporation fails to pay the full redemption
price on the Series V Preferred Stock subject to redemption pursuant to
subsection 7(b) on any redemption date (provided, that such redemption was made
at the request of the holders of the majority of the then-outstanding shares of
Series V Preferred Stock), then the holders of Series V Preferred Stock shall
immediately (and regardless of any subsequent cure) and thereafter be entitled
to elect the smallest number of directors constituting a majority of the Board
of Directors, and the holders of Common Stock, as a class, shall retain the
right to elect the remaining directors. In order to facilitate the effective
control of the Board of Directors by the holders of Series V Preferred Stock
upon the occurrence of any event identified in (i), (ii), (iii) or (iv) above,
the size of the Board shall automatically be increased to 15, and the holders of
Series V Preferred Stock, voting together as a single class, shall have the
exclusive right to elect six persons to fill
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such newly created vacancies on the Board of Directors. All Directors elected
by a vote of the holders of Series V Preferred Stock shall be referred to as
"Series V Directors." The initial two Series V Directors serving as directors
of the Corporation shall be a Class B Director and a Class C Director. If more
than the two Series V Directors are serving then they shall be assigned to
classes to make the number of directors in each class as nearly equal as
possible. Holders of Series V Preferred Stock may elect the Series V Directors
by unanimous written consent, by a special meeting of the holders of the Series
V Preferred Stock, or at an annual meeting of stockholders of the Corporation.
Any special meeting of the holders of the Series V Preferred Stock may be called
by holders who hold at least 10% of the outstanding shares of Series V Preferred
Stock or by a Series V Director and shall be held at a time and place specified
by the holder or Series V Director calling a meeting. The presence in person or
by proxy at a meeting of persons entitled to cast a majority of all the votes
entitled to be cast by the holders of a majority of the outstanding shares of
Series V Preferred Stock shall constitute a quorum for the purposes of any such
special meeting. In the case of any vacancy occurring among the Series V
Directors, a majority of the remaining Series V Directors, if any, may elect a
successor to hold office until the earlier of the expiration of the remaining
term of such Series V Director or the next meeting of the stockholders of that
class or series, which shall not be later than the next annual meeting of
holders of the Common Stock. If all Series V Directors shall cease to serve as
directors before their terms expire, the holders of Series V Preferred Stock
then outstanding may, by unanimous written consent or at an annual or special
meeting of the holders of Series V Preferred Stock, elect successors to hold
office for the unexpired terms of the Series V Directors.
(b) Amendment. Notwithstanding any other provision in the charter of
---------
the Corporation, any amendment to the charter of the Corporation which will
materially adversely affect the preferences or rights of the Series V Preferred
Stock shall be approved only by the affirmative vote of the holders of at least
a majority of the outstanding shares of Series V Preferred Stock, voting
together as a single class or, if AEW does not own a majority of the outstanding
shares of Series V Preferred Stock, the directors nominated by the holders of
Series V Preferred Stock.
(c) Termination. The voting rights set forth in (a) and (b) above
-----------
shall terminate if the number of shares of Common Stock issuable upon conversion
of the outstanding shares of Series V Preferred Stock by applying the Conversion
Share Ratio shall represent less than 15% of the total of (i) the number of
outstanding shares of Common Stock plus (ii) the number of shares of Common
Stock that would be outstanding upon conversion of the outstanding shares of
Series U Preferred Stock, together with the outstanding shares of Series V
Preferred Stock applying the Conversion Share Ratio plus all outstanding
Convertible Securities. If the number of shares of Common Stock issuable upon
conversion of the Series V Preferred Stock by applying the Conversion Share
Ratio represents less than 15% but 7% or more of such total, the holders of
shares of Series V Preferred Stock as a class shall only have the right to elect
one member of the Board of Directors rather than two and such right to elect one
member of the Board of Directors shall terminate if the number of shares of
Common Stock issuable upon conversion of the outstanding shares of Series V
Preferred Stock at the Conversion Share Ratio represents less than 7% of such
total. In the event the voting rights with respect
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to any one or more Series V Directors terminates in accordance with this
Subsection (c), the term of any such Series V Director elected in accordance
herewith shall immediately terminate.
(d) Mechanics. Solely for the purpose of this subsection 11, each
---------
holder of shares of Series V Preferred Stock shall be entitled to one vote for
each such share of Series V Preferred Stock held on a record date for vote or
consent of stockholders.
(e) Notice of Meetings. The holder of each share of Series V
------------------
Preferred Stock shall be entitled to written notice of any stockholders' meeting
in the manner provided in the Bylaws of the Corporation.
(f) Service on Compensation Committee. At least one Series V Director
---------------------------------
shall serve on the Compensation Committee of the Board of Directors, which
committee shall be made up of not more than three Directors during such time as
the holders of Series V Preferred Stock have the right to elect at least one
Series V Director. The number of members on the Compensation Committee may not
be increased without the prior approval of the holders of a majority of
outstanding shares of the Series V Preferred Stock during such time as the
holders of Series V Preferred Stock have the right to elect at least one Series
V Director.
12. Record Holders. The Corporation and the Transfer Agent may deem
and treat the record holder of any Series V Preferred Stock as the true and
lawful owner thereof for all purposes, and neither the Corporation nor the
Transfer Agent shall be affected by any notice to the contrary.
13. Fees and Expenses. In the event any holder of Series V Preferred
Stock takes any legal action to enforce any of its rights under this Section
6.3(d) of the Corporation's charter, the non-prevailing party shall be required
to pay the costs and expenses of the prevailing party in connection with such
action, including reasonable attorney and witness fees.
Section 6.4. Classified or Reclassified Shares. Prior to issuance of
---------------------------------
classified or reclassified shares of any class or series, the Board of Directors
by resolution shall: (a) designate that class or series to distinguish it from
all other classes and series of stock of the Corporation; (b) specify the number
of shares to be included in the class or series; (c) set or change, subject to
the provisions of Article VII and subject to the express terms of any class or
series of stock of the Corporation outstanding at the time, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms and conditions of
redemption for each class or series; and (d) cause the Corporation to file
articles supplementary with the State Department of Assessments and Taxation of
Maryland ("SDAT"). Any of the terms of any class or series of stock set or
changed pursuant to clause (c) of this Section 6.4 may be made dependent upon
facts or events ascertainable outside the charter (including determinations by
the Board of Directors or other facts or events within the control of the
Corporation) and may vary among holders thereof, provided that the manner in
which such facts, events or variations shall operate upon the terms of such
class or series of stock is clearly and expressly set forth in the articles
supplementary filed with the SDAT.
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Section 6.5. Charter and Bylaws. All persons who shall acquire stock in
------------------
the Corporation shall acquire the same subject to the provisions of the charter
and the Bylaws.
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ARTICLE VII
EXCESS SHARE PROVISIONS
Section 7.1 Definitions. As used in this Article VII, the following terms
-----------
shall have the following meanings:
"AEW" shall mean AEW Partners II, L.P., a Delaware limited
partnership, and AEW Health Science Properties Co-Investment, L.P., a Delaware
limited partnership.
"Beneficial Ownership" shall mean ownership of Capital Stock either
directly or constructively through application of section 544 of the Code, as
modified by section 856(h) of the Code. The terms "Beneficial Owner,"
"Beneficially Owns" and "Beneficially Owned" shall have correlative meanings.
"Beneficial Transferee" shall mean the transferee that acquires for
consideration Capital Stock from the Trustee pursuant to Section 7.3.5 of this
Article VII.
"Capital Stock" shall mean all classes and series of stock of the
Corporation, including, without limitation, Common Stock, Excess Stock, and
Preferred Stock.
"Charitable Beneficiary" shall mean the beneficiary or beneficiaries
of the Trust which shall be the United Jewish Appeal and, if necessary either
(i) to prevent the Corporation from becoming Closely Held, as defined below, or
(ii) to prevent beneficial ownership of Capital Stock by fewer than 100 Persons
(determined without reference to any rules of attribution), one or more
additional persons exempt from tax under section 501(c)(3) of the Code to be
selected by the Trustee.
"Closely Held" shall have the meaning set forth in Section 7.2.1(d) of
this Article VII.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Excepted Holder" shall mean (i) AEW, (ii) an assignee of AEW who is
an Excepted Holder pursuant to Section 7.2.9(b), (iii) Health Science Properties
Holding Corporation, and (iv) any stockholder of the Corporation for whom an
exemption to the Ownership Limit is created by the Board of Directors pursuant
to Section 7.2.9(a). Notwithstanding anything to the contrary in this Article
VII, unless otherwise agreed in writing by the Board of Directors, an Excepted
Holder shall cease to be an Excepted Holder if, as a result of a sale or other
disposition of Capital Stock by such Excepted Holder, the Excepted Holder
Beneficially Owns Capital Stock less than the Ownership Limit.
"Excepted Holder Limit" shall mean (i) with respect to AEW (or any
assignee of AEW who is an Excepted Holder pursuant to Section 7.2.9(b)), 16% of
the Capital Stock of the Corporation, reduced in each case by the percentage of
Capital Stock of the Corporation disposed of by AEW or any such assignee after
May 23, 1997, and increased in each case in the
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event of a reduction in the number of shares of outstanding Capital Stock to the
percentage that the shares held immediately before such reduction by AEW or any
such assignee represents of the total number of outstanding shares immediately
after such reduction (provided that any such increase shall not be made to the
extent that, as a result of any Person's Beneficial Ownership of Shares of
Capital Stock by reason of ownership of such shares by AEW or any such assignee,
the increase causes the Corporation to become a "pension-held REIT" within the
meaning of Section 856(h)(3)(D) of the Code or causes an Individual to
Beneficially Own such shares of Capital Stock in excess of the Ownership Limit),
(ii) with respect to Holdings, 17% of the Capital Stock of the Corporation, and
(iii) with respect to any other Excepted Holder, such percentage of the Capital
Stock of the Corporation as determined by the Board of Directors pursuant to
Section 7.2.9.
"Excess Stock" shall mean stock that is exchanged for Capital Stock
pursuant to Section 7.2.2 of this Article VII.
"Individual" shall mean any Person that is treated as an individual
for purposes of section 542(a)(2) of the Code as the application of such section
may be modified by section 856(h) of the Code and by applying the "look through"
rule of section 856(h)(3) of the Code to any trust described in section 401(a)
of the Code and exempt from tax under section 501(a) of the Code.
"Market Price" on any date shall mean the fair market value as
determined by a nationally recognized investment banking firm selected by the
Board of Directors.
"Ownership Limit" shall mean 9.8% of the value of the outstanding
shares of Capital Stock of the Corporation, subject to adjustment as set forth
in Section 7.2.7.
"Person" shall mean an individual, corporation, partnership, estate,
trust (including a trust qualified under section 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be used exclusively
for the purposes described in section 642(c) of the Code, association, private
foundation within the meaning of section 509(a) of the Code, joint stock company
or other entity or any government or agency or political subdivision thereof and
also includes a "group" as that term is used for purposes of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended.
"Purported Holder" shall mean, with respect to any event, other than a
purported Transfer, that results in Excess Stock, the record holder of the
Capital Stock but for this Article VII.
"Purported Transferee" shall mean, with respect to any purported
Transfer of Capital Stock, including (without limitation) a purported Transfer
that results in Excess Stock, the person who would be the record holder of the
Capital Stock but for this Article VII.
"Restriction Termination Date" shall mean the first day on which the
Board of Directors determines that it is no longer in the best interests of the
Corporation to attempt to, or continue to, qualify as a REIT.
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"REIT" shall mean a real estate investment trust under the Code.
"Transfer" shall mean any sale, issuance, transfer, gift,
hypothecation, pledge, assignment, devise or other disposition (including (i)
the granting of any option or entering into any agreement for the sale, transfer
or other disposition of Capital Stock, or (ii) the sale, transfer, assignment or
other disposition of any securities or rights convertible into or exchange able
for Capital Stock), whether voluntary or involuntary, whether of record,
constructively or beneficially and whether by operation of law or otherwise.
The terms "Transfers" and "Transferred" shall have the correlative meanings.
"Trust" shall mean the trust created pursuant to Section 7.3.1 of this
Article VII.
"Trustee" shall mean such person, as trustee of the Trust, as shall be
selected from time to time by the Board of Directors.
Section 7.2 Capital Stock.
-------------
Section 7.2.1 Restriction on Transfers. Prior to the Restriction
Termination Date:
(a) No Person, other than an Excepted Holder, shall Beneficially Own
Capital Stock in excess of the Ownership Limit. In addition, no Excepted Holder
shall Beneficially Own Capital Stock in excess of the Excepted Holder Limit with
respect to such Excepted Holder.
(b) Any Transfer that, if effective, would result in any Person,
other than an Excepted Holder, Beneficially Owning Capital Stock in excess of
the Ownership Limit shall be void ab initio as to the Transfer of such Capital
-- ------
Stock that would be otherwise Beneficially Owned by such Person in excess of the
Ownership Limit; and the intended transferee shall acquire no rights in such
Capital Stock.
(c) Any Transfer that, if effective, would result in an Excepted
Holder Beneficially Owning Capital Stock in excess of the applicable Excepted
Holder Limit shall be void ab initio as to the Transfer of such Capital Stock
-- ------
that would be otherwise Beneficially Owned by such Excepted Holder in excess of
the applicable Excepted Holder Limit; and such Excepted Holder shall acquire no
rights in such Capital Stock.
(d) Any Transfer that, if effective, would result in the Corporation
being "closely held" within the meaning of section 856(h) of the Code at any
time during the taxable year ("Closely Held") shall be void ab initio as to the
-- ------
Transfer of that number of shares of Capital Stock that would otherwise cause
the Corporation to be Closely Held; and the intended transferee shall acquire no
rights in such shares of Capital Stock.
(e) Any Transfer that, if effective, would result in the Capital Stock
being beneficially owned, in the aggregate, by fewer than 100 Persons
(determined without reference to any rules of attribution) shall be void ab
--
initio as to the Transfer of that number of shares that would result in
- ------
beneficial ownership of Capital Stock, in the aggregate, by fewer than 100
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<PAGE>
Persons (determined without reference to any rules of attribution); and the
intended transferee shall acquire no rights in such shares of Capital Stock.
Section 7.2.2 Exchange for Excess Stock.
(a) If, notwithstanding the other provisions contained in this Article
VII, at any time prior to the Restriction Termination Date, there is a purported
Transfer or any other event such that any Person, other than an Excepted Holder,
would Beneficially Own Capital Stock in excess of the Ownership Limit, then such
shares of Capital Stock in excess of such Ownership Limit (such shares to be
rounded up to the nearest whole share) shall be automatically exchanged for an
equal number of shares of Excess Stock and shall be subject to the terms of
Section 7.3 hereof. Such exchange shall be effective as of the close of
business on the business day prior to the date of the Transfer or other event.
(b) If, notwithstanding the other provisions contained in this Article
VII, at any time prior to the Restriction Termination Date, there is a purported
Transfer or any other event such that any Excepted Holder would Beneficially Own
Capital Stock in excess of the applicable Excepted Holder Limit, then such
shares of Capital Stock in excess of such Excepted Holder Limit (such shares to
be rounded up to the nearest whole share) shall be automatically exchanged for
an equal number of shares of Excess Stock and shall be subject to the terms of
Section 7.3 hereof. Such exchange shall be effective as of the close of
business on the business day prior to the date of the Transfer or other event.
(c) If, notwithstanding the other provisions contained in this Article
VII, at any time prior to the Restriction Termination Date, there is a purported
Transfer or any other event that would result in the Corporation being Closely
Held, then such shares of Capital Stock that would otherwise cause the
Corporation to become Closely Held (such shares to be rounded up to the nearest
whole share) shall be automatically exchanged for an equal number of shares of
Excess Stock and shall be subject to the terms of Section 7.3 hereof. Such
exchange shall be effective as of the close of business on the business day
prior to the date of the Transfer or other event.
(d) If, notwithstanding the other provisions contained in this Article
VII, at any time prior to the Restriction Termination Date, there is a purported
Transfer or any other event that would result in beneficial ownership of Capital
Stock by fewer than 100 Persons (determined without reference to any rules of
attribution), then such shares of Capital Stock that would otherwise cause such
beneficial ownership to be held by fewer than 100 Persons shall be automatically
exchanged for an equal number of shares of Excess Stock and shall be subject to
the terms of Section 7.3 hereof. Such exchange shall be effective as of the
close of business on the business day prior to the date of the Transfer or other
event.
Section 7.2.3 Remedies for Breach. If the Board of Directors, or a
duly authorized committee thereof, at any time determines in good faith that a
Transfer has taken place in violation of Section 7.2.1 or that a Person intends
to acquire or has attempted to acquire Beneficial Ownership of any shares of
Capital Stock in violation of Section 7.2.1, the Board of Directors or a
committee thereof shall take such action as it deems advisable to refuse to give
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<PAGE>
effect to or to prevent such Transfer, including, but not limited to, refusing
to give effect to such Transfer on the books of the Corporation or instituting
proceedings to enjoin or rescind such Transfer; provided, however, that any
-------- -------
Transfers or attempted Transfers in violation of Section 7.2.1 shall be void ab
--
initio and shall automatically be treated in the manner provided in Section
- ------
7.2.2 irrespective of any action (or non-action) by the Board of Directors or
its designees.
Section 7.2.4 Notice of Ownership or Attempted Ownership in Violation
of Section 7.2.1. Any Person who acquires or attempts to acquire Beneficial
Ownership of shares of Capital Stock in violation of Section 7.2.1 of this
Article VII, shall immediately give written notice to the Corporation of such
event and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such
acquisition or attempted acquisition on the Corporation's qualification as a
REIT.
Section 7.2.5 Owners Required to Provide Information. Prior to the
Restriction Termination Date:
(a) The Corporation shall demand written notice, within 30 days after
the close of each taxable year, from every stockholder of record of more than 5%
(during any periods in which the number of such owners exceeds 2000) or 1%
(during any periods in which the number of such owners is greater than 200 but
no more than 2000), or such lower percentages as required pursuant to
regulations under the Code, of the outstanding shares of Capital Stock of the
Corporation stating the name and address of such Beneficial Owner, the number of
shares of Capital Stock Beneficially Owned, and a description of how such shares
are held. Each such Beneficial Owner shall provide to the Corporation such
additional information as the Corporation may reasonably request in order to
determine the effect, if any, of such Beneficial Ownership on the Corporation's
status as a REIT.
(b) Each Person who is a Beneficial Owner of Capital Stock and each
Person (including the stockholder of record) who is holding Capital Stock for a
Beneficial Owner shall provide to the Corporation such information as the
Corporation may reasonably request in order to determine the Corporation's
status as a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine such compliance, or to comply with
regulations promulgated under the REIT provisions of the Code including, without
limitation, Treasury Regulation Section 1.857-8 or any successor regulation.
(c) Every stockholder of record who holds shares of Capital Stock as
nominee for another Person shall give written notice to the Corporation of the
name and address of such other Person and the number of shares of Capital Stock
which the stockholder of record holds as nominee for such Person.
Section 7.2.6 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Article VII, including any
definition contained in Section 7.1 and any ambiguity with respect to whether
Capital Stock is to be exchanged for Excess Stock in a given situation, the
Board of Directors shall have the power to determine the application of the
provisions of this Article VII with respect to any situation based on the facts
known to it and any such determination by the Board of Directors shall be final
and conclusive for all purposes.
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<PAGE>
Section 7.2.7 Modifications of Ownership Limit. Subject to the
limitations provided in Section 7.2.8, the Board of Directors may from time to
time increase or decrease the Ownership Limit.
Section 7.2.8 Limitations on Modifications.
(a) The Ownership Limit may not be increased if, after giving effect
to such increase, five Individuals could Beneficially Own, in the aggregate,
more than 49.9% of the value of the outstanding Capital Stock.
(b) Prior to the modification of any Ownership Limit pursuant to
Section 7.2.7, the Board of Directors may require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable in
order to determine or ensure the Corporation's status as a REIT.
Section 7.2.9 Exceptions to Ownership Limit.
(a) Subject to Section 7.2.1(d), the Board of Directors may exempt a
Person from the Ownership Limit if, prior to such exemption, the Board of
Directors receives such opinions of counsel, rulings, affidavits, undertakings
or agreements as it may deem necessary or advisable in order to determine or
ensure the Corporation's status as a REIT. Notwithstanding the receipt of any
such opinion, ruling, affidavit, undertaking, or agreement, the Board of
Directors may impose such conditions or restrictions as it deems appropriate in
connection with granting such exception.
(b) AEW may Transfer or assign all or a portion of its interest held
in Common Stock of the Corporation on May 23, 1997 to another Person, provided
that, as a result of such Transfer, no Individual would Beneficially Own shares
of Capital Stock in excess of the Ownership Limit. Any such transferee shall be
an Excepted Holder until such time as it disposes of such Common Stock.
Section 7.2.10 Legend. Each certificate for Capital Stock shall bear
substantially the following legend:
The shares represented by this Certificate are subject to restrictions
on transfer for the purpose of establishing or maintaining the
Corporation's status as a real estate investment trust under the Internal
Revenue Code of 1986, as amended (the "Code"). No Person may Beneficially
Own shares in excess of the Ownership Limit, which may increase or decrease
from time to time, unless such Person is an Excepted Holder. Any Person
who attempts to beneficially own shares in violation of the above
limitation must immediately notify the Corporation. All capitalized terms
in this legend have the meanings defined in the Corporation's charter. If
the restrictions on ownership or transfer are violated, the shares
represented hereby will be automatically exchanged for shares of Excess
Stock, which will then be held in trust for a Charitable Beneficiary. The
foregoing is qualified in its entirety by reference to the Corporation's
charter, a copy
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<PAGE>
of which, including the restrictions on transfer, will be sent without
charge to each stock holder who so requests.
Section 7.3 Excess Stock.
------------
Section 7.3.1 Ownership in Trust. Upon any purported Transfer or
other event that results in the exchange of shares of Capital Stock for Excess
Stock pursuant to Section 7.2.2 of this Article VII, such shares of Excess Stock
shall be deemed to have been Transferred to the Trustee, as trustee of a Trust
for the exclusive benefit of the Charitable Beneficiary. Shares of Excess Stock
so held in the Trust shall continue to be issued and outstanding shares of stock
of the Corporation of such class. The Purported Transferee or Purported Holder
shall have no rights in such shares of Excess Stock except for the rights
provided in Sections 7.3.3 and 7.3.5.
Section 7.3.2 Dividend Rights. Dividends or other distributions that
have been declared on any shares of Capital Stock that have been exchanged for
Excess Stock pursuant to Section 7.2.2 shall be paid with respect to such Excess
Stock when due to the Trustee, as trustee of the Trust for the exclusive benefit
of the Charitable Beneficiary, until such time as the Trustee shall transfer the
Excess Stock to the Beneficial Transferee pursuant to Section 7.3.5 of this
Article VII. Any dividend or distribution paid prior to the discovery by the
Corporation that the shares of Capital Stock have been exchanged for Excess
Stock shall be repaid to the Corporation upon demand or, at the Corporation's
sole election, shall be offset against any future dividends or distributions
payable to the Purported Transferee or Purported Holder, and any dividend or
distribution authorized but unpaid shall be rescinded as void ab initio with
-- ------
respect to such shares of Capital Stock, as the case may be, and promptly
thereafter paid over to the Trustee with respect to such shares of Excess Stock,
as trustee of the Trust for the exclusive benefit of the Charitable Beneficiary.
Section 7.3.3 Rights Upon Liquidation. At such time as (i) the
Corporation has received the necessary stockholder approval with respect to a
voluntary liquidation or dissolution of the Corporation, or (ii) the Corporation
has become the subject of an order of a court of competent jurisdiction
compelling an involuntary liquidation or dissolution of the Corporation, the
Trustee, as trustee of the Trust for the exclusive benefit of the Charitable
Beneficiary, shall be entitled to receive that amount of distributable assets of
the Corporation to which such Excess Stock would be entitled if such Excess
Stock were entitled to share ratably in the distributable assets of the
Corporation as shares of Capital Stock (the "Distributed Amount"). The Trustee
shall distribute to the Purported Transferee or Purported Holder an amount equal
to the lesser of (a) the Distributed Amount, or (b) as appropriate, either (1)
the price per share paid by such Purported Transferee for the shares of Capital
Stock that were exchanged for Excess Stock, (2) if the Purported Transferee did
not give value for such shares of Capital Stock (having received such through a
gift, devise or otherwise), a price per share equal to the Market Price on the
date of the purported Transfer that resulted in the Excess Stock, or (3) if the
exchange for Excess Stock did not arise as a result of a purported Transfer, a
price per share equal to the Market Price on the date of the other event that
resulted in the exchange for Excess Stock. Payment to the Purported Transferee
or Purported Holder shall be without interest. Subject to applicable law, if
the Corporation causes such liquidation or dissolution to be revoked or
otherwise
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<PAGE>
rescinded, any Excess Stock previously automatically canceled pursuant to this
Section 7.3.3 of this Article VII shall be automatically reissued.
Section 7.3.4 Voting Rights. The Trustee, as holder of any Excess
Stock and as trustee for the benefit of the Charitable Beneficiary, shall have
the right to vote any such Excess Stock in connection with any matter on which
the holders of the Capital Stock are entitled to vote until such time as the
Trustee shall transfer such Excess Stock pursuant to Section 7.3.5. The holders
of shares of Excess Stock (other than the Trustee) shall have no voting rights
with respect to Excess Stock and, subject to Maryland law, effective as of the
date that the Excess Stock has been transferred to the Trustee, the Trustee
shall have the authority (at the Trustee's sole discretion) (i) to rescind as
void any vote cast by a Purported Transferee prior to the discovery by the
Corporation that the shares of Excess Stock have been transferred to the Trustee
and (ii) to recast such vote in accordance with the desires of the Trustee
acting for the benefit of the Charitable Beneficiary; provided, however, that if
-------- -------
the Corporation has already taken irreversible corporate action, then the
Trustee shall not have the authority to rescind or recast such vote.
Notwithstanding the provisions of this Article VII, until the Corporation has
received notification that shares of Excess Stock have been transferred to the
Trustee, the Corporation shall be entitled to rely on its stock transfer and
other stockholder records for purposes of preparing lists of stockholders
entitled to vote at meetings, determining the validity and authority of proxies
and otherwise conducting votes of stockholders.
Section 7.3.5 Restrictions on Transfer.
(a) Any shares of Excess Stock that were issued in exchange for
Capital Stock pursuant to Section 7.2.2 of this Article VII and are held by the
Trustee pursuant to Section 7.3.1 of this Article VII shall be Transferred by
the Trustee only as provided for in this subparagraph 7.3.5(a). The Trustee
shall, within 180 days after the date of the purported Transfer or other event
that resulted in the Excess Stock being issued in exchange for Capital Stock (or
as soon as possible thereafter if the Trustee does not learn of such purported
Transfer or other event within such period), transfer for consideration the
Excess Stock held in Trust to a Beneficial Transferee, to be designated by the
Corporation, provided that (i) such shares would not be Excess Stock in the
hands of such Beneficial Transferee and (ii) simultaneously with such Transfer
such shares shall be automatically exchanged for an equal number of shares of
the same class or series of Capital Stock which originally was exchanged for the
Excess Stock. The Trustee shall distribute to the Purported Transferee or
Purported Holder from and to the extent of the consideration received by the
Trustee from the Beneficial Transferee an amount equal to, as appropriate (i)
the price per share paid by the Purported Transferee for the shares of the same
class or series of Capital Stock that were exchanged for Excess Stock, as the
case may be, or (ii) if the Purported Transferee did not give value for such
shares of Capital Stock (having received such through a gift, devise or
otherwise), a price per share equal to the Market Price on the date of the
purported Transfer that resulted in Excess Stock or (iii) if the exchange for
Excess Stock did not arise as a result of a purported Transfer, a price per
share equal to the Market Price on the date of the other event that resulted in
the exchange for Excess Stock.
(b) Notwithstanding the foregoing, if a Purported Transferee receives
a price for its interest in the shares of Capital Stock that were exchanged for
Excess Stock that exceeds the
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<PAGE>
amounts such Purported Transferee would receive under Section 7.3.5(a) of this
Article VII, such Purported Transferee shall pay, or cause to be paid, such
excess to the Trustee, as trustee of the Trust for the exclusive benefit of the
Charitable Beneficiary.
(c) If any of the foregoing restrictions are determined to be void,
invalid or unen forceable by any court of competent jurisdiction, then the
Purported Transferee may be deemed, at the option of the Corporation, to have
acted as an agent of the Corporation, acting in turn as agent on behalf of a
third-party purchaser, in acquiring such Excess Stock and to hold such Excess
Stock on behalf of the Corporation (acting, in turn, as agent as aforesaid).
Section 7.4 NYSE Transactions. Nothing contained in this Article
-----------------
VII or in any other provision of this charter shall preclude the settlement of
any transaction entered into through the facilities of the NYSE or any other
national securities exchange or automated inter-dealer quotation system.
Section 7.5 Further Authority. Nothing contained in this Article
-----------------
VII or in any other provision of this charter shall limit the authority of the
Board of Directors to take such other action as it in its sole discretion deems
necessary or advisable to protect the Corporation and the interests of the
stockholders by maintaining the Corporation's eligibility to be, and preserving
the Corporation's status as, a qualified REIT under the Code. The Corporation is
authorized specifically to seek equitable relief, including injunctive relief,
to enforce the provisions of this Article VII.
Section 7.6 Non-Waiver. No delay or failure on the part of the
----------
Corporation or the Board of Directors in exercising any right hereunder shall
operate as a waiver of any right of the Corporation or the Board of Directors,
as the case may be, except to the extent specifically waived in writing.
Section 7.7 Severability. If any provision of this Article VII or
------------
any application of any such provision is determined to be invalid by any
Federal or state court having jurisdiction over the issues, the validity of the
remaining provisions shall not be affected and other applications of such
provision shall be affected only to the extent necessary to comply with the
determination of such court.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make any amendment
to its charter, now or hereafter authorized by law, including any amendment
altering the terms or contract rights, as expressly set forth in this charter,
of any shares of outstanding stock. All rights and powers conferred by the
charter on stockholders, directors and officers are granted subject to this
reservation.
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<PAGE>
ARTICLE IX
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to time permits
limitation of the liability of directors and officers of a corporation, no
director or officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. Neither the amendment nor repeal of this
Article IX, nor the adoption or amendment of any other provision of the charter
or Bylaws inconsistent with this Article IX, shall apply to or affect in any
respect the applicability of the preceding sentence with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.
THIRD: The amendment to and restatement of the charter as hereinabove set
-----
forth has been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation in
------
the State is as set forth in Article III of the foregoing amendment and
restatement of the charter.
FIFTH: The name and address of the Corporation's current resident agent is
-----
as set forth in Article IV of the foregoing amendment and restatement of the
charter.
SIXTH: The number of directors of the Corporation and the names of those
-----
currently in office are as set forth in Article V of the foregoing amendment and
restatement of the charter.
SEVENTH: The total number of shares of stock which the Corporation had
-------
authority to issue immediately prior to this amendment and restatement was
200,000, consisting of 65,000 shares of Common Stock, $.01 par value per share,
70,000 shares of Excess Stock, $.01 par value per share, and 65,000 shares of
Preferred Stock, $.01 par value per share. The aggregate par value of all
shares of stock having par value was $2,000.
EIGHTH: The total number of shares of stock which the Corporation has
------
authority to issue pursuant to the foregoing amendment and restatement of the
charter is 400,000,000, consisting of 100,000,000 shares of Common Stock, $.01
par value per share, 100,000,000 shares of Preferred Stock, $.01 par value per
share (of which 12 shares are designated as Series T Preferred Stock, $.01 par
value per share, 220 shares of Series U Preferred Stock, $.01 par value per
share, 27,500 shares are designated as Series V Preferred Stock, $.01 par value
per share, and 200,000,000 shares of Excess Stock, $.01 par value per share.
The aggregate par value of all authorized shares of stock having par value is
$4,000,000.
NINTH: Each share of Common Stock of the Corporation outstanding
-----
immediately prior to the effective time of these Articles of Amendment and
Restatement is hereby split into 1,765.923 shares of Common Stock. The charter
of the corporation is further amended by these Articles of Amendment and
Restatement so that each share of Common Stock outstanding after the stock split
shall have a par value of $.01.
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<PAGE>
TENTH: The undersigned Chairman of the Board acknowledges these Articles
-----
of Amendment and Restatement to be the corporate act of the Corporation and as
to all matters or facts required to be verified under oath, the undersigned
Chairman of the Board acknowledges that to the best of his knowledge,
information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its Chairman of
the Board and attested to by its Secretary on this 21 st day of May, 1997.
ATTEST: ALEXANDRIA REAL ESTATE EQUITIES, INC.
/s/ Peter J. Nelson By: /s/ Jerry M. Sudarsky (SEAL)
- ------------------------ ---------------------------------
Secretary Chairman of the Board
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<PAGE>
EXHIBIT 3.2
ALEXANDRIA REAL ESTATE EQUITIES, INC.
-------------------------------------
CERTIFICATE OF CORRECTION
Alexandria Real Estate Equities, Inc., a Maryland corporation (the
"Corporation"), hereby certifies that:
FIRST: The title of the document being corrected is Articles of
-----
Amendment and Restatement.
SECOND: The Articles of Amendment and Restatement were filed on May
------
22, 1997.
THIRD: The provisions of the Articles of Amendment and Restatement
-----
which are to be corrected are set forth below:
1. The fourth line of the definition of "Excepted Holder Limit"
in Article VII, Section 7.1, currently reads as follows:
"disposed of by AEW or any such assignee after May 23, 1997, and
increased in each case in the"
2. The first sentence of Article VII, Section 7.2.9(b),
currently reads as follows:
"AEW may Transfer or assign all or a portion of its interest held in
Common Stock of the Corporation on May 23, 1997 to another Person,
provided that, as a result of such Transfer, no Individual would
Beneficially Own shares of Capital Stock in excess of the Ownership
Limit."
FOURTH: The corrected provisions of the Articles of Amendment and
------
Restatement of the Corporation are set forth below:
1. The fourth line of the definition of "Excepted Holder Limit"
in Article VII, Section 7.1, shall read as follows:
"disposed of by AEW or any such assignee after May 28, 1997, and
increased in each case in the"
2. The first sentence of Article VII, Section 7.2.9(b), shall
read as follows:
"AEW may Transfer or assign all or a portion of its interest held in
Common Stock of the Corporation on May 28, 1997 to
<PAGE>
another Person, provided that, as a result of such Transfer, no
Individual would Beneficially Own shares of Capital Stock in excess of
the Ownership Limit."
The undersigned Chairman of the Board acknowledges this Certificate of
Correction to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned Chairman of the Board
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Correction to be signed in its name and on its behalf by its Chairman of the
Broad and attested to by its Secretary on this 20th day of June , 1997.
----- --------------
ATTEST: ALEXANDRIA REAL ESTATE
EQUITIES, INC.
/s/ Peter J. Nelson By: /s/ Jerry M. Sudarsky (SEAL)
- ------------------------ -----------------------
Secretary Chairman of the Board
<PAGE>
EXHIBIT 3.3
ALEXANDRIA REAL ESTATE EQUITIES, INC.
-------------------------------------
AMENDED AND RESTATED BYLAWS
(Adopted May 20, 1997)
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
----------------
shall be located at such place or places as the Board of Directors may
designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional
------------------
offices at such places as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
-----
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for
--------------
the election of directors and the transaction of any business within the powers
of the Corporation shall be held on a date and at the time set by the Board of
Directors during the month of May in each year.
Section 3. SPECIAL MEETINGS. The chairman of the board, the vice
----------------
chairman of the board, the chief executive officer, the chief operating officer
or Board of Directors may call special meetings of the stockholders. Special
meetings of stockholders shall also be called by the secretary of the
Corporation upon the written request of the holders of shares entitled to cast
not less than a majority of all the votes entitled to be cast at such meeting.
Such request shall state the purpose of such meeting and the matters proposed to
be acted on at such meeting. The secretary shall inform such stockholders of
the reasonably estimated cost of preparing and mailing notice of the meeting
and, upon payment to the Corporation by such stockholders of such costs, the
secretary shall give notice to each stockholder entitled to notice of the
meeting.
Section 4. NOTICE. Not less than ten nor more than 90 days before
------
each meeting of stockholders, the secretary shall give to each stockholder
entitled to vote at such meeting and to each stockholder not entitled to vote
who is entitled to notice of the meeting written or printed notice stating the
time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by any statute, the purpose for which the meeting is
called, either by mail or by presenting it to such stockholder personally or by
leaving it at his residence or usual place of
<PAGE>
business. If mailed, such notice shall be deemed to be given when deposited in
the United States mail addressed to the stockholder at his post office address
as it appears on the records of the Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
---------------
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stockholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the
------------
chairman of the board or the vice chairman of the board, if there shall be one,
shall conduct the meeting or, in the case of vacancy in office or absence of the
chairman of the board or the vice chairman of the board, one of the following
officers present shall conduct the meeting in the order stated: the chief
executive officer, the chief operating officer, the president, the vice
presidents in their order of rank and seniority, or a chairman chosen by the
stockholders entitled to cast a majority of the votes which all stockholders
present in person or by proxy are entitled to cast, shall act as chairman, and
the secretary, or, in his absence, an assistant secretary, or in the absence of
both the secretary and assistant secretaries, a person appointed by the chairman
shall act as secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in
------
person or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of the stockholders,
the stockholders entitled to vote at such meeting, present in person or by
proxy, shall have the power to adjourn the meeting from time to time to a date
not more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
------
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each stockholder may vote, without cumulation, for as many
individuals as there are directors to be elected. A majority of the votes cast
at a meeting of stockholders duly called and at which a quorum is present shall
be sufficient to approve any other matter which may properly come before the
meeting, unless more than a majority of the votes cast is required by statute or
by the charter of the Corporation. Unless otherwise provided in the charter,
each outstanding share, regardless of class, shall be entitled to one vote on
each matter submitted to a vote at a meeting of stockholders.
Section 9. PROXIES. A stockholder may cast the votes entitled to be
-------
cast by the shares of the stock owned of record by him either in person or by
proxy executed in writing by the stockholder or by his duly authorized attorney
in fact. Such proxy shall be filed with the secretary of the Corporation
before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.
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<PAGE>
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
----------------------------------
Corporation registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by the president or a vice
president, a general partner or trustee thereof, as the case may be, or a proxy
appointed by any of the foregoing individuals, unless some other person who has
been appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his name as such fiduciary, either in
person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.
The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Notwithstanding any other provision of the charter of the Corporation
or these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations
Article of the Annotated Code of Maryland (or any successor statute) shall not
apply to any acquisition by any person of shares of stock of the Corporation.
This section may be repealed, in whole or in part, at any time, whether before
or after an acquisition of control shares and, upon such repeal, may, to the
extent provided by any successor bylaw, apply to any prior or subsequent control
share acquisition.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman
----------
of the meeting may appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented at
the meeting based upon their determination of the validity and effect of
proxies, count all votes, report the results and perform such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the stockholders.
Each report of an inspector shall be in writing and signed by him or by
a majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or
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<PAGE>
inspectors on the number of shares represented at the meeting and the results of
the voting shall be prima facie evidence thereof.
----- -----
Section 12. NOMINATIONS AND PROPOSALS BY STOCKHOLDERS.
-----------------------------------------
(a) Annual Meetings of Stockholders. (1) Nominations of persons for
-------------------------------
election to the Board of Directors and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the direction of
the Board of Directors or (iii) by any stockholder of the Corporation who was a
stockholder of record both at the time of giving of notice provided for in this
Section 12(a) and at the time of the annual meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 12(a).
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of
this Section 12, the stockholder must have given timely notice thereof in
writing to the secretary of the Corporation and such other business must
otherwise be a proper matter for action by stockholders. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
30 days or delayed by more than 60 days from such anniversary date or if the
Corporation has not previously held an annual meeting, notice by the stockholder
to be timely must be so delivered not earlier than the close of business on the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made by the Corporation. In no event shall the public announcement of a
postponement or adjournment of an annual meeting to a later date or time
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (ii) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (y) the number of shares of each class of stock of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
-4-
<PAGE>
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 12 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement by the Corporation naming all of the nominees for director
or specifying the size of the increased Board of Directors at least 70 days
prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 12(a) shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the secretary at the principal executive
offices of the Corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record both at the time of giving of notice
provided for in this Section 12(b) and at the time of the special meeting, who
is entitled to vote at the meeting and who complied with the notice procedures
set forth in this Section 12(b). In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any such stockholder may nominate a person or persons (as
the case may be) for election to such position as specified in the Corporation's
notice of meeting, if the stockholder's notice containing the information
required by paragraph (a)(2) of this Section 12 shall be delivered to the
secretary at the principal executive offices of the Corporation not earlier than
the close of business on the 90th day prior to such special meeting and not
later than the close of business on the later of the 60th day prior to such
special meeting or the tenth day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of a postponement or adjournment of a special meeting to a
later date or time commence a new time period for the giving of a stockholder's
notice as described above.
(c) General. (1) Only such persons who are nominated in accordance
-------
with the procedures set forth in this Section 12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 12. The chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section 12 and, if any proposed
nomination or business is not in compliance with this Section 12, to declare
that such nomination or proposal shall be disregarded.
(2) For purposes of this Section 12, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
-5-
<PAGE>
(3) Notwithstanding the foregoing provisions of this Section 12, a
stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 12. Nothing in this Section 12 shall be
deemed to affect any rights of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 13. VOTING BY BALLOT. Voting on any question or in any
----------------
election may be viva voce unless the presiding officer shall order or any
---------
stockholder shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the
--------------
Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting
---------------------------------
or at any special meeting called for that purpose, a majority of the entire
Board of Directors may establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by the Maryland General Corporation Law, nor more than 15, and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
---------------------------
Board of Directors shall be held immediately after and at the same place as the
annual meeting of stockholders, no notice other than this Bylaw being necessary.
The Board of Directors may provide, by resolution, the time and place, either
within or without the State of Maryland, for the holding of regular meetings of
the Board of Directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of
----------------
Directors may be called by or at the request of the chairman or vice chairman of
the board, the chief executive officer, the chief operating officer or by a
majority of the directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within
or without the State of Maryland, as the place for holding any special meeting
of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of
------
Directors shall be delivered personally or by telephone, facsimile transmission,
United States mail or courier to each director at his business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
shall be given at least one day prior to the meeting. Notice by mail shall be
given at least two days prior to the meeting and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the director
is personally given such notice in a telephone call to which
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<PAGE>
he is a party. Facsimile transmission notice shall be deemed to be given upon
completion of the transmission of the message to the number given to the
Corporation by the director and receipt of a completed answer-back indicating
receipt. Neither the business to be transacted at, nor the purpose of, any
annual, regular or special meeting of the Board of Directors need be stated in
the notice, unless specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a
------
quorum for transaction of business at any meeting of the Board of Directors,
provided that, if less than a majority of such directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice, and provided further that if, pursuant to the
charter of the Corporation or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group.
The directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors
------
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by applicable statute. If enough directors have withdrawn from
a meeting to leave less than a quorum but the meeting is not adjourned, the
action of the majority of the directors still present at such meeting shall be
the action of the Board of Directors, unless the concurrence of a greater
proportion is required for such action by applicable statute.
Section 8. ORGANIZATION. At each meeting of the Board of Directors,
------------
the chairman of the board and the vice chairman of the board, if any, shall act
as Co-Chairman. In the absence of both the chairman and vice chairman of the
board, the chief executive officer or in the absence of the chief executive
officer, the president or in the absence of the president, a director chosen by
a majority of the directors present, shall act as Chairman. The Secretary or,
in his or her absence, an Assistant Secretary of the corporation, or in the
absence of the Secretary and all Assistant Secretaries, a person appointed by
the Co-Chairman, shall act as Secretary of the meeting.
Section 9. TELEPHONE MEETINGS. Directors may participate in a meeting
------------------
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 10. INFORMAL ACTION BY DIRECTORS. Any action required or
----------------------------
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
-7-
<PAGE>
Section 11. VACANCIES. If for any reason any or all the directors
---------
cease to be directors, such event shall not terminate the Corporation or affect
these Bylaws or the powers of the remaining directors hereunder (even if fewer
than three directors remain). Any vacancy on the Board of Directors for any
cause other than an increase in the number of directors shall be filled by a
majority of the remaining directors, although such majority is less than a
quorum. Any vacancy in the number of directors created by an increase in the
number of directors may be filled by a majority vote of the entire Board of
Directors. Any individual so elected as director shall hold office until the
next annual meeting of stockholders and until his successor is elected and
qualifies.
Section 12. COMPENSATION. Directors shall not receive any stated
------------
salary for their services as directors but, by resolution of the Board of
Directors, may receive fixed sums per year and/or per meeting and/or per visit
to real property or other facilities owned or leased by the Corporation and for
any service or activity they performed or engaged in as directors. Directors
may be reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and any other
service or activity they performed or engaged in as directors; but nothing
herein contained shall be construed to preclude any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 13. LOSS OF DEPOSITS. No director shall be liable for any
----------------
loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or stock
have been deposited.
Section 14. SURETY BONDS. Unless required by law, no director shall
------------
be obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 15. RELIANCE. Each director, officer, employee and agent of
--------
the Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the advisers, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 16. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
----------------------------------------------------
AGENTS. The directors shall have no responsibility to devote their full time to
- ------
the affairs of the Corporation. Any director or officer, employee or agent of
the Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.
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<PAGE>
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors
---------------------------------
may appoint from among its members an Executive Committee, an Audit Committee, a
Compensation Committee and other committees, composed of one or more directors,
to serve at the pleasure of the Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to committees
------
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in
--------
the same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transaction of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee,
and such chairman or a majority of the members of any committee may fix the time
and place of its meeting unless the Board shall otherwise provide. In the
absence of any member of any such committee, the members thereof present at any
meeting, whether or not they constitute a quorum, may appoint another director
to act in the place of such absent member. Each committee shall keep minutes of
its proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of
------------------
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
-----------------------------
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
---------
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
-9-
<PAGE>
ARTICLE V
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be a
------
chairman of the board, a vice chairman of the board, a chief executive officer,
a chief operating officer, a president, one or more vice presidents, a
secretary, a treasurer, and such other officers as may be established and
appointed by the Board of Directors in accordance with the provisions of this
Section l of Article V. Any two or more offices, except those of chairman and
vice chairman or president and vice president, may be held by the same person.
The Board of Directors may from time to time appoint such other officers and
agents of the Corporation as it may deem necessary, including one or more
assistant treasurers and assistant secretaries. The Board of Directors may from
time to time autho rize any officer or officers to appoint and remove agents and
employees and to prescribe their powers and duties. Such officers, agents and
employees shall hold office for such period, have such author ity and perform
such duties as the Board of Directors or the officer or officers appointing the
same may from time to time prescribe. The Board of Directors may establish and
appoint one or more officers of the Board of Directors, which officers of the
Board of Directors shall not be deemed to be officers of the Corporation.
Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers
-------------------------------------------
shall be elected annually by the Board of Directors. Unless otherwise set forth
in a written agreement between an officer and the Corporation, officers shall
hold their respective office until the next annual election of officers and
until a successor shall have been duly elected and qualified, or until the
death, resignation or removal in the manner hereinafter provided of any such
officer.
Section 3. DUTIES. The respective officers of the Corporation shall
------
have such authority, responsibilities and duties as may be prescribed therefor
from time to time by resolution of the Board of Directors or by a written
agreement between any such officer and the Corporation.
Section 4. REMOVAL. Subject to the terms of a written agreement
-------
between an officer and the Corporation, any officer may be removed, either with
or without cause, by the vote of a majority of the Board of Directors or, except
in the case of any officer elected by the Board of Directors, by any superior.
Section 5. RESIGNATIONS. Subject to the terms of a written agreement
------------
between an officer and the Corporation, any officer may resign at any time by
giving written notice to the Board of Directors or to the president or to the
secretary of the Corporation. Any such resignation shall take effect at the
time specified therein; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 6. VACANCIES. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these Bylaws for
regular election or appointment to such office.
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<PAGE>
Section 7. SALARIES. The salaries of the officers shall be fixed from
--------
time to time by the Board of Directors or a committee thereof and may be
evidenced by a written agreement executed from time to time between the
Corporation and any of such officers. No officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a director
of the Corporation or a member of any committee.
Section 8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
-------------------------------------------------------
Unless otherwise directed by the Board of Directors, the chairman or the vice
chairman of the board, the chief executive officer or any officer of the
Corporation authorized by the president shall have power to vote and otherwise
act on behalf of the Corporation, in person or by proxy, at any meeting of
stockholders of or with respect to any action of stockholders of any other
corporation in which the Corporation may hold securities and otherwise to
exercise any and all rights and powers which the Corporation may possess by
reason of its ownership or securities in such other corporation.
Section 9. CHAIRMAN OF THE BOARD. The chairman of the board shall be
---------------------
an agent of the Corporation and, subject to the direction of the Board of
Directors, shall perform such functions and duties as from time to time may be
assigned to him or her by the Board of Directors. The chairman of the board, if
present, shall preside with the vice chairman of the board, if any, at all
meetings of the stockholders and all meetings of the Board of Directors.
Section 10. VICE CHAIRMAN OF THE BOARD. The vice chairman of the
--------------------------
board shall be an agent of the Corporation and, subject to the direction of the
Board of Directors, shall perform such functions and duties as from time to time
may be assigned to him or her by the Board of Directors. The vice chairman of
the Board, if present, shall preside with the chairman of the board at all
meetings of the stockholders and all meetings of the Board of Directors.
Section 11. CHIEF EXECUTIVE OFFICER. The chief executive officer of
-----------------------
the Corporation shall, subject to the direction of the Board of Directors, have
general charge of the business, affairs and property of the Corporation and
general supervision over its other officers and agents. In general, the chief
executive officer shall perform all duties incident to such office of a stock
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. Unless otherwise prescribed by the Board of
Directors, the chief executive officer shall have full power and authority on
behalf of the Corporation to attend, act and vote at any meeting of stockholders
of other corporations in which the Corporation may hold securities. At any such
meeting, the chief executive officer shall possess and may exercise any and all
rights and powers incident to the ownership of such securities which the
Corporation possesses and has the power to exercise. The Board of Directors
from time to time may confer like powers upon any other person or persons.
Section 12. CHIEF OPERATING OFFICER. The chief operating officer of
-----------------------
the Corporation shall, subject to the direction of the Board of Directors and
the chief executive officer, have day-to-day general charge over the operation
of the business, affairs and property of the Corporation and general supervision
over its other officers and agents. In general, the chief
-11-
<PAGE>
operating officer shall perform all duties incident to the office of chief
operating officer of a stock corporation. In the absence or disability of the
chief operating officer, the chief executive officer shall perform the duties
and exercise the powers of the chief operating officer.
Section 13. PRESIDENT. The president of the Corporation shall perform
---------
such functions and duties as from time to time may be assigned to him or her by
the Board, the Chief Executive Officer or the Chief Operating Officer. In the
absence or disability of the chief operating officer, the president shall
perform the duties and exercise the powers of the chief operating officer.
Section 14. VICE PRESIDENTS. In the absence or disability of the
---------------
president, the vice president, if any (or in the event there is more than one,
the vice presidents in the order designated, in the order of their election),
shall perform the duties and exercise the powers of the president. The vice
president(s) also generally shall assist the president, the chief executive
officer and the chief operating officer and shall perform such other duties and
have such other powers as from time to time may be prescribed by the Board of
Directors.
Section 15. SECRETARY. The secretary shall attend all meetings of the
---------
Board of Directors and of the stockholders and shall record all votes and the
proceedings of all meetings in a book to be kept for such purposes. The
secretary also shall perform like duties for the committees, if required by any
such committee. The secretary shall give (or cause to be given) notice of all
meetings of stockholders and all special meetings of the Board and shall perform
such other duties as from time to time may be prescribed by the Board of
Directors, the chairman or vice chairman of the board or the president. The
secretary shall have custody of the seal of the Corporation, shall have
authority (as shall any assistant secretary) to affix the same to any instrument
requiring it, and to attest the seal by his or her signature. The Board of
Directors may give general authority to officers other than the secretary or any
assistant secretary to affix the seal of the Corporation and to attest the
affixing thereof by his or her signature.
Section 16. ASSISTANT SECRETARY. The assistant secretary, if any (or
-------------------
in the event there is more than one, the assistant secretaries in the order
designated, or in the absence of any designation, in the order of their
election), in the absence or disability of the secretary, shall perform the
duties and exercise the powers of the secretary. The assistant secretary(ies)
shall perform such other duties and have such other powers as from time to time
may be prescribed by the Board of Directors.
Section 17. TREASURER. The treasurer shall be the chief financial
---------
officer of the Corporation and shall monitor the custody of the corporate funds,
securities, other similar valuable effects, and evidences of indebtedness, shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the Corporation and payroll matters and shall cause to be deposited all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as from time to time may be designated by the
Board of Directors. The treasurer shall cause to be disbursed the funds of the
Corporation in such manner as may be ordered by the Board of Directors from time
to time and shall render to the chairman or vice chairman of the board,
-12-
<PAGE>
the president and the Board, at regular meetings of the Board or whenever any of
them may so require, an account of all transactions and of the financial
condition of the Corporation.
Section 18. ASSISTANT TREASURER. The assistant treasurer, if any (or
-------------------
in the event there is more than one, the assistant treasurers in the order
designated, or in the absence of any designation, in the order of their
election), in the absence or disability of the treasurer, shall perform the
duties and exercise the powers of the treasurer. The assistant treasurer(s)
shall perform such other duties and have such other powers as from time to time
may be prescribed by the Board of Directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any
---------
officer or agent to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation and such authority
may be general or confined to specific instances. Any agreement, deed,
mortgage, lease or other document executed by one or more of the directors or by
an authorized person shall be valid and binding upon the Board of Directors and
upon the Corporation when authorized or ratified by action of the Board of
Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
-----------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or agent of the
Corporation in such manner as shall from time to time be determined by the Board
of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to a
------------
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation. Each certificate
shall be signed by the chairman of the board, the president or a vice president
and countersigned by the secretary or an assistant secretary or the treasurer or
an assistant treasurer and may be sealed with the seal, if any, of the
Corporation. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Corporation shall, from time to
time, issue several classes of stock, each class may have its own number series.
A certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion
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<PAGE>
of the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restrictions to the stockholder on request and
without charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the
---------
transfer agent of the Corporation of a stock certificate duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of record of any
share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of any class of
stock will be subject in all respects to the charter of the Corporation and all
of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the
-----------------------
Board of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate, an officer designated by the Board of Directors
may, in his discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or the owner's
legal representative to advertise the same in such manner as he shall require
and/or to give bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
--------------------------------------------------
Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in any
case,
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<PAGE>
shall not be prior to the close of business on the day the record date is fixed
and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.
In lieu of fixing a record date, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not longer
than 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
If no record date is fixed and the stock transfer books are not closed
for the determination of stockholders, (a) the record date for the determination
of stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of stockholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the directors,
declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except when (i) the determination has been
made through the closing of the transfer books and the stated period of closing
has expired or (ii) the meeting is adjourned to a date more than 120 days after
the record date fixed for the original meeting, in either of which case a new
record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its
------------
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of
-----------------------------------
Directors may issue fractional stock or provide for the issuance of scrip, all
on such terms and under such conditions as they may determine. Notwithstanding
any other provision of the charter or these Bylaws, the Board of Directors may
issue units consisting of different securities of the Corporation. Any security
issued in a unit shall have the same characteristics as any identical securities
issued by the Corporation, except that the Board of Directors may provide that
for a specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
-15-
<PAGE>
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix
the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
-------------
stock of the Corporation may be authorized and declared by the Board of
Directors, subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other
-------------
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the Board
of Directors may from time to time adopt, amend, revise or terminate any policy
or policies with respect to investments by the Corporation as it shall deem
appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption
----
of a seal by the Corporation. The seal shall contain the name of the
Corporation and the year of its incorporation and the words "Incorporated
Maryland." The Board of Directors may authorize one or more duplicate seals and
provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or
-------------
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law,
-16-
<PAGE>
rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES; INSURANCE
To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation shall indemnify and, without requiring a preliminary
determination of the ultimate entitlement to indemnification, shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any individual who is a present or former director or officer of the
Corporation and who is made a party to the proceeding by reason of his service
in that capacity or (b) any individual who, while a director of the Corporation
and at the request of the Corporation, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is made
a party to the proceeding by reason of his service in that capacity. The
Corporation may, with the approval of its Board of Directors, provide such
indemnification and advance for expenses to a person who served a predecessor of
the Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
The Corporation shall have the power to purchase and maintain insurance
on behalf of any person entitled to indemnification or whom the Corporation may
indemnify under the charter of the Corporation or under Maryland law against any
liability, whether or not the Corporation would have the power to indemnify him
or her against such liability. The rights to indemnification set forth in the
charter or in these Bylaws are in addition to all rights which any such
indemnitee may be enti tled as a matter of law and shall inure to the benefit of
the heirs and personal representatives of each such indemnitee.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of
the Corporation or these Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except
-17-
<PAGE>
where such person attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt, alter
or repeal any provision of these Bylaws and to make new Bylaws.
-18-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 21,929,000
<SECURITIES> 0
<RECEIVABLES> 1,300,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 204,976,000
<DEPRECIATION> 6,140,000
<TOTAL-ASSETS> 230,013,000
<CURRENT-LIABILITIES> 6,812,000
<BONDS> 55,151,000
0
0
<COMMON> 114,000
<OTHER-SE> 174,748,000
<TOTAL-LIABILITY-AND-EQUITY> 230,013,000
<SALES> 0
<TOTAL-REVENUES> 14,904,000
<CGS> 0
<TOTAL-COSTS> 5,009,000
<OTHER-EXPENSES> 9,402,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,548,000
<INCOME-PRETAX> (11,055,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,055,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,055,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
