<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
----
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1999
or
Transition Report Pursuant to Section 13 or 15(d)
____
of the Securities Exchange Act of 1934
For the period from to
Commission File Number: 1934 Act File Number: 0-25968
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
(Exact name of registrant as specified in its charter)
Delaware 54-1681657
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2345 Crystal Drive
Crystal City, VA 22202
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number including area code: (703) 920-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Units of Limited Partnership Interest
(Title of Class)
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 X No____
----
As of July 30, 1999, there were 32,717,065 Common Units of Limited
Partnership of the Registrant issued and outstanding.
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
FORM 10-Q
INDEX
Pages
-----
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Charles E. Smith Residential Realty L.P. Financial
Statements as of June 30, 1999 and December 31, 1998,
Filed as a Part of This Report
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Partner's Equity
and Other Limited Partners' Interest 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II: OTHER INFORMATION 29
SIGNATURES 31
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
----------------------- -------------------
(Unaudited)
ASSETS
<S> <C> <C>
Rental property, net $ 1,015,265 $ 926,749
Rental property under construction 169,647 167,214
Cash 5,005 -
Escrow funds 6,979 23,819
Investment in and advances to Property Service Businesses 34,061 28,633
Investment in joint ventures 18,799 -
Deferred charges, net 17,742 18,081
Security deposits 2,162 2,408
Other assets 15,254 18,495
----------------------- -------------------
$ 1,284,914 $ 1,185,399
======================= ===================
LIABILITIES AND EQUITY
Liabilities
Mortgage loans and notes payable:
Mortgage loans $ 710,503 $ 622,386
Construction loans 101,003 63,193
Lines of credit 52,000 105,000
----------------------- -------------------
Total mortgage loans and notes payable 863,506 790,579
Accounts payable and accrued expenses 25,797 22,830
Deferred gain 5,091 -
Security deposits 2,162 2,408
----------------------- -------------------
Total liabilities 896,556 815,817
----------------------- -------------------
Commitments and contingencies
Other Limited Partners' Interest
13,125,121 and 13,268,740 common units issued and outstanding at June
30,1999 and December 31, 1998, respectively,
at redemption value 445,440 426,258
----------------------- -------------------
Partner's Equity
General Partner's General and Limited Partnership Interest
Preferred units - Series A Cumulative Convertible
Redeemable Preferred Units, 2,640,325 units issued and
outstanding at June 30, 1999 and December 31, 1998 71,500 71,500
Preferred units - Series B Cumulative Convertible
Redeemable Preferred Units, 714,628 units issued and
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
outstanding at December 31, 1998 - 20,367
Preferred units - Series C Cumulative Redeemable Preferred
Units, 500 units issued and outstanding 50,000 50,000
Common units - 19,571,644 and 18,212,600 units issued
and outstanding at June 30, 1999 and December 31, 1998,
respectively (178,582) (198,543)
----------------------- -------------------
Total partner's equity (57,082) (56,676)
----------------------- -------------------
$ 1,284,914 $ 1,185,399
======================= ===================
</TABLE>
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Unit Data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------------
1999 1998 1999 1998
------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
Rental Properties:
Revenues $ 70,522 $ 61,721 $ 139,555 $ 117,371
Expenses
Operating costs (21,276) (20,504) (43,430) (39,125)
Real estate taxes (5,324) (4,584) (10,728) (8,241)
Depreciation and amortization (7,713) (7,088) (15,941) (13,475)
------------- ------------- --------------- -----------------
Total expenses (34,313) (32,176) (70,099) (60,841)
Equity in income of joint ventures 125 - 151 -
Equity in income of Property Service Businesses 1,126 2,227 1,128 2,891
Corporate general and administrative expenses (2,420) (2,203) (4,629) (4,228)
Interest income 142 306 276 467
Interest expense (13,471) (11,601) (26,619) (22,489)
------------- ------------- --------------- -----------------
Income before gain on sale and extraordinary item 21,711 18,274 39,763 33,171
(Loss) Gain on sale of property (7) - 1,851 3,120
------------- ------------- --------------- -----------------
Income before extraordinary item 21,704 18,274 41,614 36,291
Extraordinary item - loss on extinguishment of debt - - (359) (4,702)
------------- ------------- --------------- -----------------
Net income 21,704 18,274 41,255 31,589
Less: Income attributable to preferred units (2,401) (3,580) (4,755) (5,070)
------------- ------------- --------------- -----------------
Net income attributable to common units $ 19,303 $ 14,694 $ 36,500 $ 26,519
============= ============= =============== =================
Earnings per common unit - basic
Income before extraordinary item $ 0.60 $ 0.50 $ 1.15 $ 1.06
Extraordinary item - - (0.01) (0.16)
------------- ------------- --------------- -----------------
Net income $ 0.60 $ 0.50 $ 1.14 $ 0.90
============= ============= =============== =================
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Earnings per common unit - diluted
Income before extraordinary item $ 0.59 $ 0.50 $ 1.14 $ 1.06
Extraordinary item - - (0.01) (0.16)
------------- ------------- --------------- -----------------
Net income $ 0.59 $ 0.50 $ 1.13 $ 0.90
============= ============= =============== =================
</TABLE>
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONSOLIDATED STATEMENTS OF PARTNER'S EQUITY AND OTHER LIMITED PARTNERS' INTEREST
(Dollars in Thousands)
<TABLE>
<CAPTION>
General Partner's General and
Limited Interest
------------------------------------------------------
Series A Series B Series C
Preferred Preferred Preferred Common
Units Units Units Units
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $ 45,000 $ 34,675 $ - $ (344,044)
Units exchanged for acquisitions - - - -
Adjustment for unit grants - - - -
Net income - - - 41,129
Contribution by Charles E. Smith Residential Realty, Inc. 26,500 - 50,000 45,454
Conversion of Preferred units to Common units - (14,308) - 14,308
Offering costs - - - (1,874)
Repurchase and cancellation of Operating Partnership units - - - -
Distributions - - - (44,498)
Other - - - 121
Adjustment to reflect Other Limited Partners' interest
at redemption value - - - 90,861
----------- ----------- ----------- ----------
Balance, December 31, 1998 71,500 20,367 50,000 (198,543)
Units exchanged for acquisitions - - - -
Adjustment for unit grants - - - -
Net income - - - 25,718
Conversion of Preferred units to Common units - (20,367) - 20,367
Distributions - - - (25,477)
Other - - - 864
Adjustment to reflect Other Limited Partners' interest
at redemption value - - - (1,511)
----------- ----------- ------------ -----------
Balance, June 30, 1999 (unaudited) $ 71,500 $ - $ 50,000 $ (178,582)
=========== =========== ============ ===========
Units issued and outstanding at June 30, 1999 2,640,325 - 500 19,571,644
============ =========== ============ ===========
Units issued and outstanding at December 31, 1998 2,640,325 714,628 500 18,212,600
============ ============ ============ ===========
<CAPTION>
Other
Limited Partner's
Interest
--------------------
Common
Units
---------------------
<S> <C>
Balance, December 31, 1997 $ 502,719
Units exchanged for acquisitions 11,820
Adjustment for unit grants 521
Net income 28,741
Contribution by Charles E. Smith Residential Realty, Inc. -
Conversion of Preferred units to Common units -
Offering costs -
Repurchase and cancellation of Operating Partnership units (594)
Distributions (28,966)
Other 2,878
Adjustment to reflect Other Limited Partners' interest
at redemption value (90,861)
---------------------
Balance, December 31, 1998 426,258
Units exchanged for acquisitions 15,084
Adjustment for unit grants 292
Net income 15,537
Conversion of Preferred units to Common units -
Distributions (14,075)
Other 833
Adjustment to reflect Other Limited Partners' interest
at redemption value 1,511
---------------------
Balance, June 30, 1999 (unaudited) $ 445,440
=====================
Units issued and outstanding at June 30, 1999 13,125,121
=====================
Units issued and outstanding at December 31, 1998 13,268,740
====================
</TABLE>
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------------------
1999 1998
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ 58,867 $ 64,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions and development of rental property (120,789) (157,229)
Additions to rental property (8,368) (8,848)
Sales of rental property 75,666 -
Increase in investment in and advances to Property Service Businesses (5,428) (17,784)
Increase in investment in joint ventures (3,857) -
Acquisition deposits and other 2,076 (2,002)
-------------- ------------
Net cash used by investing activities (60,700) (185,863)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deferred charges 296 -
Net proceeds from sale of preferred stock - 75,039
Mortgage loans, net 60,626 (46,995)
Lines of credit, net (53,000) 116,500
Construction loans, net 37,810 13,272
Prepayment penalties (1,038) (3,025)
Distributions (39,552) (34,761)
Other, net 1,696 843
-------------- ------------
Net cash provided by financing activities 6,838 120,873
-------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,005 -
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - -
-------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,005 $ -
============== ============
SUPPLEMENTAL INFORMATION:
Capitalized interest $ 4,175 $ 2,638
Purchase of property in exchange for Operating Partnership units 14,406 8,820
Purchase of property in exchange for assumption of debt 28,169 -
Proceeds from sale of rental property held in 1031 escrow 17,712 -
Purchase of property with 1031 escrow proceeds 17,712 -
Purchase of joint venture interest in exchange for
Operating Partnership units 679 -
</TABLE>
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying interim financial statements include all of the accounts
of Charles E. Smith Residential Realty L.P. (the "Operating Partnership") and
its subsidiary financing partnerships. (As used herein, the term "Company" may
be used to mean Charles E. Smith Residential Realty L.P., Charles E. Smith
Residential Realty, Inc., or both, unless the context indicates otherwise.) All
significant intercompany balances and transactions have been eliminated. The
financial information furnished is unaudited, and in management's opinion,
includes all adjustments (consisting only of normal, recurring adjustments),
that are necessary for a fair presentation of financial position as of June 30,
1999 and the results of operations for the interim periods ended June 30, 1999
and 1998. Such interim results are not necessarily indicative of the operating
results for a full year. The accompanying financial statements should be read in
conjunction with the audited financial statements and related footnotes
appearing in the Company's Annual Report on Form 10-K.
The Operating Partnership is engaged in the ownership, operation,
management, leasing, acquisition, and development of real estate properties,
primarily residential multifamily properties. As of June 30, 1999, the Operating
Partnership owned 50 operating multifamily properties totaling 19,852 apartment
units, had interests in two operating multifamily properties totaling 961
apartment units, and owned two retail shopping centers aggregating 436,000
square feet. The Operating Partnership also had approximately 2,800 units under
construction at seven additional sites. The Operating Partnership also owns
substantially all of the economic interest in entities that provide multifamily
and retail property management and leasing, furnished corporate apartments,
interior construction and construction management services, and engineering and
technical services (collectively the "Property Service Businesses"). The
Operating Partnership uses the equity method of accounting for its 99%
non-voting interest in the Property Service Businesses.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. ACQUISITIONS AND DISPOSITIONS
In January 1999, the Company acquired a 442-unit multifamily property in
Crystal City, Virginia ("Buchanan House") for a capitalized cost of $66.0
million which includes assumed debt of $7.4 million, a fair value adjustment to
debt of $0.5 million, initial capital improvement costs of $5.0 million and $0.4
million in acquisition related costs. The balance was funded by proceeds from
the 1998 sale of Marbury Plaza and a draw on the Company's bank line of credit.
In January 1999, the Company acquired a 139-unit multifamily property in
Chicago, Illinois ("Parkwest") for a capitalized cost of approximately $13.6
million, consisting of 138,111 net Operating Partnership Units valued at $4.3
million, assumed debt of $6.0 million, a fair value adjustment to debt of $0.4
million, initial capital improvement costs of $0.8 million, and $2.1 million of
cash. The assumed loan has an effective interest rate of 6.5% with principal
amortized using a 25-year amortization schedule and a final payment due April 1,
2007.
7
<PAGE>
In January 1999, the Company acquired a 427-unit multifamily property in
Chicago, Illinois ("Terrace") for a capitalized cost of approximately $25.7
million, consisting of 291,551 net Operating Partnership Units valued at $9.1
million, assumed debt of $13.7 million, a fair value adjustment to debt of $0.2
million, initial capital improvement costs of $1.2 million, and $1.5 million of
cash.
In February 1999, the Company sold The Manor, a 435-unit multifamily
property located in suburban Maryland for $22.6 million. The Company recognized
a gain on the sale of $1.9 million.
In February 1999, the Company acquired a parcel of land for development
in Chicago, Illinois for $8.6 million.
In March 1999, the Company acquired the land beneath its Crystal Square
property and the 5.1% net profit interest in its Crystal Plaza property. The
purchase price of $10.0 million consisted of 32,258 Operating Partnership Units
valued at $1.0 million and the assumption of debt, which was repaid with $9.0
million cash drawn upon the line of credit. This transaction was completed
concurrently with the purchase by Charles E. Smith Commercial Realty L.P.
("CESCR") of commercial land and partnership interests. The transaction was
reviewed and approved by the Company's independent Directors.
During the second quarter of 1999, the Company paid $0.6 million in
settlement of its $1.8 million contingent purchase obligations related to the
1998 acquisition of the furnished corporate apartment business in Chicago.
3. MORTGAGE LOANS
In February 1999, the Company repaid the $7.4 million Buchanan mortgage
through a draw on its line of credit. The Company paid a prepayment penalty of
$0.9 million.
In March 1999, the Company obtained a $38.0 million mortgage on Buchanan
House with an effective fixed interest rate of 6.67%. The loan is interest only
through March 2009, at which time principal amortization begins using a 30-year
amortization schedule with a balloon payment due February 1, 2011.
In March 1999, the Company repaid the $13.7 million mortgage on Terrace.
The Company paid a prepayment penalty of $0.2 million. The Company obtained a
new, interest-only mortgage of $15.6 million at an effective interest rate of
6.64% with principal due April 1, 2007.
During the second quarter, the Company closed on a $269.5 million standby
credit facility with Fannie Mae which provides for non-recourse, long-term debt
for up to fifteen years. The initial draw on this facility was made during 1998
for $140 million at 6.75% for fifteen years. A second draw was made in May 1999
for $29.5 million at 6.845% for eight years. Terms and rates of subsequent draws
on this facility will be determined at the time of use.
4. PARTNER'S EQUITY
In March 1999, 125,367 units of Series B Cumulative Convertible
Redeemable Preferred Units ("Series B Preferred Units") were converted to common
units on a one-for-one basis.
8
<PAGE>
In May 1999, the remaining 589,261 units of Series B Preferred Units were
converted to common units on a one-for-one basis.
5. PER SHARE DATA
Earnings per common unit of the Company for the three and six months
ended June 30, 1999 and 1998 is computed based on weighted average common units
outstanding during the period as follows (in millions):
<TABLE>
<CAPTION>
Three months ended June 30,
------------------------------------------------------
1999 1998
------------------------------------------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
Weighted Average Common Operating
Partnership Units 32.4 32.7 29.5 29.6
Six months ended June 30,
------------------------------------------------------
1999 1998
------------------------------------------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
Weighted Average Common Operating
Partnership Units 32.1 32.3 29.4 29.6
</TABLE>
Options to purchase 0.8 million shares of common stock, the proceeds of
which would be contributed by the Company to the Operating Partnership for
common units, were not included in the computation of diluted earnings per unit
because the options' exercise price was higher than the average price of the
common units. All convertible preferred units were also excluded from the
calculation of diluted earnings per unit since the preferred dividends paid per
unit exceeded basic earnings per unit.
9
<PAGE>
A reconciliation of income (before extraordinary item) and units used to
calculate basic and diluted earnings per unit for the three and six months ended
June 30, 1999 follows (dilutive securities had no effect on earnings for the
three and six months ended June 30, 1998):
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
----------------------------------------------------
Weighted Per Unit
Income Average Units Amount
------------- -------------- -------
(In Thousands) (In Thousands)
<S> <C> <C> <C>
Income Before Extraordinary Item $ 21,704
Income Attributable to Preferred Units (2,401)
-----------
Earnings Per Unit - Basic
Income Attributable to Common
Unitholders Before Extraordinary Item $ 19,303 32,378 $ 0.60
Effect of Dilutive Securities
Options - 254 (0.01)
----------- ----------- ---------
Earnings per unit - Diluted $ 19,303 32,632 $ 0.59
=========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
----------------------------------------------------
Weighted Per Unit
Income Average Units Amount
------------- -------------- -------
(In Thousands) (In Thousands)
<S> <C> <C> <C>
Income Before Extraordinary Item $ 41,614
Income Attributable to Preferred Units (4,755)
-----------
Earnings Per Unit - Basic
Income Attributable to Common
Unitholders Before Extraordinary Item $ 36,859 32,139 $ 1.15
Effect of Dilutive Securities
Options - 179 (0.01)
----------- ----------- ---------
Earnings per unit - Diluted $ 36,859 32,318 $ 1.14
=========== =========== =========
</TABLE>
6. SEGMENT REPORTING
Property Segments
The Company's primary business is the ownership and operation of
multifamily residential real estate. As such, the residential rental properties
have been divided into three primary operating segments - the Core, the
Acquisition, and the Development portfolios. The Core Portfolio consists of all
multifamily properties which have been owned for longer than one full calendar
year. Therefore, the 1999 Core represents properties owned as of December 31,
1997. The Acquisition Portfolio consists of purchased properties which have not
yet been owned for one full calendar year. The Development Portfolio consists of
properties which the Company has constructed or is in the process of
constructing which have not yet had stabilized operating results for a full
calendar year. On the first of January each year, Acquisition and Development
properties that have been stabilized or held by the Company for one full
calendar year are transferred to the Core Portfolio.
The Company's fourth property segment is the Retail Portfolio which
consists of two freestanding retail properties.
The Company evaluates performance for the Property Segments based on Net
Operating Income ("NOI") calculated as the difference between Rental Revenue and
Operating Expenses (which excludes interest expense, general and administrative
costs and depreciation.)
10
<PAGE>
Property Service Business Segment
The Company also separately evaluates the financial information of its
equity investment in the Property Service Businesses. These businesses provide
professional services such as property management, furnished corporate apartment
rentals, engineering and technical consulting, and construction management to
both Company-owned properties and properties owned by third parties. Previously,
the Company reported the Property Service Businesses as three separate operating
segments. However, given the similarities in the nature of services, customers
and distribution methods as well as the overall profit contribution, the Company
considers the Property Service Businesses to be one segment. The Company
evaluates performance for the Property Service Business segment based on Funds
from Operations ("FFO"), which is defined using the revised definition adopted
by the National Association of Real Estate Investment Trusts ("NAREIT") as net
income (loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sale of
property, plus depreciation/amortization of assets unique to the real estate
industry. Depreciation/amortization of assets not unique to the industry, such
as amortization of deferred financing costs and non-real estate assets, is not
added back.
The accounting policies for all segments are the same as those described
in the summary of significant accounting policies in the Company's Annual Report
on Form 10-K.
Information concerning operations by segment for the three and six months
ended June 30, 1999 and 1998 was as follows (in thousands):
11
<PAGE>
Property Segments
<TABLE>
<CAPTION>
Three months Ended Six months ended
June 30, June 30,
-------------------------- ----------------------------
1999 1998 1999 1998
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net Operating Income
- --------------------
Core Portfolio $ 34,900 $ 31,629 $ 67,803 $ 61,915
Acquisition Portfolio 6,233 3,636 12,407 5,179
Development Portfolio 1,025 (193) 1,711 (317)
Retail Portfolio 1,764 1,561 3,476 3,228
---------- --------- ----------- -----------
Consolidated Total 43,922 36,633 85,397 70,005
Depreciation and Amortization (7,713) (7,088) (15,941) (13,475)
Equity in Income of Property Service
Businesses and Joint Ventures 1,251 2,227 1,279 2,891
Corporate General and Administrative Expenses (2,420) (2,203) (4,629) (4,228)
Net interest expense (13,329) (11,295) (26,343) (22,022)
---------- --------- ----------- -----------
Income before Gain on Sale and
Extraordinary Item $ 21,711 $ 18,274 $ 39,763 $ 33,171
========== ========= =========== ===========
Revenues
- --------
Core Portfolio $ 54,706 $ 51,743 $ 108,280 $ 101,603
Acquisition Portfolio 11,469 7,492 22,807 10,818
Development Portfolio 1,805 86 3,372 87
Retail Portfolio 2,542 2,400 5,096 4,863
---------- --------- ----------- -----------
Consolidated Total $ 70,522 $ 61,721 $ 139,555 $ 117,371
========== ========= =========== ===========
Real Estate Assets, gross
- -------------------------
Core Portfolio $ 897,853 $ 906,582
Acquisition Portfolio 298,861 127,211
Development Portfolio 169,671 96,484
Retail Portfolio 60,083 59,933
----------- -----------
Sub-total 1,426,468 1,190,210
Accumulated Depreciation (241,556) (221,213)
----------- -----------
Consolidated Total, Net $ 1,184,912 $ 968,997
=========== ===========
Property Service Business Segment
Three months Ended Six months ended
June 30, June 30,
-------------------------- ----------------------------
1999 1998 1999 1998
---------- --------- ----------- -----------
Funds from Operations $ 1,234 $ 2,227 $ 1,343 $ 2,891
Revenues 31,301 24,555 58,695 43,907
Depreciation 525 126 960 494
</TABLE>
12
<PAGE>
7. JOINT VENTURES
In March 1999, the Company and J.P. Morgan Strategic Property Fund
("J.P.Morgan") formed a joint venture which acquired the Renaissance, a 330-unit
multifamily property in Tysons Corner, Virginia for approximately $37 million.
The joint venture plans to invest an additional $2.0 million in initial capital
improvements and has placed debt of $19.0 million on the property. The debt
carries an interest rate of 6.48% and matures in February 2006. Ownership
interests in the joint venture are held 75% by J.P. Morgan and 25% by the
Company. The Company's initial equity contribution totaled $4.4 million
consisting of 21,903 Operating Partnership units valued at $0.7 million and cash
of $3.7 million. The transaction was reviewed and approved by the Company's
independent Directors since Messrs. Smith and Kogod held a general partnership
interest in the selling entity.
In May 1999, the Company and J.P. Morgan formed a joint venture
("Springfield Station JV") to own and operate the Company's recently developed
631-unit Springfield Station property. The Company sold a 52% interest in
Springfield Station JV to J.P. Morgan and received proceeds of approximately $50
million from the transaction. The joint venture placed $37 million in debt
financing on the property at 6.85% fixed interest which matures on June 1, 2001.
The Company provided a construction completion guarantee on the project as well
as a payment guarantee of $14.1 million of the debt. The construction completion
guarantee expires on October 1, 1999. The debt guarantee will expire on or
before the achievement of 92% occupancy for 45 consecutive days. The Company
will defer recognition of a $5.1 million gain on the sale until the guarantees
have expired.
In May 1999, the Company and J.P. Morgan also formed a development joint
venture ("University Center JV") to develop a new 630-unit multifamily property
in Loudoun County, Virginia at the western end of the Dulles Technology
corridor. Ownership interests are held 60% by J.P. Morgan and 40% by the
Company. The joint venture intends to place debt financing for 50% of the
project's estimated $60 million development cost. Construction commenced during
the third quarter of 1999 with final completion expected in 2001. The Company's
initial equity contribution consisted of land acquired in 1998 for $5.4 million,
less cash received of $3.0 million. A Company affiliate will provide
development, property management and marketing services to the venture for a
market rate fee. This affiliate will provide a construction completion guarantee
to the venture.
8. RELATED PARTY TRANSACTIONS
In May 1999, the Company finalized the settlement of financing services
provided to commercial office partnerships now owned and managed by CESCR, an
affiliate of Messrs. Smith and Kogod. This settlement was initiated by the
formation of CESCR in 1997, at which time the Company entered into an agreement
to provide financing services to CESCR only through December 31, 1998. On May 1,
1999, the Company received 79,905 Operating Partnership units valued at $2.5
million as final settlement from an affiliate of Messrs. Smith and Kogod and
immediately canceled the units.
13
<PAGE>
9. SUBSEQUENT EVENTS
In July 1999, the Company acquired a 720-unit apartment property located
in Palatine, Illinois ("Countryside"). The total capitalized cost of $44.8
million consists of 178,190 units of the Operating Partnership ("Units") valued
at approximately $6.0 million, new mortgage debt of $28.0 million, initial
capital improvement costs of $1.2 million, and cash of $9.6 million. The
mortgage debt obtained by the Company is a 7-year interest-only note with an
interest rate of 7.23%.
In July 1999, the Company also acquired a 1,158-unit apartment property
located in Glendale Heights, Illinois ("Somerset"). The total capitalized cost
of $57.6 million consists of 408,969 Units valued at approximately $13.9
million, assumed mortgage debt of $32.7 million, initial capital improvement
costs of $1.2 million, a fair value adjustment to debt of $0.5 million, and cash
of $9.3 million. The assumed debt matures in 2007, and has an effective rate of
8.31%.
In July 1999, the Company acquired a 269-unit apartment property located
in Washington, D.C. ("The Consulate"). The total capitalized cost of $32.7
million consists of assumed debt of $12.8 million, initial capital improvement
costs of $0.5 million, and $19.4 million of cash. The assumed debt matures in
2001 and has a rate of 7.375%.
In July 1999, the Company acquired the land beneath its Orleans Village
property. The purchase price of $0.4 million consisted of 7,797 Operating
Partnership Units valued at $0.2 million and cash of $0.2 million.
On July 2, 1999, the Company entered into an agreement with Security
Capital Preferred Growth, Inc. ("Security Capital") to sell 684,931 shares of
Series E Cumulative Convertible Redeemable Preferred Shares ("Series E Preferred
Shares") $0.01 par value, at $36.50 per share for a total of $25.0 million. The
Series E Preferred Shares were issued on July 13, 1999. The Company contributed
the proceeds to the Operating Partnership in exchange for 684,931 Series E
Cumulative Convertible Redeemable Preferred Units. The Company also entered into
agreements with Security Capital to sell 666,667 shares of Series F Cumulative
Convertible Redeemable Preferred Shares ("Series F Preferred Shares"), $0.01 par
value, at $37.50 and 641,026 shares of Series G Cumulative Convertible
Redeemable Preferred Shares ("Series G Preferred Shares"), $0.01 par value, at
$39.00. The dividend yield to be paid on these preferred shares will be 7.75% in
year one, 8.25% in year two and 8.5% in year three and thereafter, with a
minimum equivalent to the dividend rate paid on the Company's common shares.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the
accompanying financial statements and notes thereto. The results of operations
for the three and six months ended June 30, 1999 and 1998 presented in the
Consolidated Statements of Operations and discussed below represent the
operations of Charles E. Smith Residential Realty L.P. (the "Operating
Partnership") and its subsidiary financing partnerships. (As used herein, the
term "Company" may be used to mean Charles E. Smith Residential Realty L.P.,
Charles E. Smith Residential Realty, Inc., or both, unless the context indicates
otherwise.)
FORWARD-LOOKING STATEMENTS
When used throughout this report, the words "believes", "anticipates",
and "expects" and similar expressions are intended to identify forward-looking
statements. Such statements indicate that assumptions have been used that are
subject to a number of risks and uncertainties which could cause actual
financial results or management plans and objectives to differ materially from
those projected or expressed herein, including: the effect of national and
regional economic conditions, particularly with regard to the levels of
multifamily property occupancy and rental growth in the Washington, D.C.
metropolitan area; the registrant's ability to identify and secure additional
properties and sites that meet its criteria for acquisition or development; the
acceptance of the registrant's financing plans by the capital markets, and the
effect of prevailing market interest rates and the pricing of the Company's
stock; and other risks described from time to time in the registrant's filings
with the Securities and Exchange Commission. Given these uncertainties, readers
are cautioned not to place undue reliance on such statements. The registrant
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
Rental Revenue
Average revenue per apartment unit for the Company's core multifamily
properties increased approximately 5.7% in the second quarter of 1999 as
compared with 1998.
A schedule of portfolio statistics follows:
15
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
- -------------------------------------------------------------------------------
Residential Portfolio Statistics
For the Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Gross Average
Average Operating Revenue %Change Economic %Change
Property Apartment Sq. Ft. Income Per Unit from Occupancy From
Property Type/Property Name Type Units Per Unit Q2-99 Q2-99 Q2-98 Q2-99 Q2-98
- --------------------------- ---- ----- -------- ----- ----- -------- --------- -------
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORE RESIDENTIAL PORTFOLIO
NW Washington, D.C.
1841 Columbia Road High-rise 115 634 $ 349 $ 1,011 7.3% 99.4% -.4%
2501 Porter Street High-rise 202 760 996 1,644 9.4% 99.7% .5%
Albemarle High-rise 235 1,097 907 1,287 7.5% 98.2% 1.3%
Calvert-Woodley High-rise 136 1,001 509 1,247 8.3% 99.1% -.5%
Cleveland House High-rise 216 894 779 1,202 6.4% 97.5% -2.1%
Connecticut Heights High-rise 519 536 1,500 963 8.8% 98.3% 2.7%
Corcoran House High-rise 138 464 356 859 3.5% 99.7% .5%
Statesman High-rise 281 593 745 884 12.8% 102.3% 4.2%
Van Ness South High-rise 625 956 2,201 1,174 7.4% 99.1% .8%
The Kenmore High-rise 376 725 914 810 7.1% 98.1% .0%
------ --- --------- -------- ---- -----
2,843 771 $ 9,256 $ 1,086 8.1% 99.0%
Northern Virginia
Crystal City
------------
The Bennington High-rise 348 804 1,177 1,122 4.3% 97.0% .4%
Crystal House I High-rise 426 917 1,356 1,061 8.4% 97.2% 1.5%
Crystal House II High-rise 402 938 1,235 1,024 6.1% 97.5% 2.2%
Crystal Square High-rise 378 1,121 1,373 1,210 3.9% 98.4% -.1%
Crystal Place High-rise 180 894 731 1,353 3.5% 96.1% -2.2%
Gateway Place High-rise 162 826 856 1,762 -10.6% 91.0% -8.3%
Water Park Towers High-rise 360 881 1,624 1,504 3.8% 94.4% .7%
Crystal Plaza High-rise 540 1,129 2,109 1,302 5.0% 99.0% 1.0%
Crystal Towers High-rise 912 1,107 3,300 1,208 8.9% 98.8% 3.0%
----- ----- --------- -------- --- ----
3,708 998 $ 13,761 $ 1,239 5.0% 97.3%
Rosslyn/Ballston
----------------
Courthouse Plaza High-rise 396 772 1,605 1,351 4.2% 96.4% -1.2%
Lincoln Towers High-rise 714 879 2,904 1,356 1.1% 93.7% -3.6%
----- ----- --------- -------- --- ----
1,110 841 $ 4,509 $ 1,358 2.4% 94.6%
Tysons/Dulles
-------------
Charter Oak Garden 262 1,097 810 1,030 6.2% 98.2% .9%
Oaks of Tysons Garden 218 968 726 1,110 7.0% 96.9% 1.5%
Potomac View Garden 192 965 479 831 6.9% 96.6% -1.2%
Bedford Village Garden 752 1,070 2,221 984 9.4% 97.7% 4.4%
Patriot Village Garden 1,065 1,162 3,015 944 4.7% 96.3% .3%
Westerly at Worldgate Garden 320 921 1,167 1,216 7.2% 98.4% 3.3%
----- ----- --------- -------- --- ----
2,809 1,075 $ 8,418 $ 1,001 6.9% 97.2%
Other
-----
Arlington Overlook Mid-rise 711 877 1,768 829 6.9% 94.8% -.8%
Berkeley Mid-rise 138 891 311 751 2.4% 95.3% -1.4%
Boulevard of Old Town Garden 159 603 424 889 -22.0% 97.8% -.6%
Columbia Crossing Garden 247 976 881 1,189 4.5% 98.3% 2.4%
Columbian Stratford Mid-rise 227 942 543 798 2.6% 99.0% -.5%
Concord Village Garden 531 1,025 1,358 852 5.9% 95.6% 1.2%
Newport Village Garden 937 1,115 2,658 946 6.8% 97.5% 1.9%
Orleans Village Garden 851 1,061 2,257 884 8.4% 97.4% 4.0%
Skyline Towers High-rise 940 1,221 2,907 1,031 5.9% 96.3% 1.5%
Windsor Towers Mid-rise 280 1,025 714 849 4.8% 99.1% .8%
----- ----- --------- -------- ---- ----
5,021 1,040 $ 13,821 $ 918 5.1% 96.8%
Boston/Chicago
2000 Commonwealth High-rise 188 878 1,020 1,808 13.2% 97.6% 2.9%
One East Delaware High-rise 306 704 1,807 1,969 7.2% 98.1% .1%
---- ---- --------- -------- ---- ----
494 770 $ 2,827 $ 1,908 9.3% 97.9%
Other
Car Barn Garden 196 1,311 558 949 6.6% 98.9% 4.0%
Fort Chaplin Garden 549 983 1,113 676 2.3% 97.4% -.4%
Suburban Tower High-rise 172 677 443 857 6.7% 97.6% .9%
--- ----- --------- -------- --- ----
917 996 2,114 768 4.3% 97.8%
------ --- --------- -------- ---- ----
16,902 968 $ 54,706 $ 1.079 5.8% 97.3%
------ --- --------- -------- --- ----
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Gross Average
Average Operating Revenue % Change Economic Change
Property Apartment Sq. Ft. Income Per Unit from Occupancy From
Property Type/Property Name Type Units Per Unit Q2-99 Q2-99 Q2-98 Q2-99 Q2-98
- --------------------------- ---- ----- -------- ----- ----- ----- ----- -----
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACQUISITION PORTFOLIO
1998
----
Tunlaw Gardens (NW Washington,
D.C.) Garden 167 850 411 $ 820 7.3% 96.4% -.4%
Tunlaw Park (NW Washington, D.C.) Mid-rise 120 856 401 1,113 2.3% 95.3% -1.3%
Parc Vista (Crystal City, VA.) High-rise 299 770 1,168 1,302 NA 96.9% NA
McClurg Court (Chicago, IL.) High-rise 1,075 688 4,325 1,341 NA 95.6% NA
Cronin's Landing (Boston, MA) Mid-rise 281 1,129 1,651 1,958 NA 96.0% NA
1999
----
Buchanan House (Crystal City, VA.) High-rise 442 1,173 1,991 NA NA NA NA
Parkwest (Chicago, IL.) Garden 139 580 440 NA NA NA NA
Terrace (Chicago, IL.) Garden 427 839 993 NA NA NA NA
----- ----- ----------
Subtotal/Average 2,950 844 $ 11,380
DEVELOPMENT PORTFOLIO
Courthouse Place
(Rosslyn/Ballston, VA.) High-rise 564 NA NA NA NA NA
One Superior Place (Chicago, IL.) High-rise 809 NA NA NA NA NA
Park Connecticut (NW Washington,
D.C.) High-rise 142 NA NA NA NA NA
-----
Subtotal/Average 1,515
ALL RESIDENTIAL PROPERTIES 21,367 NA NA NA NA NA
======
</TABLE>
17
<PAGE>
RENTAL PROPERTIES
Revenues, expenses and income from the multifamily and retail properties
for the three and six months ended June 30, 1999 and 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1999 1998/(2)/ 1999 1998/(2)/
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Multifamily Properties - Core/(1)/
Revenues $ 54,706 $ 51,743 $ 108,280 $ 101,603
Expenses (19,806) (20,114) (40,477) (39,688)
----------- ----------- ---------- -----------
Income before depreciation $ 34,900 $ 31,629 $ 67,803 $ 61,915
=========== =========== ========== ===========
Multifamily Properties - Acquisitions
and Dispositions
Revenues $ 11,469 $ 7,492 $ 22,807 $ 10,818
Expenses (5,236) (3,856) (10,400) (5,639)
----------- ----------- ---------- -----------
Income before depreciation $ 6,233 $ 3,636 $ 12,407 $ 5,179
=========== =========== ========== ===========
Multifamily Properties - Development
Revenues $ 1,805 $ 86 $ 3,372 $ 87
Expenses (780) (279) (1,661) (404)
----------- ----------- ---------- -----------
Income before depreciation $ 1,025 $ (193) $ 1,711 $ (317)
=========== =========== ========== ===========
Retail Properties
Revenues $ 2,542 $ 2,400 $ 5,096 $ 4,863
Expenses (778) (839) (1,620) (1,635)
----------- ----------- ---------- -----------
Income before depreciation $ 1,764 $ 1,561 $ 3,476 $ 3,228
=========== =========== ========== ===========
Total Rental Properties
Revenues $ 70,522 $ 61,721 $ 139,555 $ 117,371
Expenses (26,600) (25,088) (54,158) (47,366)
Depreciation (7,713) (7,088) (15,941) (13,475)
----------- ----------- ---------- -----------
Income from Rental Properties $ 36,209 $ 29,545 $ 69,456 $ 56,530
=========== =========== ========== ===========
</TABLE>
/(1)/Represents properties owned as of December 31, 1997.
/(2)/Prior year amounts have been reclassified to conform with current year
presentation.
18
<PAGE>
PROPERTY SERVICE BUSINESSES
Revenues, expenses and income from the Property Service Businesses for
the three and six months ended June 30, 1999 and 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Total Property Service Businesses
Revenues $ 31,301 $ 24,555 $ 58,695 $ 43,907
Expenses (29,650) (22,202) (56,607) (40,522)
Depreciation (525) (126) (960) (494)
----------- ----------- ---------- -------------
Income from Property Service Businesses $ 1,126 $ 2,227 $ 1,128 $ 2,891
=========== =========== ========== =============
</TABLE>
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1999 to Three Months Ended June 30,
1998.
Summary. Net income of the Operating Partnership increased $3.4 million,
or 18.8%, from $18.3 million for the three months ended June 30, 1998 to $21.7
million for the three months ended June 30, 1999. Funds from Operations ("FFO")
of the Operating Partnership increased $4.2 million, or 17.6%, from $24.4
million to $28.6 million during the same period. The increases in FFO and net
income are primarily attributable to revenue growth of 5.7% on the core
portfolio, an expense decrease of 1.5%, and contributions from acquired and
developed properties.
Rental Properties. Revenue from all rental properties increased $8.8
million, or 14.3%, from $61.7 million for the three months ended June 30, 1998
to $70.5 million for the three months ended June 30, 1999. Operating expenses
from all rental operations increased $1.5 million, or 6.0% from $25.1 million
during the second quarter of 1998 to $26.6 million during the current quarter.
Core Portfolio. Revenue from the core portfolio increased $3.0 million,
or 5.7%, over the prior year period resulting in average monthly revenue per
apartment unit of $1,079. This was primarily due to continued strong demand in
all submarkets, particularly northwest Washington, D.C. Management successfully
increased rents during the quarter and improved occupancy levels. Average
economic occupancy for the core portfolio was 97.3% for the three months ended
June 30, 1999 compared to 96.4% for the comparable prior year. Expenses for the
core portfolio decreased $0.3 million, or 1.5%, due primarily to utility savings
of $0.6 million. The savings arose from lower than expected fuel costs and water
savings generated by the Company's program of replacing older plumbing fixtures.
Acquisition Portfolio. The eight acquisition properties (defined as
properties acquired subsequent to December 31, 1997) and three disposition
properties contributed approximately 45%, or $4.0 million, of the total rental
revenue increase and approximately $1.4 million of the total rental expense
increase. Five of the acquisition properties (comprising 1,942 apartment units)
were acquired during 1998 and three (comprising 1,008 units) were acquired
during the first quarter of 1999.
19
<PAGE>
Development Portfolio. Courthouse Place delivered the balance of its
units during the quarter for a total of 564 units delivered as of June 30, 1999.
The project provided net operating income of $0.8 million for the quarter.
During the second quarter, the Company and J.P. Morgan formed a joint
venture ("Springfield Station JV") to own and operate the Company's recently
developed Springfield Station property.
Property Service Businesses. The Company uses the equity method of
accounting for its 99% non-voting interest in the Property Service Businesses.
The decrease in income from Property Service Businesses of $1.1 million
in the second quarter of 1999 compared to the prior year quarter is primarily
due to the 1998 expiration of the Financing Services Agreement with CESCR. The
Company finalized the settlement of Financing Services in May 1999 with CESCR.
During the second quarter of 1999, the Company paid $0.6 million in
settlement of its $1.8 million contingent purchase obligation related to the
1998 acquisition of the furnished corporate apartment business in Chicago.
Joint Ventures. The Company entered into two joint ventures during the
second quarter, one an operating property ("Springfield Station JV") and the
other a development property ("University Center"). The Company's share of
income from the joint ventures totaled $0.1 million for the quarter.
Other. Corporate general and administrative expenses increased 9.9%
compared to the prior year quarter due primarily to costs related to the
Company's acquisition and development efforts. Net interest expense increased
$2.0 million during the quarter, or 18.0%, primarily due to additional debt
related to acquisitions and development partially offset by lower interest rates
on the line of credit and refinanced debt.
Comparison of Six Months Ended June 30, 1999 to Six Months Ended June 30, 1998.
Summary. Net income of the Operating Partnership increased $9.7 million,
or 30.6%, from $31.6 million for the six months ended June 30, 1998 to $41.3
million for the six months ended June 30, 1999. Funds from Operations ("FFO") of
the Operating Partnership increased $9.1 million, or 20.1%, from $45.0 million
to $54.1 million during the same period.
Rental Properties. Revenue from all rental properties increased $22.2
million, or 18.9%, from $117.4 million for the six months ended June 30, 1998 to
$139.6 million for the six months ended June 30, 1999. Operating expenses from
all rental operations increased $6.8 million, or 14.3% from $47.4 million during
the first half of 1998 to $54.2 million during the current period.
Core Portfolio. Revenue from the core portfolio increased $6.7 million,
or 6.6%, over the prior year period resulting in average monthly revenue per
apartment unit of $1,068. This was primarily due to continued strong demand in
all submarkets, particularly northwest Washington, D.C. Management successfully
increased rents during the period and improved occupancy levels. Average
economic occupancy for the core portfolio was 97.2% for the six months ended
June 30, 1999 compared to 95.6%
20
<PAGE>
for the comparable prior year. Expenses for the core portfolio increased $0.8
million, or 2.0%, due primarily to expected increases in real estate taxes, and
higher wages due to additional staffing at the properties.
Acquisition Portfolio. The eight acquisition properties (defined as
properties acquired subsequent to December 31, 1997) and three disposition
properties contributed approximately 54%, or $12.0 million, of the total rental
revenue increase and approximately $4.8 million of the total rental expense
increase.
Development Portfolio. As of June 30, 1998, Courthouse Place had
delivered all of its 564 units. The project provided net operating income of
$1.1 million for the first six months of 1999.
Property Service Businesses. The Company uses the equity method of
accounting for its 99% non-voting interest in the Property Service Businesses.
The decrease in income from Property Service Businesses of $1.8 million
in the first half of 1999 compared to the prior year period is primarily due to
decreases of $1.3 million and $1.0 million, respectively, for Financing Services
and Smith Corporate Living. The former is due to the expiration in 1998 of the
Financing Services agreement with CESCR. The latter is primarily due to
seasonality of the corporate furnished apartment business which was acquired in
mid-1998.
Joint Ventures. The Company entered into three joint ventures during the
first half of 1999. The Company's share of income from the joint ventures
totaled $0.2 million for the period.
Other. Corporate general and administrative expenses increased 9.5%
compared to the prior year period due primarily to costs related to the
Company's acquisition and development efforts. Net interest expense increased
$4.3 million during the period, or 19.6%, primarily due to additional debt
related to acquisitions and development partially offset by lower interest rates
on the line of credit and refinanced debt.
LIQUIDITY AND CAPITAL RESOURCES
Summary. Net cash flow provided by operating activities decreased $6.1
million from $65.0 million for the six months ended June 30, 1998 to $58.9
million for the six months ended June 30, 1999. The increase in FFO of $9
million was offset by a $10 million increase in accounts payable and accrued
expenses in 1998 related to acquisitions and a $6.6 million decrease in other
assets.
Net cash flow of $60.7 million was used by investment activities during
the six months ended June 30, 1999 compared to $185.9 million during the
comparable prior year period due primarily to the acquisition of three
properties and one joint venture interest in 1999 as well as further investments
during the quarter in the four projects under construction. Partially offsetting
such outflows was the
21
<PAGE>
$22.6 million in cash proceeds from the sale of The Manor and approximately
$50.1 million from the sale of a 52% interest in Springfield Station.
Net cash flows provided by financing activities was $6.8 million for the
six months ended June 30, 1999, primarily comprised of $45.4 million of net cash
inflow from borrowings against the properties, the line of credit and
construction loans less $39.6 million of dividends/distributions. Net cash flows
provided by financing activities of $120.9 million in the comparable prior year
period primarily consisted of $75.0 million of inflow from the sale of preferred
stock and $82.8 million of net borrowings, less $3.0 million of prepayment
penalties and $34.8 million of dividends/distributions.
Funds from Operations. Funds from Operations is defined under the revised
definition adopted by the National Association of Real Estate Investment Trusts
("NAREIT") as net income (loss) (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring and
sale of property plus depreciation/amortization of assets unique to the real
estate industry. Depreciation/amortization of assets not unique to the industry,
such as amortization of deferred financing costs and non-real estate assets, is
not added back. FFO does not represent cash flow from operating activities in
accordance with generally accepted accounting principles (which, unlike Funds
from Operations, generally reflects all cash effects of transactions and other
events in the determination of net income) and should not be considered an
alternative to net income as an indication of the Company's performance or to
cash flow as a measure of liquidity or ability to make distributions. The
Company considers FFO a meaningful, additional measure of operating performance
because it primarily excludes the assumption that the value of real estate
assets diminishes predictably over time, and because industry analysts have
accepted it as a performance measure. Comparison of the Company's presentation
of FFO, using the NAREIT definition, to similarly titled measures for other
REITs may not necessarily be meaningful due to possible differences in the
application of the NAREIT definition used by such REITs.
Funds from Operations for the three and six months ended June 30, 1999
and 1998 are computed as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net Income of the Operating Partnership $ 21,704 $ 18,274 $ 41,255 $ 31,589
Perpetual Preferred Dividends (999) (1,000) (1,988) (1,626)
Depreciation of Real Property 7,713 7,088 15,941 13,475
Depreciation from unconsolidated
Joint Ventures 114 -- 122 --
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Amortization of Goodwill 108 -- 215 --
Loss (Gain) on Sale of Property 7 -- (1,851) (3,120)
Extraordinary Item -- -- 359 4,702
----------- ----------- ---------- -----------
Funds from Operations of the Operating
Partnership $ 28,647 $ 24,362 $ 54,053 $ 45,020
=========== =========== ========== ===========
</TABLE>
Acquisitions
In January 1999, the Company acquired a 442-unit multifamily property in
Crystal City, Virginia ("Buchanan House") for a capitalized cost of $66.0
million which includes assumed debt of $7.4 million, a fair value adjustment to
debt of $0.5 million, initial capital improvement costs of $5.0 million and $0.4
million in acquisition related costs. Funding of $17.7 million was provided from
the 1998 sale of Marbury Plaza with the balance drawn on the Company's bank line
of credit.
In January 1999, the Company acquired a 139-unit multifamily property in
Chicago, Illinois ("Parkwest") for a capitalized cost of approximately $13.6
million, consisting of 138,111 net Operating Partnership Units valued at $4.3
million, assumed debt of $6.0 million, a fair value adjustment to debt of $0.4
million, initial capital improvement costs of $0.8 million, and $2.1 million of
cash. The assumed mortgage has an effective interest rate of 6.5% with principal
amortized using a 25-year amortization schedule and a final payment due April 1,
2007.
In January 1999, the Company acquired a 427-unit multifamily property in
Chicago, Illinois ("Terrace") for a capitalized cost of approximately $25.7
million, consisting of 291,551 net Operating Partnership Units valued at $9.1
million, assumed debt of $13.7 million, a fair value adjustment to debt of $0.2
million, initial capital improvement costs of $1.2 million, and $1.5 million of
cash.
Development
As of June 30, 1999, the Company had the following properties under
construction:
<TABLE>
<CAPTION>
Number Units Initial Estimated Estimated Estimated
of Units Delivered Delivery Completion Stabilization Cost
-------- --------- -------- ---------- ------------- ----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Courthouse Place 564 564 December, 1998 Q3, 1999 Q3, 1999 $ 69
(Rosslyn/Ballston)
One Superior Place 809 N/A July, 1999 Q2, 2000 Q4, 2000 118
(Chicago)
Park Connecticut 142 N/A Q1, 2000 Q2, 2000 Q3, 2000 27
(Washington, D.C.) ----- --- ---------
1,515 564 $ 214
===== === ========
</TABLE>
In February 1999, the Company acquired for $8.6 million a parcel of land
for development in Chicago, Illinois.
23
<PAGE>
Commitments
As of June 30, 1999, the Company had executed contracts to purchase
multifamily properties under construction as follows:
<TABLE>
<CAPTION>
Number Units Estimated Purchase Estimated
of Units Delivered Completion Date Purchase Price
--------- --------- ---------- ----- --------------
(in millions)
<S> <C> <C> <C> <C> <C>
Reston Landing 400 N/A Q4, 1999 Q3, 2000 $ 44
(Reston, VA.)
New River Village 240 N/A Q2, 2000 Q4, 2000 33
(Ft. Lauderdale, FL.)
Wilson Boulevard 220 N/A Q3, 2000 Q4, 2000 28
(Rosslyn/Ballston)
Ballston Place 383 N/A Q4, 2000 Q3, 2001 50
(Rosslyn/Ballston) ------ ------------
1,243 $ 155
====== ============
</TABLE>
These contracts are contingent upon satisfactory completion of
construction and attainment of final certificates of occupancy by the owners. At
June 30, 1999, the Company had posted three letters-of-credit totaling $7.7
million in accordance with three of the contracts each to be drawn only in the
event the Company defaults on its contractual obligation to purchase the
completed asset.
Joint Ventures
In March 1999, the Company and J.P. Morgan formed a joint venture, which
acquired the Renaissance, a 330-unit multifamily property in Tysons Corner,
Virginia for approximately $37 million. The joint venture plans to invest an
additional $2.0 million in initial capital improvements and has placed debt of
$19.0 million on the property. The debt carries an interest rate of 6.48% and
matures in February 2006. Ownership interests in the joint venture are held 75%
by J.P. Morgan and 25% by the Company. The Company's initial equity contribution
totaled $4.4 million consisting of 21,903 Operating Partnership units valued at
$0.7 million and cash of $3.7 million.
In May 1999, the Company and J.P. Morgan formed a joint venture
("Springfield Station JV") to own and operate the Company's recently developed
631-unit Springfield Station property. The Company sold a 52% interest in
Springfield Station JV to J.P. Morgan and received proceeds of approximately $50
million from the transaction. The joint venture placed $37 million in debt
financing on the property at 6.85% fixed interest, which matures on June 1,
2001. The Company provided a construction completion guarantee on the project as
well as a payment guarantee of $14.1 million of the debt. The construction
completion guarantee expires on October 1, 1999. The debt guarantee will expire
on or before the achievement of 92% occupancy for 45 consecutive days. The
Company will defer recognition of a $5.1 million gain on the sale until the
guarantees have expired.
In May 1999, the Company and J.P. Morgan also formed a development joint
venture ("University Center JV") to develop a new 630-unit multifamily property
in Loudoun County, Virginia at the western end of the Dulles Technology
corridor. Ownership interests are held 60% by J.P. Morgan and 40% by the
Company. The joint venture intends to place debt financing for 50% of the
project's estimated $60 million development cost. Construction commenced during
the third quarter of 1999 with
24
<PAGE>
final completion expected in 2001. The Company's initial equity contribution
consisted of land acquired in 1998 for $5.4 million less cash received of $3.0
million. A Company affiliate will provide development, property management and
marketing services to the venture for a market rate fee. The affiliate will
provide a construction completion guarantee to the venture.
Debt
In February 1999, the Company repaid the $7.4 million mortgage on
Buchanan House through a draw on its line of credit and paid a prepayment
penalty of $0.9 million.
In March 1999, the Company obtained a $38.0 million mortgage on Buchanan
House with an effective fixed interest rate of 6.67%. The loan is interest only
through March 2009, at which time principal amortization begins using a 30-year
amortization schedule with a balloon payment due February 1, 2011.
In March 1999, the Company repaid the mortgage on Terrace and obtained a
new, interest-only mortgage of $15.6 million at an effective rate of 6.64% with
principal due April 1, 2007. The Company paid a prepayment penalty of $0.2
million.
During the second quarter, the Company closed on a $269.5 million standby
credit facility with Fannie Mae which provides for non-recourse, long-term debt
for up to fifteen years. The initial draw on this facility was made during 1998
for $140 million at 6.75% for fifteen years. A second draw was made in May 1999
for $29.5 million at 6.845% for eight years. Terms and rates of subsequent draws
on this facility will be determined at the time of use.
As of June 30, 1999, the Company had mortgage indebtedness and other
borrowings, which carried a weighted average interest rate of 6.92%, as follows:
Dollars in % of
Thousands Total
---------- --------
Fixed rate debt:
Mortgages $ 710,503 82.3%
Variable rate debt:
$100M line of credit 52,000 6.0%
$185M line of credit -- --
Construction Loans 101,003 11.7%
----------- --------
$ 863,506 100.0%
=========== ========
As of June 30, 1999, the Company had $268.8 million of unused borrowing
capacity on lines of credit and construction loans. Amounts outstanding under
lines of credit averaged $99.9 million for the six months ended June 30, 1999
compared to $150.9 million for the six months ended June 30, 1998.
As of June 30, 1999, the Company's Debt to Total Market Capitalization
Ratio was 40.9% (based on 2.6 million convertible preferred units and 32.7
million common
25
<PAGE>
units outstanding at a common stock price of $33.938 and $50 million of
perpetual preferred units) versus 40.3% as of December 31, 1998 and 38.3% as of
June 30, 1998.
The Company's Interest Coverage Ratio for the six months ended June 30,
1999 was 3.28 to 1 compared to 3.16 for the comparable prior year period.
26
<PAGE>
Capital Expenditures
For the six months ended June 30, 1999, total capital improvements were
$8.4 million, of which $7.0 million were for the core portfolio ($417 per unit).
Approximately 54% of the capital expenditures on the core portfolio in 1999 are
considered by management to generate net operating income ("NOI") by increasing
revenue or decreasing expenses ("NOI generating"). The remaining capital
expenditures on the core portfolio indirectly influence the Company's ability to
generate NOI ("non-NOI generating"). A summary of core capital expenditures
follows:
<TABLE>
<CAPTION>
Total $ Average $
Spent Per
(In Thousands) Core Unit
------------- ---------
<S> <C> <C>
Expenditure Type
Installations $ 1,668 $ 99
Water Saving Devices 276 16
Renovations 1,036 61
Redevelopment 722 43
Other 113 7
------------ ---------
Total NOI Generating
Improvements 3,815 226
Non-NOI Generating
Improvements 3,228 191
------------ ---------
Total Capital Expenditures -
Core Portfolio $ 7,043 $ 417
============ =========
</TABLE>
27
<PAGE>
Year 2000
In 1997, the Company began a comprehensive review of its year 2000
compliance issues utilizing an overlapping, three-phased approach. Phase I
involves assessments of building infrastructure and internal computer systems
including both hardware and software to identify possible compliance failures.
Phase II involves vendor compliance and actual testing of hardware and software
applications including significant electronic interfaces. Phase III involves
identifying remaining company-wide risks and development of contingency plans.
The Company has completed Phase I and expects to complete Phase II in the third
quarter of 1999. Phase III was initiated in March 1999 and is expected to run
through December 1999. Based on the review plan as well as the expected success
of remediation efforts currently underway, management believes the Company has
no material risks related to the ability of its hardware and software to
recognize the year 2000 and beyond as valid dates.
The Company's primary financial and operational software programs were
purchased from outside vendors who have already resolved year 2000 issues. The
Company has received letters from these vendors indicating that their software
is Year 2000 compliant. The Company replaced one computer system which was not
year 2000 compliant at an estimated cost of approximately $1.6 million. The new
system will be depreciated over its estimated useful life of five years.
As part of Phase II, the Company has taken steps to identify and contact
key vendors whose inability to provide service in the year 2000 could have a
material adverse effect on the Company's business operations. With the exception
of utility services, the Company believes that there are no other critical
suppliers whose inability to provide service would materially affect business
operations. This is due primarily to the physical nature of the Company's
product as well as the availability of multiple suppliers of property services.
The Company does not have a contingency plan to address the possibility that
utility services may not be available, however, management believes that this is
a very unlikely scenario. Readers are cautioned that these conclusions involve
numerous subjective assumptions and there can be no assurances that management
has adequately identified or addressed all possible contingencies.
Excluding the replacement system, the Company's Year 2000 compliance
efforts have been primarily conducted with internal staff. Accordingly, the
costs have been immaterial and are expensed as incurred.
28
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
29
<PAGE>
(a) Exhibits:
99.1 Articles Supplementary for Series E Cumulative
Convertible Redeemable Preferred Stock
99.2 Articles Supplementary for Series F Cumulative
Convertible Redeemable Preferred Stock
99.3 Articles Supplementary for Series G Cumulative
Convertible Redeemable Preferred Stock
99.4 Twenty-third Amendment to First Amended and
Restatement of Agreement of Limited Partnership of
the Operating Partnership.
(b) Reports on Form 8-K:
A Form 8-K dated July 2, 1999 was filed on July 26, 1999 to
report the Company's acquisition of the Somerset,
Countryside and The Consulate Apartments.
30
<PAGE>
SIGNATURES
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.
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
By: Charles E. Smith Residential Realty, Inc.,
its General Partner
August 16, 1999 By: /s/ W. D. Minami
-------------------------------------------
W. D. Minami
Senior Vice President and Chief Financial Officer
Charles E. Smith Residential Realty, Inc.
(on behalf of the Registrant and as Principal
Financial Officer)
By: /s/ Steven E. Gulley
-------------------------------------------
Steven E. Gulley
Chief Accounting Officer
Charles E. Smith Residential Realty, Inc.
31
<PAGE>
EXHIBIT 99.1
Series E Cumulative Convertible
Redeemable Preferred Stock
ARTICLES SUPPLEMENTARY
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
============================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series E Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
============================
Dated as of July 9, 1999
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
============================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series E Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
============================
Charles E. Smith Residential Realty, Inc., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland pursuant to section 8-203(b) of the Annotated Code of
Maryland that:
FIRST: Pursuant to authority granted by the Amended and Restated Articles
of Incorporation of the Corporation, the Board of Directors adopted a resolution
by Unanimous Written Consent dated July 1, 1999 designating and classifying
684,931 unissued and undesignated shares of preferred stock as Series E
Cumulative Convertible Redeemable Preferred Stock.
SECOND: The following is a description of the Series E Cumulative
Convertible Redeemable Preferred Stock, including the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption thereof:
Section 1. Number of Shares and Designation. This class of preferred
--------------------------------
stock shall be designated as Series E Cumulative Convertible Redeemable
Preferred Stock and the number of shares which shall constitute such series
shall not be more than 684,931 shares, par value $0.01 per share, which number
may be decreased (but not below the number thereof then outstanding) from time
to time by the Board of Directors.
Section 2. Definitions. For purposes of the Series E Preferred Shares,
-----------
the following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
------------------
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series E Preferred
Shares.
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or a
------------
day on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
---------
required under Section 5(d) as the Call Date.
"Common Shares" shall mean the shares of Common Stock, par value $0.01
-------------
per share, of the Corporation.
"Constituent Person" shall have the meaning set forth in Section 6(e).
------------------
"Conversion Price" shall mean the conversion price per Common Share
----------------
for which the Series E Preferred Shares are convertible, as such Conversion
Price may be adjusted pursuant to Section 6. The initial conversion price
shall be $36.50 (equivalent to a conversion rate of one Common Share for
each Series E Preferred Share).
"Current Market Price" of publicly traded shares of Common Stock or
--------------------
any other class of shares of capital stock or other security of the
Corporation or any other issuer for any day shall mean the last reported
sales price, regular way on such day, or, if no sale takes place on such
day, the average of the reported closing bid and asked prices on such day,
regular way, in either case as reported on the New York Stock Exchange
("NYSE") or, if such security is not listed or admitted for trading on the
----
NYSE, on the principal national securities exchange on which such security
is listed or admitted for trading or, if not listed or admitted for trading
on any national securities exchange, on the Nasdaq Stock Market ("NASDAQ")
------
or, if such security is not quoted on such National Market System, the
average of the closing bid and asked prices on such day in the over-the-
counter market as reported by NASDAQ or, if bid and asked prices for such
security on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by any NYSE
member firm regularly making a market in such security selected for such
purpose by the Board of Directors.
"Dividend Payment Date" shall mean (i) for any Dividend Period with
---------------------
respect to which the Corporation pays a dividend on the Common Shares, the
date on which such dividend is paid, or (ii) for any Dividend Period with
respect to which the Corporation does not pay a dividend on the Common
Shares, a date to be set by the Board of Directors, which date shall not be
later than the forty-fifth calendar day after the end of the applicable
Dividend Period.
"Dividend Periods" shall mean quarterly dividend periods commencing on
----------------
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the
2
<PAGE>
initial Dividend Period, which shall commence on the Issue Date and end on
and include the last calendar day of the calendar quarter containing the
Issue Date, and other than the Dividend Period during which any Series E
Preferred Shares shall be redeemed pursuant to Section 5, which shall end
on and include the Call Date with respect to the Series E Preferred Shares
being redeemed).
"Expiration Time" shall have the meaning set forth in Section
---------------
6(d)(iv).
"Fair Market Value" shall mean the average of the daily Current Market
-----------------
Prices of a Common Share on the five (5) consecutive Trading Days selected
by the Corporation commencing not more than 20 Trading Days before, and
ending not later than, the earlier of the day in question and the day
before the "ex date" with respect to the issuance or distribution requiring
such computation. The term "ex date," when used with respect to any
issuance or distribution, means the first day on which the Common Shares
trade regular way, without the right to receive such issuance or
distribution, on the exchange or in the market, as the case may be, used to
determine that day's Current Market Price.
"Fully Junior Shares" shall mean the Common Shares and any other class
-------------------
or series of shares of capital stock of the Corporation now or hereafter
issued and outstanding over which the Series E Preferred Shares have
preference or priority in both (i) the payment of dividends and (ii) the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation.
"Funds from Operations" shall mean net income (loss) (computed in
---------------------
accordance with generally accepted accounting principles) excluding gains
(or losses) from debt restructuring, and distributions in excess of
earnings allocated to other Operating Partnership interests or minority
interests (as reflected in the financial statements of the Corporation)
plus depreciation/amortization of assets unique to the real estate
industry, all computed in a manner consistent with the revised definition
of Funds From Operations adopted by the National Association of Real Estate
Investment Trusts (NAREIT), in its White Paper dated March 1995, as such
definitions may be modified from time to time, as determined by the
Corporation in good faith.
"Issue Date" shall mean the date on which the first Series E Preferred
----------
Shares are issued.
"Junior Shares" shall mean the Common Shares and any other class or
-------------
series of capital stock of the Corporation now or hereafter issued and
outstanding over which the Series E Preferred Shares have preference or
priority in the payment of dividends or in the distribution of assets on
any liquidation, dissolution or winding up of the Corporation.
3
<PAGE>
"Non-Electing Share" shall have the meaning set forth in Section 6(e).
------------------
"Operating Partnership" shall mean the Charles E. Smith Residential
---------------------
Realty L.P., a Delaware limited partnership.
"Parity Shares" shall have the meaning set forth in Section 8(b).
-------------
"Person" shall mean any individual, firm, partnership, corporation,
------
limited liability company or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Purchased Shares" shall have the meaning set forth in Section
----------------
6(d)(iv).
"Securities" and "Security" shall have the meanings set forth in
---------- --------
Section 6(d)(iii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Series E Preferred Shares" shall mean the shares of Series E
-------------------------
Cumulative Convertible Redeemable Preferred Stock.
"Set apart for payment" shall be deemed to include, without any action
---------------------
other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distribution by the Board
of Directors, the allocation of funds to be so paid on any series or class
of shares of capital stock of the Corporation; provided, however, that if
-------- -------
any funds for any class or series of Junior Shares or any class or series
of shares of capital stock ranking on a parity with the Series E Preferred
Shares as to the payment of dividends 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 E Preferred
Shares shall mean placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in question
-----------
are traded on the NYSE, or if such securities are not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on the National Market
System of NASDAQ, or if such securities are not quoted on such National
Market System, in the securities market in which the securities are traded.
"Transaction" shall have the meaning set forth in Section 6(e).
-----------
"Transfer Agent" shall mean First Union National Bank, or such other
--------------
agent or agents of the Corporation as may be designated by the Board of
Directors or their
4
<PAGE>
designee as the transfer agent, registrar and dividend disbursing agent for
the Series E Preferred Shares.
"Units" shall mean Partnership Units as that term is defined in the
-----
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
"Voting Preferred Shares" shall have the meaning set forth in Section
-----------------------
9.
"Weighted Average Trading Price" shall mean, for any Trading Day, the
------------------------------
number obtained by dividing (i) the sum of the products, for each sale of
Common Shares on such Trading Day, of (a) the sale price per Common Share
and (b) the number of Common Shares sold by (ii) the total number of Common
Shares sold on such Trading Day.
Section 3. Dividends.
---------
(a) The holders of Series E Preferred Shares shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative preferential
dividends payable in cash in an amount per share equal to the greater of
(i) (A) 7.75% of the Liquidation Preference per annum (equivalent to
$2.82875 per Series E Preferred Share) from the Issue Date up to and
including the first anniversary of the Issue Date, (B) 8.25% of the
Liquidation Preference per annum (equivalent to $3.01125 per Series E
Preferred Share) from the first day after the period described in (A) up to
and including the second anniversary of the Issue Date and (C) 8.50% of the
Liquidation Preference per annum (equivalent to $3.1025 per Series E
Preferred Share) thereafter or (ii) the ordinary cash dividends (determined
on each Dividend Payment Date) on the Common Shares, or portion thereof,
into which a Series E Preferred Share is convertible. The dividends
referred to in clause (ii) of the preceding sentence shall equal the number
of Common Shares, or portion thereof, into which a Series E Preferred Share
is convertible, multiplied by the most current quarterly dividend on a
Common Share on or before the applicable Dividend Payment Date. If the
Corporation pays an ordinary cash dividend on the Common Shares with
respect to a Dividend Period after the date on which the Dividend Payment
Date is declared pursuant to clause (ii) of the definition of Dividend
Payment Date and the dividend calculated pursuant to clause (ii) of this
paragraph (a) with respect to such Dividend Period is greater than the
dividend previously declared on the Series E Preferred Shares with respect
to such Dividend Period, the Corporation shall pay an additional dividend
to the holders of the Series E Preferred Shares on the date on which the
dividend on the Common Shares is paid, in an amount equal to the difference
between (y) the dividend calculated pursuant to clause (ii) of this
paragraph (a) and (z) the amount of dividends previously declared on the
Series E Preferred Shares with respect to such Dividend Period. The
dividends shall begin to accrue and shall be fully cumulative from the
first day of the applicable
5
<PAGE>
Dividend Period, whether or not in any Dividend Period or Periods there
shall be funds of the Corporation legally available for the payment of such
dividends, and shall be payable quarterly, when, as and if declared by the
Board of Directors, in arrears on Dividend Payment Dates. Each such
dividend shall be payable in arrears to the holders of record of Series E
Preferred Shares as they appear in the records of the Corporation at the
close of business on such record dates, not less than 10 nor more than 50
days preceding such Dividend Payment Dates thereof, as shall be fixed by
the Board of Directors. Accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time and for such interim periods,
without reference to any regular Dividend Payment Date, to holders of
record on such date, not less than 10 nor more than 50 days preceding the
payment date thereof, as may be fixed by the Board of Directors. Any
dividend payment made on Series E Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due with respect to Series
E Preferred Shares which remains payable.
(b) The amount of dividends referred to in clause (i) of Section 3(a)
payable for each full Dividend Period on the Series E Preferred Shares
shall be computed by dividing the annual dividend rate by four. The
initial Dividend Period will include a partial dividend for the period from
the Issue Date until the last calendar day of the calendar quarter
containing the Issue Date. The amount of dividends payable for such
period, or any other period shorter than a full Dividend Period, on the
Series E Preferred Shares shall be computed on the basis of a 360-day year
of twelve 30-day months. Holders of Series E Preferred Shares shall not be
entitled to any dividends, whether payable in cash, property or shares, in
excess of cumulative dividends, as herein provided, on the Series E
Preferred Shares. No interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on the Series E
Preferred Shares which may be in arrears.
(c) So long as any Series E Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any class or series of
Parity Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series E
Preferred Shares for all Dividend Periods terminating on or prior to the
dividend payment date on such class or series of Parity Shares. When
dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends declared upon Series E Preferred
Shares and all dividends declared upon any other class or series of Parity
Shares shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series E Preferred Shares and
accumulated and unpaid on such Parity Shares.
(d) So long as any Series E Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of,
or options, warrants or
6
<PAGE>
rights to subscribe for or purchase shares of, Fully Junior Shares) shall
be declared or paid or set apart for payment or other distribution shall be
declared or made or set apart for payment upon Junior Shares, nor shall any
Junior Shares be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of Common Shares made for
purposes of an employee incentive or benefit plan of the Corporation or any
subsidiary) for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any Junior Shares) by
the Corporation, directly or indirectly (except by conversion into or
exchange for Fully Junior Shares), unless in each case (i) the full
cumulative dividends on all outstanding Series E Preferred Shares and any
other Parity Shares of the Corporation shall have been or contemporaneously
are declared and paid or declared and set apart for payment for all past
Dividend Periods with respect to the Series E Preferred Shares and all past
dividend periods with respect to such Parity Shares and (ii) sufficient
funds shall have been or contemporaneously are declared and paid or
declared and set apart for the payment of the dividend for the current
Dividend Period with respect to the Series E Preferred Shares and the
current dividend period with respect to such Parity Shares.
(e) No distributions on Series E Preferred Shares shall be declared by
the Board of Directors or paid or set apart for payment by the Corporation
at such time as the terms and provisions of any agreement of the
Corporation, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or
provides that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such declaration
or payment shall be restricted or prohibited by law.
Section 4. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Junior Shares, the holders
of the Series E Preferred Shares shall be entitled to receive Thirty Six
Dollars and Fifty Cents ($36.50) (the "Liquidation Preference") per Series
E Preferred Share plus an amount equal to all dividends (whether or not
earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to any
further payment; provided, that the dividend payable with respect to the
--------
Dividend Period containing the date of final distribution shall be equal to
the greater of (i) the dividend provided in Section 3(a)(i) or (ii) the
dividend determined pursuant to Section 3(a)(ii) for the preceding Dividend
Period. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of the Series E Preferred Shares shall be
insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares of any class or series of Parity
Shares, then such assets, or the proceeds thereof, shall be
7
<PAGE>
distributed among the holders of Series E Preferred Shares and any such
other Parity Shares ratably in accordance with the respective amounts that
would be payable on such Series E Preferred Shares and any such other
Parity Shares if all amounts payable thereon were paid in full. For the
purposes of this Section 4, (i) a consolidation or merger of the
Corporation with one or more corporations, real estate investment trusts or
other entities, (ii) a sale, lease or conveyance of all or substantially
all of the Corporation's property or business or (iii) a statutory share
exchange shall not be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series or
class or classes of shares of capital stock ranking on a parity with or
prior to the Series E Preferred Shares upon liquidation, dissolution or
winding up, upon any liquidation, dissolution or winding up of the
Corporation, after payment shall have been made in full to the holders of
the Series E Preferred Shares, as provided in this Section 4, 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 E Preferred Shares shall not be entitled to share
therein.
Section 5. Redemption at the Option of the Corporation.
-------------------------------------------
(a) The Series E Preferred Shares shall not be redeemable by the
Corporation prior to the third anniversary of the Issue Date. On and after
the third anniversary of the Issue Date, the Corporation, at its option,
may redeem the Series E Preferred Shares, in whole at any time or from time
to time in part as set forth herein, subject to the provisions described
below:
(i) Series E Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation, at any time on or after the
third anniversary of the Issue Date by issuing and delivering to each
holder for each Series E Preferred Share to be redeemed such number of
authorized but previously unissued Common Shares as equals the
Liquidation Preference (excluding any accumulated, accrued and unpaid
dividends which are to be paid in cash as provided below) per Series E
Preferred Share divided by the Conversion Price as in effect as of the
opening of business on the Call Date; provided, however, that the
Corporation may redeem Series E Preferred Shares pursuant to this
paragraph (a)(i) only if (A) the Weighted Average Trading Price, for
twenty (20) Trading Days, within the last thirty (30) Trading Days
immediately before the date of the notice given pursuant to Section
5(d), equals or exceeds 108% of the Conversion Price in effect on the
date of the notice given pursuant to Section 5(d) and (B) at least
1,000,000 Common Shares were traded during such 30 Trading Days.
8
<PAGE>
(ii) Series E Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation at any time on or after the
third anniversary of the Issue Date out of funds legally available
therefor at a redemption price payable in cash equal to the
Liquidation Preference per Series E Preferred Share (plus all
accumulated, accrued and unpaid dividends as provided below).
(b) Upon any redemption of Series E Preferred Shares pursuant to this
Section 5, the Corporation shall pay all accrued and unpaid dividends, if
any, thereon to the Call Date, without interest. If the Call Date falls
after a dividend payment record date and prior to the corresponding
Dividend Payment Date, then each holder of Series E Preferred Shares at the
close of business on such dividend payment record date shall be entitled to
the dividend payable on such shares on the corresponding Dividend Payment
Date notwithstanding any redemption of such shares before such Dividend
Payment Date. Except as provided above, the Corporation shall make no
payment or allowance for unpaid dividends, whether or not in arrears, on
Series E Preferred Shares called for redemption.
(c) If full cumulative dividends on the Series E Preferred Shares and
any other class or series of Parity Shares of the Corporation have not been
declared and paid or declared and set apart for payment, the Series E
Preferred Shares may not be redeemed under this Section 5 in part and the
Corporation may not purchase or acquire Series E Preferred Shares,
otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Series E Preferred Shares.
(d) Notice of the redemption of any Series E Preferred Shares under
this Section 5 shall be mailed by first-class mail to each holder of record
of Series E Preferred Shares to be redeemed at the address of each such
holder as shown on the Corporation's records, not less than 30 nor more
than 90 days prior to the Call Date. Neither the failure to mail any
notice required by this paragraph (d), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to the other holders. Any notice which was mailed in the manner herein
provided shall be conclusively presumed to have been duly given on the date
mailed whether or not the holder receives the notice. Each such mailed
notice shall state, as appropriate: (1) the Call Date; (2) the number of
Series E Preferred Shares to be redeemed and, if fewer than all the shares
held by such holder are to be redeemed, the number of such shares to be
redeemed from such holder; (3) the redemption price if the Series E
Preferred Shares are redeemed for cash and the number of Common Shares to
be issued if the Series E Preferred Shares are redeemed for Common Shares;
(4) the place or places at which certificates for such shares are to be
surrendered; (5) the then-current Conversion Price; and (6) that dividends
on the shares to be redeemed shall cease to accrue on such Call Date except
as otherwise provided herein. Notice having been mailed as aforesaid,
9
<PAGE>
from and after the Call Date (unless the Corporation shall fail to make
available an amount of cash necessary to effect such redemption), (i)
except as otherwise provided herein, dividends on the Series E Preferred
Shares so called for redemption shall cease to accrue, (ii) such shares
shall no longer be deemed to be outstanding, and (iii) all rights of the
holders thereof as holders of Series E Preferred Shares of the Corporation
shall cease (except the rights to convert and to receive the Common Shares
and/or cash payable upon such redemption, without interest thereon, upon
surrender and endorsement of their certificates if so required and to
receive any dividends payable thereon). The Corporation's obligation to
provide Common Shares and/or cash in accordance with the preceding sentence
shall be deemed fulfilled if, on or before the Call Date, the Corporation
shall deposit with a bank or trust company (which may be an affiliate of
the Corporation) that has an office in the Borough of Manhattan, City of
New York, and that has, or is an affiliate of a bank or trust company that
has, capital and surplus of at least $50,000,000, necessary for such
redemption, in trust, with irrevocable instructions that such Common Shares
and/or cash be applied to the redemption of the Series E Preferred Shares
so called for redemption. In the case of any redemption pursuant to
paragraph (a)(i) of this Section 5, at the close of business on the Call
Date, each holder of Series E Preferred Shares to be redeemed (unless the
Corporation defaults in the delivery of the Common Shares or cash payable
on such Call Date) shall be deemed to be the record holder of the Common
Shares into which such Series E Preferred Shares are to be converted at
redemption, regardless of whether such holder has surrendered the
certificates representing the Series E Preferred Shares to be so redeemed.
No interest shall accrue for the benefit of the holders of Series E
Preferred Shares to be redeemed on any cash so set aside by the
Corporation. Subject to applicable escheat laws, any such cash unclaimed at
the end of two years from the Call Date shall revert to the general funds
of the Corporation, after which reversion the holders of such shares so
called for redemption shall look only to the general funds of the
Corporation for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Corporation shall so require and
if the notice shall so state), such shares shall be exchanged for any cash
(without interest thereon) for which such shares have been redeemed. If
fewer than all the outstanding Series E Preferred Shares are to be
redeemed, shares to be redeemed shall be selected by the Corporation from
outstanding Series E Preferred Shares not previously called for redemption
pro rata (as nearly as may be), by lot or by any other method determined by
the Corporation in its sole discretion to be equitable. If fewer than all
the Series E Preferred Shares represented by any certificate are redeemed,
then new certificates representing the unredeemed shares shall be issued
without cost to the holder thereof.
(e) In the case of any redemption pursuant to paragraph (a)(i) of this
Section 5,
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<PAGE>
(i) no fractional Common Shares or scrip representing fractions
of Common Shares shall be issued upon redemption of the Series E
Preferred Common Shares. Instead of any fractional interest in Common
Shares that would otherwise be deliverable upon redemption of Series E
Preferred Shares, the Corporation shall pay to the holder of such
share an amount in cash (rounded to the nearest cent) based upon the
Current Market Price of the Common Shares on the Trading Day
immediately preceding the Call Date. If more than one share shall be
surrendered for redemption at one time by the same holder, the number
of full Common Shares issuable upon redemption thereof shall be
computed on the basis of the aggregate number of Series E Preferred
Shares so surrendered.
(ii) the Corporation covenants that any Common Shares issued upon
redemption of Series E Preferred Shares shall be validly issued,
fully paid and non-assessable. The Corporation shall endeavor to list
the Common Shares required to be delivered upon any such redemption of
Series E Preferred Shares, prior to such redemption, upon each
national securities exchange, if any, upon which the outstanding
Common Shares are listed at the time of such delivery.
Section 6. Conversion. Holders of Series E Preferred Shares shall have
----------
the right to convert all or a portion of such shares into Common Shares, as
follows:
(a) Subject to and upon compliance with the provisions of this Section
6 and the provisions of Article VIII of the Corporation's Articles of
Incorporation, a holder of Series E Preferred Shares shall have the right,
at any time, at his or her option, to convert such shares into the number
of fully paid and non-assessable Common Shares obtained by dividing the
aggregate Liquidation Preference of such shares (exclusive of accrued but
unpaid dividends) by the Conversion Price (as in effect at the time and on
the date provided for in the last paragraph of paragraph (b) of this
Section 6) by surrendering such shares to be converted, such surrender to
be made in the manner provided in paragraph (b) of this Section 6;
provided, however, that the right to convert shares called for redemption
-------- -------
pursuant to Section 5 shall terminate at the close of business on the fifth
Business Day prior to the Call Date fixed for such redemption, unless the
Corporation shall default in making payment of the cash payable upon such
redemption under Section 5.
(b) In order to exercise the conversion right, the holder of each
Series E Preferred Share to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or in
blank, at the office of the Transfer Agent, accompanied by written notice
to the Corporation that the holder thereof elects to convert such Series E
Preferred Shares. Unless the shares issuable on conversion are to be
issued in the same name as the name in which such Series E Preferred Share
is registered, each share surrendered for conversion shall be accompanied
by instruments
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<PAGE>
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).
Holders of Series E Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment
record date and prior to such Dividend Payment Date. However, Series E
Preferred Shares surrendered for conversion during the period between the
close of business on any dividend payment record date and the opening of
business on the corresponding Dividend Payment Date (except shares
converted after the issuance of notice of redemption with respect to a Call
Date during such period, such Series E Preferred Shares being entitled to
such dividend on the Dividend Payment Date) must be accompanied by payment
of an amount equal to the dividend payable on such shares on such Dividend
Payment Date. A holder of Series E Preferred Shares on a dividend payment
record date who (or whose transferee) tenders any such shares for
conversion into Common Shares on the corresponding Dividend Payment Date
will receive the dividend payable by the Corporation on such Series E
Preferred Shares on such date, and the converting holder need not include
payment of the amount of such dividend upon surrender of Series E Preferred
Shares for conversion. Except as provided above, the Corporation shall make
no payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the Common Shares issued upon such
conversion.
As promptly as practicable after the surrender of certificates for
Series E Preferred Shares as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on his or her written
order, a certificate or certificates for the number of full Common Shares
issuable upon the conversion of such shares in accordance with provisions
of this Section 6, and any fractional interest in respect of a Common Share
arising upon such conversion shall be settled as provided in paragraph (c)
of this Section 6.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
Series E Preferred Shares shall have been surrendered and such notice shall
have been received by the Corporation as aforesaid (and if applicable,
payment of an amount equal to the dividend payable on such shares shall
have been received by the Corporation as described above), and the person
or persons in whose name or names any certificate or certificates for
Common Shares shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented
thereby at such time on such date and such conversion shall be at the
Conversion Price in effect at such time on such date unless the share
transfer books of the Corporation shall be
12
<PAGE>
closed on that date, in which event such person or persons shall be deemed
to have become such holder or holders of record at the close of business on
the next succeeding day on which such share transfer books are open, but
such conversion shall be at the Conversion Price in effect on the date on
which such shares shall have been surrendered and such notice received by
the Corporation.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series E Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise
be deliverable upon the conversion of a Series E Preferred Share, the
Corporation shall pay to the holder of such share an amount in cash based
upon the Current Market Price of the Common Shares on the Trading Day
immediately preceding the date of conversion. If more than one share shall
be surrendered for conversion at one time by the same holder, the number of
full Common Shares issuable upon conversion thereof shall be computed on
the basis of the aggregate number of Series E Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after July 2, 1999 (A) pay a
dividend or make a distribution on its capital shares in Common
Shares, (B) subdivide its outstanding Common Shares into a greater
number of shares, (C) combine its outstanding Common Shares into a
smaller number of shares or (D) issue any shares of capital stock by
reclassification of its Common Shares, the Conversion Price in effect
at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or
distribution or at the opening of business on the Business Day next
following the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be
adjusted so that the holder of any Series E Preferred Share thereafter
surrendered for conversion shall be entitled to receive the number of
Common Shares that such holder would have owned or have been entitled
to receive after the happening of any of the events described above as
if such Series E Preferred Shares had been converted immediately prior
to the record date in the case of a dividend or distribution or the
effective date in the case of a subdivision, combination or
reclassification. An adjustment made pursuant to this subparagraph
(i) shall become effective immediately after the opening of business
on the Business Day next following the record date (except as provided
in paragraph (h) below) in the case of a dividend or distribution and
shall become effective immediately after the opening of business on
the Business Day next following the effective date in the case of a
subdivision, combination or reclassification.
(ii) If the Corporation shall issue after July 2, 1999 rights,
options or warrants to all holders of Common Shares entitling them
(for a period expiring
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<PAGE>
within 45 days after the record date mentioned below) to subscribe for
or purchase Common Shares at a price per share less than 94% (100% if
a stand-by underwriter is used and charges the Corporation a
commission) of the Fair Market Value per Common Share on the record
date for the determination of stockholders entitled to receive such
rights, options or warrants, then the Conversion Price in effect at
the opening of business on the Business Day next following such record
date shall be adjusted to equal the price determined by multiplying
(A) the Conversion Price in effect immediately prior to the opening of
business on the Business Day next following the date fixed for such
determination by (B) a fraction, the numerator of which shall be the
sum of (x) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (y) the number
of shares that the aggregate proceeds to the Corporation from the
exercise of such rights, options or warrants for Common Shares would
purchase at 94% of such Fair Market Value (or 100% in the case of a
stand-by underwriting), and the denominator of which shall be the sum
of (x) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (y) the number
of additional Common Shares offered for subscription or purchase
pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately after the opening of business on the day
next following such record date (except as provided in paragraph (h)
below). In determining whether any rights, options or warrants entitle
the holders of Common Shares to subscribe for or purchase Common
Shares at less than 94% of such Fair Market Value (or 100% in the case
of a stand-by underwriting), there shall be taken into account any
consideration received by the Corporation upon issuance and upon
exercise of such rights, options or warrants, the value of such
consideration, if other than cash, to be determined by the Board of
Directors.
(iii) If the Corporation shall distribute to all holders of its
Common Shares any securities of the Corporation (other than Common
Shares) or evidence of its indebtedness or assets (excluding
cumulative cash dividends or distributions paid with respect to the
Common Shares after December 31, 1998 which are not in excess of the
following: the sum of (A) the Corporation's cumulative undistributed
Funds from Operations at December 31, 1998, plus (B) the cumulative
amount of Funds from Operations, as determined by the Board of
Directors, after December 31, 1998, minus (C) the cumulative amount of
dividends accrued or paid in respect of the Series E Preferred Shares
or any other class or series of preferred stock of the Corporation
after July 2, 1999) or rights, options or warrants to subscribe for or
purchase any of its securities (excluding those rights, options and
warrants issued to all holders of Common Shares entitling them for a
period expiring within 45 days after the record date referred to in
subparagraph (ii) above to subscribe for or purchase Common Shares,
which rights and warrants are referred to in and treated under
14
<PAGE>
subparagraph (ii) above) (any of the foregoing being hereinafter in
this subparagraph (iii) collectively called the "Securities" and
----------
individually a "Security"), then in each such case the Conversion
--------
Price shall be adjusted so that it shall equal the price determined by
multiplying (x) the Conversion Price in effect immediately prior to
the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by (y) a fraction,
the numerator of which shall be the Fair Market Value per Common Share
on the record date mentioned below less the then fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive), of the portion of the Securities or assets or evidences
of indebtedness so distributed or of such rights, options or warrants
applicable to one Common Share, and the denominator of which shall be
the Fair Market Value per Common Share on the record date mentioned
below. Such adjustment shall become effective immediately at the
opening of business on the Business Day next following (except as
provided in paragraph (h) below) the record date for the determination
of stockholders entitled to receive such distribution. For the
purposes of this subparagraph (iii), the distribution of a Security,
which is distributed not only to the holders of the Common Shares on
the date fixed for the determination of stockholders entitled to such
distribution of such Security, but also is distributed with each
Common Share delivered to a Person converting a Series E Preferred
Share after such determination date, shall not require an adjustment
of the Conversion Price pursuant to this subparagraph (iii); provided
--------
that on the date, if any, on which a person converting a Series E
Preferred Share would no longer be entitled to receive such Security
with a Common Share (other than as a result of the termination of all
such Securities), a distribution of such Securities shall be deemed to
have occurred and the Conversion Price shall be adjusted as provided
in this subparagraph (iii) (and such day shall be deemed to be "the
date fixed for the determination of the stockholders entitled to
receive such distribution" and "the record date" within the meaning of
the two preceding sentences).
(iv) In case a tender or exchange offer (which term shall not
include open market repurchases by the Corporation) made by the
Corporation or any subsidiary of the Corporation for all or any
portion of the Common Shares shall expire and such tender or exchange
offer shall involve the payment by the Corporation or such subsidiary
of consideration per Common Share having a fair market value (as
determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors), at the last time (the "Expiration Time") tenders
---------------
or exchanges may be made pursuant to such tender or exchange offer,
that exceeds the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, the Conversion Price shall be
reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect
15
<PAGE>
immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph, by a fraction of which
the numerator shall be the number of Common Shares outstanding
(including any tendered or exchanged shares) at the Expiration Time,
multiplied by the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, and the denominator shall be
the sum of (A) the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based upon the
acceptance (up to any maximum specified in the terms of the tender or
exchange offer) of all shares validly tendered or exchanged and not
withdrawn as of the Expiration Time (the shares deemed so accepted, up
to any maximum, being referred to as the "Purchased Shares") and (B)
----------------
the product of the number of Common Shares outstanding (less any
Purchased Shares) at the Expiration Time and the Current Market Price
per Common Share on the Trading Day next succeeding the Expiration
Time, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time.
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase or decrease
of at least 1% in such price; provided, however, that any adjustments
-------- -------
that by reason of this subparagraph (v) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment until made; and provided, further, that any adjustment
-------- -------
shall be required and made in accordance with the provisions of this
Section 6 (other than this subparagraph (v)) not later than such time
as may be required in order to preserve the tax-free nature of a
distribution to the holders of Common Shares. Notwithstanding any
other provisions of this Section 6, the Corporation shall not be
required to make any adjustment of the Conversion Price for the
issuance of any Common Shares pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of the
Corporation and the investment of additional optional amounts in
Common Shares under such plan. All calculations under this Section 6
shall be made to the nearest cent (with $.005 being rounded upward) or
to the nearest one-tenth of a share (with .05 of a share being rounded
upward), as the case may be. Anything in this paragraph (d) to the
contrary notwithstanding, the Corporation shall be entitled, to the
extent permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this paragraph (d), as it in
its discretion shall determine to be advisable in order that any share
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase shares or
securities, or distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its stockholders shall
not be taxable.
(e) If the Corporation shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or
16
<PAGE>
substantially all of its Common Shares, sale of all or substantially all of
the Corporation's assets or recapitalization of the Common Shares and
excluding any transaction as to which subparagraph (d)(i) of this Section 6
applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which all or substantially all
-----------
of the Corporation's Common Shares are converted into the right to receive
shares, securities or other property (including cash or any combination
thereof), each Series E Preferred Share which is not redeemed or converted
into the right to receive shares, securities or other property prior to
such Transaction shall thereafter be convertible into the kind and amount
of shares, securities and other property (including cash or any combination
thereof) receivable upon the consummation of such Transaction by a holder
of that number of Common Shares into which one Series E Preferred Share was
convertible immediately prior to such Transaction, assuming such holder of
Common Shares (i) is not a Person with which the Corporation consolidated
or into which the Corporation merged or which merged into the Corporation
or to which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person and (ii)
------------------
failed to exercise his rights of election, if any, as to the kind or amount
of shares, securities and other property (including cash) receivable upon
such Transaction (provided that if the kind or amount of shares, securities
and other property (including cash) receivable upon such Transaction is not
the same for each Common Share held immediately prior to such Transaction
by other than a Constituent Person or an affiliate thereof and in respect
of which such rights of election shall not have been exercised ("Non-
----
Electing Share"), then for the purpose of this paragraph (e) the kind and
--------------
amount of shares, securities and other property (including cash) receivable
upon such Transaction by each Non-Electing Share shall be deemed to be the
kind and amount so receivable per share by a plurality of the Non-Electing
Shares). The Corporation shall not be a party to any Transaction unless the
terms of such Transaction are consistent with the provisions of this
paragraph (e), and it shall not consent or agree to the occurrence of any
Transaction until the Corporation has entered into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of the
holders of the Series E Preferred Shares that will contain provisions
enabling the holders of the Series E Preferred Shares that remain
outstanding after such Transaction to convert into the consideration
received by holders of Common Shares at the Conversion Price in effect
immediately prior to such Transaction. The provisions of this paragraph (e)
shall similarly apply to successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Shares (other than cash dividends or
distributions paid with respect to the Common Shares after December
31, 1998 not in excess of the sum of the Corporation's cumulative
undistributed Funds from Operations at December 31, 1998, plus the
cumulative amount of Funds from Operations,
17
<PAGE>
as determined by the Board of Directors, after December 31, 1998,
minus the cumulative amount of dividends accrued or paid in respect of
the Series E Preferred Shares or any other class or series of
preferred shares of capital stock of the Corporation after July 2,
1999); or
(ii) the Corporation shall authorize the granting to all
holders of Common Shares of rights, options or warrants to subscribe
for or purchase any shares of any class or any other rights, options
or warrants; or
(iii) there shall be any reclassification of the Common Shares
(other than an event to which subparagraph (d)(i) of this Section 6
applies) or any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is
required, or a statutory share exchange, or a self tender offer by the
Corporation for all or substantially all of its outstanding Common
Shares or the sale or transfer of all or substantially all of the
assets of the Corporation as an entirety; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent and
shall cause to be mailed to the holders of Series E Preferred Shares at
their addresses as shown on the records of the Corporation, as promptly as
possible, but at least 10 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken
for the purpose of such dividend, distribution or granting of rights,
options or warrants, or, if a record is not to be taken, the date as of
which the holders of Common Shares of record to be entitled to such
dividend, distribution or rights, options or warrants are to be determined
or (B) the date on which such reclassification, consolidation, merger,
statutory share exchange, sale, transfer, liquidation, dissolution or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Shares of record shall be entitled to
exchange their Common Shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, statutory
share exchange, sale, transfer, liquidation, dissolution or winding up.
Failure to give or receive such notice or any defect therein shall not
affect the legality or validity of the proceedings described in this
Section 6.
(g) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment
which certificate shall be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment of
the Conversion Price setting forth the adjusted Conversion Price and the
effective date of such
18
<PAGE>
adjustment and shall mail such notice of such adjustment of the Conversion
Price to the holder of each Series E Preferred Share at such holder's last
address as shown on the records of the Corporation.
(h) In any case in which paragraph (d) of this Section 6 provides that
an adjustment shall become effective on the day next following the record
date for an event, the Corporation may defer until the occurrence of such
event (A) issuing to the holder of any Series E Preferred Share converted
after such record date and before the occurrence of such event the
additional Common Shares issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares issuable
upon such conversion before giving effect to such adjustment and (B) paying
to such holder any amount of cash in lieu of any fraction pursuant to
paragraph (c) of this Section 6.
(i) There shall be no adjustment of the Conversion Price in case of
the issuance of any shares of capital stock of the Corporation in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 6. If any action or transaction
would require adjustment of the Conversion Price pursuant to more than one
paragraph of this Section 6, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
(j) If the Corporation shall take any action affecting the Common
Shares, other than action described in this Section 6, that in the opinion
of the Board of Directors would materially and adversely affect the
conversion rights of the holders of the Series E Preferred Shares, the
Conversion Price for the Series E Preferred Shares may be adjusted, to the
extent permitted by law, in such manner, if any, and at such time, as the
Board of Directors, in its sole discretion, may determine to be equitable
in the circumstances.
(k) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Shares, for the purpose of effecting
conversion of the Series E Preferred Shares, the full number of Common
Shares deliverable upon the conversion of all outstanding Series E
Preferred Shares not theretofore converted. For purposes of this paragraph
(k), the number of Common Shares that shall be deliverable upon the
conversion of all outstanding Series E Preferred Shares shall be computed
as if at the time of computation all such outstanding shares were held by a
single holder.
The Corporation covenants that any Common Shares issued upon
conversion of the Series E Preferred Shares shall be validly issued, fully
paid and non-assessable. Before taking any action that would cause an
adjustment reducing the Conversion Price below the then-par value of the
Common Shares deliverable upon conversion of the Series E Preferred Shares,
the Corporation will take any action that, in the opinion of
19
<PAGE>
its counsel, may be necessary in order that the Corporation may validly and
legally issue fully paid and (subject to any customary qualification based
upon the nature of a real estate investment trust) non-assessable Common
Shares at such adjusted Conversion Price.
The Corporation shall endeavor to list the Common Shares required to
be delivered upon conversion of the Series E Preferred Shares, prior to
such delivery, upon each national securities exchange, if any, upon which
the outstanding Common Shares are listed at the time of such delivery.
The Corporation shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the issuance
of any securities that the Corporation shall be obligated to deliver upon
conversion of the Series E Preferred Shares. In addition to any legend
required by Article VIII of the Articles of Incorporation, the certificates
evidencing such securities shall bear such legends restricting transfer
thereof in the absence of registration under applicable securities laws or
an exemption therefrom as the Corporation may in good faith deem
appropriate.
(l) 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 Shares or other securities or property on conversion of the Series E
Preferred Shares pursuant hereto; 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 Shares or other
securities or property in a name other than that of the holder of the
Series E Preferred Shares to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue or delivery
has paid to the Corporation the amount of any such tax or established, to
the reasonable satisfaction of the Corporation, that such tax has been
paid.
Section 7. Shares To Be Retired. All Series E Preferred Shares 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 capital stock of the
Corporation, without designation as to class or series.
Section 8. Ranking. Any class or series of shares of capital stock of the
-------
Corporation shall be deemed to rank:
(a) prior to the Series E Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority to
the holders of Series E Preferred Shares;
20
<PAGE>
(b) on a parity with the Series E Preferred Shares, as to the payment
of dividends and as to distribution of assets upon liquidation, dissolution
or winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof shall be different from
those of the Series E Preferred Shares, if the holders of such class or
series and the Series E Preferred Shares shall be entitled to the receipt
of dividends and of amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or
priority one over the other ("Parity Shares");
-------------
(c) junior to the Series E Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be Junior Shares; and
(d) junior to the Series E Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully Junior
Shares.
Section 9. Voting. If and whenever four quarterly dividends (whether or
------
not consecutive) payable on the Series E Preferred Shares or any series or class
of Parity Shares shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, the number of directors then constituting the
Board of Directors shall be increased by two and the holders of Series E
Preferred Shares, together with the holders of shares of every other series of
Parity Shares (any such other series, the "Voting Preferred Shares"), voting as
-----------------------
a single class regardless of series, shall be entitled to elect the two
additional directors to serve on the Board of Directors at any annual meeting of
stockholders or special meeting held in place thereof, or at a special meeting
of the holders of the Series E Preferred Shares and the Voting Preferred Shares
called as hereinafter provided. Whenever all arrears in dividends on the Series
E Preferred Shares and the Voting Preferred Shares then outstanding shall have
been paid and dividends thereon for the current quarterly dividend period shall
have been paid or declared and set apart for payment, then the right of the
holders of the Series E Preferred Shares and the Voting Preferred Shares to
elect such additional two directors shall cease (but subject always to the same
provision for the vesting of such voting rights in the case of any similar
future arrearage in quarterly dividends), and the terms of office of all persons
elected as directors by the holders of the Series E Preferred Shares and the
Voting Preferred Shares shall forthwith terminate and the number of the Board of
Directors shall be reduced accordingly. At any time after such voting power
shall have been so vested in the holders of Series E Preferred Shares and the
Voting Preferred Shares, the Secretary of the Corporation may, and upon the
written request of any holder of Series E Preferred Shares (addressed to the
Secretary at the principal office of the Corporation) shall, call a special
meeting of the holders of the Series E Preferred Shares and of the Voting
Preferred Shares for the election of the directors to be elected by them as
herein provided, such call to be made by notice similar to that provided in
21
<PAGE>
the Bylaws of the Corporation for a special meeting of the stockholders or as
required by law. If any such special meeting required to be called as above
provided shall not be called by the Secretary within 20 days after receipt of
any such request, then any holder of Series E Preferred Shares may call such
meeting, upon the notice above provided, and for that purpose shall have access
to the records of the Corporation. The directors elected at any such special
meeting shall hold office until the next annual meeting of the stockholders or
special meeting held in lieu thereof if such office shall not have previously
terminated as above provided. If any vacancy shall occur among the directors
elected by the holders of the Series E Preferred Shares and the Voting Preferred
Shares, a successor shall be elected by the Board of Directors, upon the
nomination of the then-remaining director elected by the holders of the Series E
Preferred Shares and the Voting Preferred Shares or the successor of such
remaining director, to serve until the next annual meeting of the stockholders
or special meeting held in place thereof if such office shall not have
previously terminated as provided above.
So long as any Series E Preferred Shares are outstanding, in addition to
any other vote or consent of stockholders required by law or by the
Corporation's Articles of Incorporation, the affirmative vote of at least 66%
of the votes entitled to be cast by the holders of the Series E Preferred Shares
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating:
(a) Any amendment, alteration or repeal of any of the provisions of
the Corporation's Articles of Incorporation, the Corporation's By-Laws or
these Articles Supplementary that materially and adversely affects the
voting powers, rights or preferences of the holders of the Series E
Preferred Shares; provided, however, that the amendment of the provisions
-------- -------
of the Corporation's Articles of Incorporation so as to authorize or create
or to increase the authorized amount of, any Fully Junior Shares, Junior
Shares that are not senior in any respect to the Series E Preferred Shares
or any Parity Shares shall not be deemed to materially adversely affect the
voting powers, rights or preferences of the holders of Series E Preferred
Shares; or
(b) A share exchange that affects the Series E Preferred Shares, a
consolidation with or merger of the Corporation into another entity, or a
consolidation with or merger of another entity into the Corporation, unless
in each such case each Series E Preferred Share (i) shall remain
outstanding without a material and adverse change to its terms and rights
or (ii) shall be converted into or exchanged for convertible preferred
shares of the surviving entity having preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption thereof identical to
that of a Series E Preferred Share (except for changes that do not
materially and adversely affect the holders of the Series E Preferred
Shares); or
(c) The authorization, reclassification or creation of, or the
increase in the authorized amount of, any shares of any class or any
security convertible into shares of
22
<PAGE>
any class ranking prior to the Series E Preferred Shares in the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation or in the payment of dividends;
provided, however, that no such vote of the holders of Series E Preferred Shares
- -------- -------
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series E Preferred Shares at the time outstanding to the
extent such redemption is authorized by Section 5 of these Articles
Supplementary.
For purposes of the foregoing provisions of this Section 9, each Series E
Preferred Share shall have one (1) vote per share, except that when any other
series of Preferred Shares shall have the right to vote with the Series E
Preferred Shares as a single class on any matter, then the Series E Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $27.08 of stated liquidation preference. Except as otherwise required
by applicable law or as set forth herein, the Series E Preferred Shares shall
not have any relative, participating, optional or other special voting rights
and powers other than as set forth herein, and the consent of the holders
thereof shall not be required for the taking of any Corporation action.
Section 10. Record Holders. The Corporation and the Transfer Agent may
--------------
deem and treat the record holder of any Series E Preferred Shares 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.
23
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be signed its name and on its behalf by its authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation,
that to the best of their knowledge, information and belief, all matters and
facts set forth herein relating to the authorization and approval of this
document are true in all material respects and this statement is made under
penalties of perjury.
July 9, 1999
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By: /s/ W.D. Minami
----------------------
Its: Senior Vice President
Attest:
/s/ Robert D. Zimet
- --------------------
Secretary
<PAGE>
EXHIBIT 99.2
Series F Cumulative Convertible
Redeemable Preferred Stock
ARTICLES SUPPLEMENTARY
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
=======================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series F Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
=======================
Dated as of July 9, 1999
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
=======================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series F Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
========================
Charles E. Smith Residential Realty, Inc., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland pursuant to section 8-203(b) of the Annotated Code of
Maryland that:
FIRST: Pursuant to authority granted by the Amended and Restated Articles
of Incorporation of the Corporation, the Board of Directors adopted a resolution
by Unanimous Written Consent dated July 1, 1999 designating and classifying
666,667 unissued and undesignated shares of preferred stock as Series F
Cumulative Convertible Redeemable Preferred Stock.
SECOND: The following is a description of the Series F Cumulative
Convertible Redeemable Preferred Stock, including the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption thereof:
Section 1. Number of Shares and Designation. This class of preferred
--------------------------------
stock shall be designated as Series F Cumulative Convertible Redeemable
Preferred Stock and the number of shares which shall constitute such series
shall not be more than 666,667 shares, par value $0.01 per share, which number
may be decreased (but not below the number thereof then outstanding) from time
to time by the Board of Directors.
Section 2. Definitions. For purposes of the Series F Preferred Shares,
-----------
the following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
------------------
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series F Preferred
Shares.
2
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or a
------------
day on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
---------
required under Section 5(d) as the Call Date.
"Common Shares" shall mean the shares of Common Stock, par value $0.01
-------------
per share, of the Corporation.
"Constituent Person" shall have the meaning set forth in Section 6(e).
------------------
"Conversion Price" shall mean the conversion price per Common Share
----------------
for which the Series F Preferred Shares are convertible, as such Conversion
Price may be adjusted pursuant to Section 6. The initial conversion price
shall be $37.50 (equivalent to a conversion rate of one Common Share for
each Series F Preferred Share).
"Current Market Price" of publicly traded shares of Common Stock or
--------------------
any other class of shares of capital stock or other security of the
Corporation or any other issuer for any day shall mean the last reported
sales price, regular way on such day, or, if no sale takes place on such
day, the average of the reported closing bid and asked prices on such day,
regular way, in either case as reported on the New York Stock Exchange
("NYSE") or, if such security is not listed or admitted for trading on the
----
NYSE, on the principal national securities exchange on which such security
is listed or admitted for trading or, if not listed or admitted for trading
on any national securities exchange, on the Nasdaq Stock Market ("NASDAQ")
------
or, if such security is not quoted on such National Market System, the
average of the closing bid and asked prices on such day in the over-the-
counter market as reported by NASDAQ or, if bid and asked prices for such
security on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by any NYSE
member firm regularly making a market in such security selected for such
purpose by the Board of Directors.
"Dividend Payment Date" shall mean (i) for any Dividend Period with
---------------------
respect to which the Corporation pays a dividend on the Common Shares, the
date on which such dividend is paid, or (ii) for any Dividend Period with
respect to which the Corporation does not pay a dividend on the Common
Shares, a date to be set by the Board of Directors, which date shall not be
later than the forty-fifth calendar day after the end of the applicable
Dividend Period.
3
<PAGE>
"Dividend Periods" shall mean quarterly dividend periods commencing on
----------------
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period, which shall commence on the
Issue Date and end on and include the last calendar day of the calendar
quarter containing the Issue Date, and other than the Dividend Period
during which any Series F Preferred Shares shall be redeemed pursuant to
Section 5, which shall end on and include the Call Date with respect to the
Series F Preferred Shares being redeemed).
"Expiration Time" shall have the meaning set forth in Section
---------------
6(d)(iv).
"Fair Market Value" shall mean the average of the daily Current Market
-----------------
Prices of a Common Share on the five (5) consecutive Trading Days selected
by the Corporation commencing not more than 20 Trading Days before, and
ending not later than, the earlier of the day in question and the day
before the "ex date" with respect to the issuance or distribution requiring
such computation. The term "ex date," when used with respect to any
issuance or distribution, means the first day on which the Common Shares
trade regular way, without the right to receive such issuance or
distribution, on the exchange or in the market, as the case may be, used to
determine that day's Current Market Price.
"Fully Junior Shares" shall mean the Common Shares and any other class
-------------------
or series of shares of capital stock of the Corporation now or hereafter
issued and outstanding over which the Series F Preferred Shares have
preference or priority in both (i) the payment of dividends and (ii) the
distribution of assets on any liquidation, dissolution or winding up of the
Corporation.
"Funds from Operations" shall mean net income (loss) (computed in
---------------------
accordance with generally accepted accounting principles) excluding gains
(or losses) from debt restructuring, and distributions in excess of
earnings allocated to other Operating Partnership interests or minority
interests (as reflected in the financial statements of the Corporation)
plus depreciation/amortization of assets unique to the real estate
industry, all computed in a manner consistent with the revised definition
of Funds From Operations adopted by the National Association of Real Estate
Investment Trusts (NAREIT), in its White Paper dated March 1995, as such
definitions may be modified from time to time, as determined by the
Corporation in good faith.
"Issue Date" shall mean the date on which the first Series F Preferred
----------
Shares are issued.
"Junior Shares" shall mean the Common Shares and any other class or
-------------
series of capital stock of the Corporation now or hereafter issued and
outstanding over which the
4
<PAGE>
Series F Preferred Shares have preference or priority in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Corporation.
"Non-Electing Share" shall have the meaning set forth in Section 6(e).
------------------
"Operating Partnership" shall mean the Charles E. Smith Residential
---------------------
Realty L.P., a Delaware limited partnership.
"Parity Shares" shall have the meaning set forth in Section 8(b).
-------------
"Person" shall mean any individual, firm, partnership, corporation,
------
limited liability company or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Purchased Shares" shall have the meaning set forth in Section
----------------
6(d)(iv).
"Securities" and "Security" shall have the meanings set forth in
---------- --------
Section 6(d)(iii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Series F Preferred Shares" shall mean the shares of Series F
-------------------------
Cumulative Convertible Redeemable Preferred Stock.
"Set apart for payment" shall be deemed to include, without any action
---------------------
other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distribution by the Board
of Directors, the allocation of funds to be so paid on any series or class
of shares of capital stock of the Corporation; provided, however, that if
-------- -------
any funds for any class or series of Junior Shares or any class or series
of shares of capital stock ranking on a parity with the Series F Preferred
Shares as to the payment of dividends 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 F Preferred
Shares shall mean placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in question
-----------
are traded on the NYSE, or if such securities are not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on the National Market
System of NASDAQ, or if such securities are not quoted on such National
Market System, in the securities market in which the securities are traded.
5
<PAGE>
"Transaction" shall have the meaning set forth in Section 6(e).
-----------
"Transfer Agent" shall mean First Union National Bank, or such other
--------------
agent or agents of the Corporation as may be designated by the Board of
Directors or their designee as the transfer agent, registrar and dividend
disbursing agent for the Series F Preferred Shares.
"Units" shall mean Partnership Units as that term is defined in the
-----
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
"Voting Preferred Shares" shall have the meaning set forth in Section
-----------------------
9.
"Weighted Average Trading Price" shall mean, for any Trading Day, the
------------------------------
number obtained by dividing (i) the sum of the products, for each sale of
Common Shares on such Trading Day, of (a) the sale price per Common Share
and (b) the number of Common Shares sold by (ii) the total number of Common
Shares sold on such Trading Day.
Section 3. Dividends.
---------
(a) The holders of Series F Preferred Shares shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative preferential
dividends payable in cash in an amount per share equal to the greater of
(i) (A) 7.75% of the Liquidation Preference per annum (equivalent to
$2.90625 per Series F Preferred Share) from the Issue Date up to and
including the first anniversary of the Issue Date, (B) 8.25% of the
Liquidation Preference per annum (equivalent to $3.09375 per Series F
Preferred Share) from the first day after the period described in (A) up to
and including the second anniversary of the Issue Date and (C) 8.50% of the
Liquidation Preference per annum (equivalent to $3.1875 per Series F
Preferred Share) thereafter or (ii) the ordinary cash dividends (determined
on each Dividend Payment Date) on the Common Shares, or portion thereof,
into which a Series F Preferred Share is convertible. The dividends
referred to in clause (ii) of the preceding sentence shall equal the number
of Common Shares, or portion thereof, into which a Series F Preferred Share
is convertible, multiplied by the most current quarterly dividend on a
Common Share on or before the applicable Dividend Payment Date. If the
Corporation pays an ordinary cash dividend on the Common Shares with
respect to a Dividend Period after the date on which the Dividend Payment
Date is declared pursuant to clause (ii) of the definition of Dividend
Payment Date and the dividend calculated pursuant to clause (ii) of this
paragraph (a) with respect to such Dividend Period is greater than the
dividend previously declared on the Series F Preferred Shares with respect
to such Dividend
6
<PAGE>
Period, the Corporation shall pay an additional dividend to the holders of
the Series F Preferred Shares on the date on which the dividend on the
Common Shares is paid, in an amount equal to the difference between (y) the
dividend calculated pursuant to clause (ii) of this paragraph (a) and (z)
the amount of dividends previously declared on the Series F Preferred
Shares with respect to such Dividend Period. The dividends shall begin to
accrue and shall be fully cumulative from the first day of the applicable
Dividend Period, whether or not in any Dividend Period or Periods there
shall be funds of the Corporation legally available for the payment of such
dividends, and shall be payable quarterly, when, as and if declared by the
Board of Directors, in arrears on Dividend Payment Dates. Each such
dividend shall be payable in arrears to the holders of record of Series F
Preferred Shares as they appear in the records of the Corporation at the
close of business on such record dates, not less than 10 nor more than 50
days preceding such Dividend Payment Dates thereof, as shall be fixed by
the Board of Directors. Accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time and for such interim periods,
without reference to any regular Dividend Payment Date, to holders of
record on such date, not less than 10 nor more than 50 days preceding the
payment date thereof, as may be fixed by the Board of Directors. Any
dividend payment made on Series F Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due with respect to Series
F Preferred Shares which remains payable.
(b) The amount of dividends referred to in clause (i) of Section
3(a) payable for each full Dividend Period on the Series F Preferred Shares
shall be computed by dividing the annual dividend rate by four. The initial
Dividend Period will include a partial dividend for the period from the
Issue Date until the last calendar day of the calendar quarter containing
the Issue Date. The amount of dividends payable for such period, or any
other period shorter than a full Dividend Period, on the Series F Preferred
Shares shall be computed on the basis of a 360-day year of twelve 30-day
months. Holders of Series F Preferred Shares shall not be entitled to any
dividends, whether payable in cash, property or shares, in excess of
cumulative dividends, as herein provided, on the Series F Preferred Shares.
No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the Series F Preferred
Shares which may be in arrears.
(c) So long as any Series F Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any class or series of
Parity Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series F
Preferred Shares for all Dividend Periods terminating on or prior to the
dividend payment date on such class or series of Parity Shares. When
dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all
7
<PAGE>
dividends declared upon Series F Preferred Shares and all dividends
declared upon any other class or series of Parity Shares shall be declared
ratably in proportion to the respective amounts of dividends accumulated
and unpaid on the Series F Preferred Shares and accumulated and unpaid on
such Parity Shares.
(d) So long as any Series F Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of,
or options, warrants or rights to subscribe for or purchase shares of,
Fully Junior Shares) shall be declared or paid or set apart for payment or
other distribution shall be declared or made or set apart for payment upon
Junior Shares, nor shall any Junior Shares be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition
of Common Shares made for purposes of an employee incentive or benefit
plan of the Corporation or any subsidiary) for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption
of any Junior Shares) by the Corporation, directly or indirectly (except by
conversion into or exchange for Fully Junior Shares), unless in each case
(i) the full cumulative dividends on all outstanding Series F Preferred
Shares and any other Parity Shares of the Corporation shall have been or
contemporaneously are declared and paid or declared and set apart for
payment for all past Dividend Periods with respect to the Series F
Preferred Shares and all past dividend periods with respect to such Parity
Shares and (ii) sufficient funds shall have been or contemporaneously are
declared and paid or declared and set apart for the payment of the dividend
for the current Dividend Period with respect to the Series F Preferred
Shares and the current dividend period with respect to such Parity Shares.
(e) No distributions on Series F Preferred Shares shall be declared
by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of
the Corporation, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or
provides that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such declaration
or payment shall be restricted or prohibited by law.
Section 4. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Junior Shares, the holders
of the Series F Preferred Shares shall be entitled to receive Thirty Seven
Dollars and Fifty Cents ($37.50) (the "Liquidation Preference") per Series
F Preferred Share plus an amount equal to all dividends (whether or not
earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to any
further
8
<PAGE>
payment; provided, that the dividend payable with respect to the Dividend
--------
Period containing the date of final distribution shall be equal to the
greater of (i) the dividend provided in Section 3(a)(i) or (ii) the
dividend determined pursuant to Section 3(a)(ii) for the preceding Dividend
Period. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of the Series F Preferred Shares shall be
insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares of any class or series of Parity
Shares, then such assets, or the proceeds thereof, shall be distributed
among the holders of Series F Preferred Shares and any such other Parity
Shares ratably in accordance with the respective amounts that would be
payable on such Series F Preferred Shares and any such other Parity Shares
if all amounts payable thereon were paid in full. For the purposes of this
Section 4, (i) a consolidation or merger of the Corporation with one or
more corporations, real estate investment trusts or other entities, (ii) a
sale, lease or conveyance of all or substantially all of the Corporation's
property or business or (iii) a statutory share exchange shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series or
class or classes of shares of capital stock ranking on a parity with or
prior to the Series F Preferred Shares upon liquidation, dissolution or
winding up, upon any liquidation, dissolution or winding up of the
Corporation, after payment shall have been made in full to the holders of
the Series F Preferred Shares, as provided in this Section 4, 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 F Preferred Shares shall not be entitled to share
therein.
Section 5. Redemption at the Option of the Corporation.
-------------------------------------------
(a) The Series F Preferred Shares shall not be redeemable by the
Corporation prior to the fifth anniversary of the Issue Date. On and after
the fifth anniversary of the Issue Date, the Corporation, at its option,
may redeem the Series F Preferred Shares, in whole at any time or from time
to time in part as set forth herein, subject to the provisions described
below:
(i) Series F Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation, at any time on or after the
fifth anniversary of the Issue Date by issuing and delivering to each
holder for each Series F Preferred Share to be redeemed such number of
authorized but previously unissued Common Shares as equals the
Liquidation Preference (excluding any accumulated, accrued and unpaid
dividends which are to be paid in cash as
9
<PAGE>
provided below) per Series F Preferred Share divided by the Conversion
Price as in effect as of the opening of business on the Call Date;
provided, however, that the Corporation may redeem Series F Preferred
Shares pursuant to this paragraph (a)(i) only if (A) the Weighted
Average Trading Price, for twenty (20) Trading Days, within the last
thirty (30) Trading Days immediately before the date of the notice
given pursuant to Section 5(d), equals or exceeds 108% of the
Conversion Price in effect on the date of the notice given pursuant to
Section 5(d) and (B) at least 1,000,000 Common Shares were traded
during such 30 Trading Days.
(ii) Series F Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation at any time on or after the
fifth anniversary of the Issue Date out of funds legally available
therefor at a redemption price payable in cash equal to the
Liquidation Preference per Series F Preferred Share (plus all
accumulated, accrued and unpaid dividends as provided below).
(b) Upon any redemption of Series F Preferred Shares pursuant to
this Section 5, the Corporation shall pay all accrued and unpaid dividends,
if any, thereon to the Call Date, without interest. If the Call Date falls
after a dividend payment record date and prior to the corresponding
Dividend Payment Date, then each holder of Series F Preferred Shares at the
close of business on such dividend payment record date shall be entitled to
the dividend payable on such shares on the corresponding Dividend Payment
Date notwithstanding any redemption of such shares before such Dividend
Payment Date. Except as provided above, the Corporation shall make no
payment or allowance for unpaid dividends, whether or not in arrears, on
Series F Preferred Shares called for redemption.
(c) If full cumulative dividends on the Series F Preferred Shares
and any other class or series of Parity Shares of the Corporation have not
been declared and paid or declared and set apart for payment, the Series F
Preferred Shares may not be redeemed under this Section 5 in part and the
Corporation may not purchase or acquire Series F Preferred Shares,
otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Series F Preferred Shares.
(d) Notice of the redemption of any Series F Preferred Shares under
this Section 5 shall be mailed by first-class mail to each holder of record
of Series F Preferred Shares to be redeemed at the address of each such
holder as shown on the Corporation's records, not less than 30 nor more
than 90 days prior to the Call Date. Neither the failure to mail any
notice required by this paragraph (d), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to the other holders. Any notice which was mailed in the manner herein
provided shall be conclu-
10
<PAGE>
sively presumed to have been duly given on the date mailed whether or not
the holder receives the notice. Each such mailed notice shall state, as
appropriate: (1) the Call Date; (2) the number of Series F Preferred Shares
to be redeemed and, if fewer than all the shares held by such holder are to
be redeemed, the number of such shares to be redeemed from such holder; (3)
the redemption price if the Series F Preferred Shares are redeemed for cash
and the number of Common Shares to be issued if the Series F Preferred
Shares are redeemed for Common Shares; (4) the place or places at which
certificates for such shares are to be surrendered; (5) the then-current
Conversion Price; and (6) that dividends on the shares to be redeemed shall
cease to accrue on such Call Date except as otherwise provided herein.
Notice having been mailed as aforesaid, from and after the Call Date
(unless the Corporation shall fail to make available an amount of cash
necessary to effect such redemption), (i) except as otherwise provided
herein, dividends on the Series F Preferred Shares so called for redemption
shall cease to accrue, (ii) such shares shall no longer be deemed to be
outstanding, and (iii) all rights of the holders thereof as holders of
Series F Preferred Shares of the Corporation shall cease (except the rights
to convert and to receive the Common Shares and/or cash payable upon such
redemption, without interest thereon, upon surrender and endorsement of
their certificates if so required and to receive any dividends payable
thereon). The Corporation's obligation to provide Common Shares and/or cash
in accordance with the preceding sentence shall be deemed fulfilled if, on
or before the Call Date, the Corporation shall deposit with a bank or trust
company (which may be an affiliate of the Corporation) that has an office
in the Borough of Manhattan, City of New York, and that has, or is an
affiliate of a bank or trust company that has, capital and surplus of at
least $50,000,000, necessary for such redemption, in trust, with
irrevocable instructions that such Common Shares and/or cash be applied to
the redemption of the Series F Preferred Shares so called for redemption.
In the case of any redemption pursuant to paragraph (a)(i) of this Section
5, at the close of business on the Call Date, each holder of Series F
Preferred Shares to be redeemed (unless the Corporation defaults in the
delivery of the Common Shares or cash payable on such Call Date) shall be
deemed to be the record holder of the Common Shares into which such Series
F Preferred Shares are to be converted at redemption, regardless of whether
such holder has surrendered the certificates representing the Series F
Preferred Shares to be so redeemed. No interest shall accrue for the
benefit of the holders of Series F Preferred Shares to be redeemed on any
cash so set aside by the Corporation. Subject to applicable escheat laws,
any such cash unclaimed at the end of two years from the Call Date shall
revert to the general funds of the Corporation, after which reversion the
holders of such shares so called for redemption shall look only to the
general funds of the Corporation for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Corporation shall so require and
if the notice shall so state), such shares
11
<PAGE>
shall be exchanged for any cash (without interest thereon) for which such
shares have been redeemed. If fewer than all the outstanding Series F
Preferred Shares are to be redeemed, shares to be redeemed shall be
selected by the Corporation from outstanding Series F Preferred Shares not
previously called for redemption pro rata (as nearly as may be), by lot or
by any other method determined by the Corporation in its sole discretion to
be equitable. If fewer than all the Series F Preferred Shares represented
by any certificate are redeemed, then new certificates representing the
unredeemed shares shall be issued without cost to the holder thereof.
(e) In the case of any redemption pursuant to paragraph (a)(i) of
this Section 5,
(i) no fractional Common Shares or scrip representing
fractions of Common Shares shall be issued upon redemption of the
Series F Preferred Common Shares. Instead of any fractional interest
in Common Shares that would otherwise be deliverable upon redemption
of Series F Preferred Shares, the Corporation shall pay to the holder
of such share an amount in cash (rounded to the nearest cent) based
upon the Current Market Price of the Common Shares on the Trading Day
immediately preceding the Call Date. If more than one share shall be
surrendered for redemption at one time by the same holder, the number
of full Common Shares issuable upon redemption thereof shall be
computed on the basis of the aggregate number of Series F Preferred
Shares so surrendered.
(ii) the Corporation covenants that any Common Shares issued
upon redemption of Series F Preferred Shares shall be validly issued,
fully paid and non-assessable. The Corporation shall endeavor to list
the Common Shares required to be delivered upon any such redemption of
Series F Preferred Shares, prior to such redemption, upon each
national securities exchange, if any, upon which the outstanding
Common Shares are listed at the time of such delivery.
Section 6. Conversion. Holders of Series F Preferred Shares shall have
----------
the right to convert all or a portion of such shares into Common Shares, as
follows:
(a) Subject to and upon compliance with the provisions of this
Section 6 and the provisions of Article VIII of the Corporation's Articles
of Incorporation, a holder of Series F Preferred Shares shall have the
right, at any time, at his or her option, to convert such shares into the
number of fully paid and non-assessable Common Shares obtained by dividing
the aggregate Liquidation Preference of such shares (exclusive of accrued
but unpaid dividends) by the Conversion Price (as in effect at the time and
on the date provided for in the last paragraph of paragraph (b) of this
Section 6) by surrendering such shares to be converted, such surrender to
be made in the manner provided in paragraph (b) of this Section 6;
provided, however, that the right to convert
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12
<PAGE>
shares called for redemption pursuant to Section 5 shall terminate at the
close of business on the fifth Business Day prior to the Call Date fixed
for such redemption, unless the Corporation shall default in making payment
of the cash payable upon such redemption under Section 5.
(b) In order to exercise the conversion right, the holder of each
Series F Preferred Share to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or in
blank, at the office of the Transfer Agent, accompanied by written notice
to the Corporation that the holder thereof elects to convert such Series F
Preferred Shares. Unless the shares issuable on conversion are to be
issued in the same name as the name in which such Series F Preferred Share
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).
Holders of Series F Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment
record date and prior to such Dividend Payment Date. However, Series F
Preferred Shares surrendered for conversion during the period between the
close of business on any dividend payment record date and the opening of
business on the corresponding Dividend Payment Date (except shares
converted after the issuance of notice of redemption with respect to a Call
Date during such period, such Series F Preferred Shares being entitled to
such dividend on the Dividend Payment Date) must be accompanied by payment
of an amount equal to the dividend payable on such shares on such Dividend
Payment Date. A holder of Series F Preferred Shares on a dividend payment
record date who (or whose transferee) tenders any such shares for
conversion into Common Shares on the corresponding Dividend Payment Date
will receive the dividend payable by the Corporation on such Series F
Preferred Shares on such date, and the converting holder need not include
payment of the amount of such dividend upon surrender of Series F Preferred
Shares for conversion. Except as provided above, the Corporation shall make
no payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the Common Shares issued upon such
conversion.
As promptly as practicable after the surrender of certificates for
Series F Preferred Shares as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on his or her written
order, a certificate or certificates for the number of full Common Shares
issuable upon the conversion of such shares in accordance with provisions
of this Section 6, and any fractional interest in respect of a
13
<PAGE>
Common Share arising upon such conversion shall be settled as provided in
paragraph (c) of this Section 6.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
Series F Preferred Shares shall have been surrendered and such notice shall
have been received by the Corporation as aforesaid (and if applicable,
payment of an amount equal to the dividend payable on such shares shall
have been received by the Corporation as described above), and the person
or persons in whose name or names any certificate or certificates for
Common Shares shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented
thereby at such time on such date and such conversion shall be at the
Conversion Price in effect at such time on such date unless the share
transfer books of the Corporation shall be closed on that date, in which
event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on
which such share transfer books are open, but such conversion shall be at
the Conversion Price in effect on the date on which such shares shall have
been surrendered and such notice received by the Corporation.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series F Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise
be deliverable upon the conversion of a Series F Preferred Share, the
Corporation shall pay to the holder of such share an amount in cash based
upon the Current Market Price of the Common Shares on the Trading Day
immediately preceding the date of conversion. If more than one share shall
be surrendered for conversion at one time by the same holder, the number of
full Common Shares issuable upon conversion thereof shall be computed on
the basis of the aggregate number of Series F Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after July 2, 1999 (A) pay a
dividend or make a distribution on its capital shares in Common
Shares, (B) subdivide its outstanding Common Shares into a greater
number of shares, (C) combine its outstanding Common Shares into a
smaller number of shares or (D) issue any shares of capital stock by
reclassification of its Common Shares, the Conversion Price in effect
at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or
distribution or at the opening of business on the Business Day next
following the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be
adjusted so that the holder of any Series F Preferred Share thereafter
surrendered for conversion shall be entitled to receive
14
<PAGE>
the number of Common Shares that such holder would have owned or have
been entitled to receive after the happening of any of the events
described above as if such Series F Preferred Shares had been
converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a
subdivision, combination or reclassification. An adjustment made
pursuant to this subparagraph (i) shall become effective immediately
after the opening of business on the Business Day next following the
record date (except as provided in paragraph (h) below) in the case of
a dividend or distribution and shall become effective immediately
after the opening of business on the Business Day next following the
effective date in the case of a subdivision, combination or
reclassification.
(ii) If the Corporation shall issue after July 2, 1999 rights,
options or warrants to all holders of Common Shares entitling them
(for a period expiring within 45 days after the record date mentioned
below) to subscribe for or purchase Common Shares at a price per share
less than 94% (100% if a stand-by underwriter is used and charges the
Corporation a commission) of the Fair Market Value per Common Share on
the record date for the determination of stockholders entitled to
receive such rights, options or warrants, then the Conversion Price in
effect at the opening of business on the Business Day next following
such record date shall be adjusted to equal the price determined by
multiplying (A) the Conversion Price in effect immediately prior to
the opening of business on the Business Day next following the date
fixed for such determination by (B) a fraction, the numerator of which
shall be the sum of (x) the number of Common Shares outstanding on the
close of business on the date fixed for such determination and (y) the
number of shares that the aggregate proceeds to the Corporation from
the exercise of such rights, options or warrants for Common Shares
would purchase at 94% of such Fair Market Value (or 100% in the case
of a stand-by underwriting), and the denominator of which shall be the
sum of (x) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (y) the number
of additional Common Shares offered for subscription or purchase
pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately after the opening of business on the day
next following such record date (except as provided in paragraph (h)
below). In determining whether any rights, options or warrants
entitle the holders of Common Shares to subscribe for or purchase
Common Shares at less than 94% of such Fair Market Value (or 100% in
the case of a stand-by underwriting), there shall be taken into
account any consideration received by the Corporation upon issuance
and upon exercise of such rights, options or warrants, the value of
such consideration, if other than cash, to be determined by the Board
of Directors.
15
<PAGE>
(iii) If the Corporation shall distribute to all holders of its
Common Shares any securities of the Corporation (other than Common
Shares) or evidence of its indebtedness or assets (excluding
cumulative cash dividends or distributions paid with respect to the
Common Shares after December 31, 1998 which are not in excess of the
following: the sum of (A) the Corporation's cumulative undistributed
Funds from Operations at December 31, 1998, plus (B) the cumulative
amount of Funds from Operations, as determined by the Board of
Directors, after December 31, 1998, minus (C) the cumulative amount of
dividends accrued or paid in respect of the Series F Preferred Shares
or any other class or series of preferred stock of the Corporation
after July 2, 1999) or rights, options or warrants to subscribe for or
purchase any of its securities (excluding those rights, options and
warrants issued to all holders of Common Shares entitling them for a
period expiring within 45 days after the record date referred to in
subparagraph (ii) above to subscribe for or purchase Common Shares,
which rights and warrants are referred to in and treated under
subparagraph (ii) above) (any of the foregoing being hereinafter in
this subparagraph (iii) collectively called the "Securities" and
----------
individually a "Security"), then in each such case the Conversion
--------
Price shall be adjusted so that it shall equal the price determined by
multiplying (x) the Conversion Price in effect immediately prior to
the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by (y) a fraction,
the numerator of which shall be the Fair Market Value per Common Share
on the record date mentioned below less the then fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive), of the portion of the Securities or assets or evidences
of indebtedness so distributed or of such rights, options or warrants
applicable to one Common Share, and the denominator of which shall be
the Fair Market Value per Common Share on the record date mentioned
below. Such adjustment shall become effective immediately at the
opening of business on the Business Day next following (except as
provided in paragraph (h) below) the record date for the determination
of stockholders entitled to receive such distribution. For the
purposes of this subparagraph (iii), the distribution of a Security,
which is distributed not only to the holders of the Common Shares on
the date fixed for the determination of stockholders entitled to such
distribution of such Security, but also is distributed with each
Common Share delivered to a Person converting a Series F Preferred
Share after such determination date, shall not require an adjustment
of the Conversion Price pursuant to this subparagraph (iii); provided
--------
that on the date, if any, on which a person converting a Series F
Preferred Share would no longer be entitled to receive such Security
with a Common Share (other than as a result of the termination of all
such Securities), a distribution of such Securities shall be deemed to
have occurred and the Conversion Price shall be adjusted as provided
in this subparagraph (iii) (and
16
<PAGE>
such day shall be deemed to be "the date fixed for the determination
of the stockholders entitled to receive such distribution" and "the
record date" within the meaning of the two preceding sentences).
(iv) In case a tender or exchange offer (which term shall not
include open market repurchases by the Corporation) made by the
Corporation or any subsidiary of the Corporation for all or any
portion of the Common Shares shall expire and such tender or exchange
offer shall involve the payment by the Corporation or such subsidiary
of consideration per Common Share having a fair market value (as
determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors), at the last time (the "Expiration Time") tenders
---------------
or exchanges may be made pursuant to such tender or exchange offer,
that exceeds the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, the Conversion Price shall be
reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
effectiveness of the Conversion Price reduction contemplated by this
subparagraph, by a fraction of which the numerator shall be the number
of Common Shares outstanding (including any tendered or exchanged
shares) at the Expiration Time, multiplied by the Current Market Price
per Common Share on the Trading Day next succeeding the Expiration
Time, and the denominator shall be the sum of (A) the fair market
value (determined as aforesaid) of the aggregate consideration payable
to stockholders based upon the acceptance (up to any maximum specified
in the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Expiration Time (the
shares deemed so accepted, up to any maximum, being referred to as the
"Purchased Shares") and (B) the product of the number of Common Shares
----------------
outstanding (less any Purchased Shares) at the Expiration Time and the
Current Market Price per Common Share on the Trading Day next
succeeding the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day following the
Expiration Time.
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase or decrease
of at least 1% in such price; provided, however, that any adjustments
-------- -------
that by reason of this subparagraph (v) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment until made; and provided, further, that any adjustment
-------- -------
shall be required and made in accordance with the provisions of this
Section 6 (other than this subparagraph (v)) not later than such time
as may be required in order to preserve the tax-free nature of a
distribution to the holders of Common Shares. Notwithstanding any
other provisions of this
17
<PAGE>
Section 6, the Corporation shall not be required to make any
adjustment of the Conversion Price for the issuance of any Common
Shares pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Corporation and the
investment of additional optional amounts in Common Shares under such
plan. All calculations under this Section 6 shall be made to the
nearest cent (with $.005 being rounded upward) or to the nearest one-
tenth of a share (with .05 of a share being rounded upward), as the
case may be. Anything in this paragraph (d) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion Price, in
addition to those required by this paragraph (d), as it in its
discretion shall determine to be advisable in order that any share
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase shares or
securities, or distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its stockholders shall
not be taxable.
(e) If the Corporation shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all of its Common Shares, sale of all
or substantially all of the Corporation's assets or recapitalization of the
Common Shares and excluding any transaction as to which subparagraph (d)(i)
of this Section 6 applies) (each of the foregoing being referred to herein
as a "Transaction"), in each case as a result of which all or substantially
-----------
all of the Corporation's Common Shares are converted into the right to
receive shares, securities or other property (including cash or any
combination thereof), each Series F Preferred Share which is not redeemed
or converted into the right to receive shares, securities or other property
prior to such Transaction shall thereafter be convertible into the kind and
amount of shares, securities and other property (including cash or any
combination thereof) receivable upon the consummation of such Transaction
by a holder of that number of Common Shares into which one Series F
Preferred Share was convertible immediately prior to such Transaction,
assuming such holder of Common Shares (i) is not a Person with which the
Corporation consolidated or into which the Corporation merged or which
merged into the Corporation or to which such sale or transfer was made, as
the case may be ("Constituent Person"), or an affiliate of a Constituent
------------------
Person and (ii) failed to exercise his rights of election, if any, as to
the kind or amount of shares, securities and other property (including
cash) receivable upon such Transaction (provided that if the kind or amount
of shares, securities and other property (including cash) receivable upon
such Transaction is not the same for each Common Share held immediately
prior to such Transaction by other than a Constituent Person or an
affiliate thereof and in respect of which such rights of election shall not
have been exercised ("Non-Electing Share"), then for the purpose of this
------------------
paragraph (e) the kind and amount of shares, securities and other property
(including cash) receivable upon such Transaction by each Non-Electing
Share shall be deemed to be the kind and amount so receivable per share by
a plurality
18
<PAGE>
of the Non-Electing Shares). The Corporation shall not be a party to any
Transaction unless the terms of such Transaction are consistent with the
provisions of this paragraph (e), and it shall not consent or agree to the
occurrence of any Transaction until the Corporation has entered into an
agreement with the successor or purchasing entity, as the case may be, for
the benefit of the holders of the Series F Preferred Shares that will
contain provisions enabling the holders of the Series F Preferred Shares
that remain outstanding after such Transaction to convert into the
consideration received by holders of Common Shares at the Conversion Price
in effect immediately prior to such Transaction. The provisions of this
paragraph (e) shall similarly apply to successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Shares (other than cash dividends or
distributions paid with respect to the Common Shares after December
31, 1998 not in excess of the sum of the Corporation's cumulative
undistributed Funds from Operations at December 31, 1998, plus the
cumulative amount of Funds from Operations, as determined by the Board
of Directors, after December 31, 1998, minus the cumulative amount of
dividends accrued or paid in respect of the Series F Preferred Shares
or any other class or series of preferred shares of capital stock of
the Corporation after July 2, 1999); or
(ii) the Corporation shall authorize the granting to all holders
of Common Shares of rights, options or warrants to subscribe for or
purchase any shares of any class or any other rights, options or
warrants; or
(iii) there shall be any reclassification of the Common Shares
(other than an event to which subparagraph (d)(i) of this Section 6
applies) or any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is
required, or a statutory share exchange, or a self tender offer by the
Corporation for all or substantially all of its outstanding Common
Shares or the sale or transfer of all or substantially all of the
assets of the Corporation as an entirety; or
(iv) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent and
shall cause to be mailed to the holders of Series F Preferred Shares at
their addresses as shown on the records of the Corporation, as promptly as
possible, but at least 10 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is
19
<PAGE>
to be taken for the purpose of such dividend, distribution or granting of
rights, options or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Shares of record to be entitled to such
dividend, distribution or rights, options or warrants are to be determined
or (B) the date on which such reclassification, consolidation, merger,
statutory share exchange, sale, transfer, liquidation, dissolution or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Shares of record shall be entitled to
exchange their Common Shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, statutory
share exchange, sale, transfer, liquidation, dissolution or winding up.
Failure to give or receive such notice or any defect therein shall not
affect the legality or validity of the proceedings described in this
Section 6.
(g) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment
which certificate shall be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment of
the Conversion Price setting forth the adjusted Conversion Price and the
effective date of such adjustment and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Series F Preferred
Share at such holder's last address as shown on the records of the
Corporation.
(h) In any case in which paragraph (d) of this Section 6 provides
that an adjustment shall become effective on the day next following the
record date for an event, the Corporation may defer until the occurrence of
such event (A) issuing to the holder of any Series F Preferred Share
converted after such record date and before the occurrence of such event
the additional Common Shares issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares issuable
upon such conversion before giving effect to such adjustment and (B) paying
to such holder any amount of cash in lieu of any fraction pursuant to
paragraph (c) of this Section 6.
(i) There shall be no adjustment of the Conversion Price in case of
the issuance of any shares of capital stock of the Corporation in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 6. If any action or transaction
would require adjustment of the Conversion Price pursuant to more than one
paragraph of this Section 6, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
(j) If the Corporation shall take any action affecting the Common
Shares, other than action described in this Section 6, that in the opinion
of the Board of
20
<PAGE>
Directors would materially and adversely affect the conversion rights of
the holders of the Series F Preferred Shares, the Conversion Price for the
Series F Preferred Shares may be adjusted, to the extent permitted by law,
in such manner, if any, and at such time, as the Board of Directors, in its
sole discretion, may determine to be equitable in the circumstances.
(k) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Shares, for the purpose of effecting
conversion of the Series F Preferred Shares, the full number of Common
Shares deliverable upon the conversion of all outstanding Series F
Preferred Shares not theretofore converted. For purposes of this paragraph
(k), the number of Common Shares that shall be deliverable upon the
conversion of all outstanding Series F Preferred Shares shall be computed
as if at the time of computation all such outstanding shares were held by a
single holder.
The Corporation covenants that any Common Shares issued upon
conversion of the Series F Preferred Shares shall be validly issued, fully
paid and non-assessable. Before taking any action that would cause an
adjustment reducing the Conversion Price below the then-par value of the
Common Shares deliverable upon conversion of the Series F Preferred Shares,
the Corporation will take any action that, in the opinion of its counsel,
may be necessary in order that the Corporation may validly and legally
issue fully paid and (subject to any customary qualification based upon the
nature of a real estate investment trust) non-assessable Common Shares at
such adjusted Conversion Price.
The Corporation shall endeavor to list the Common Shares required to
be delivered upon conversion of the Series F Preferred Shares, prior to
such delivery, upon each national securities exchange, if any, upon which
the outstanding Common Shares are listed at the time of such delivery.
The Corporation shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the issuance
of any securities that the Corporation shall be obligated to deliver upon
conversion of the Series F Preferred Shares. In addition to any legend
required by Article VIII of the Articles of Incorporation, the certificates
evidencing such securities shall bear such legends restricting transfer
thereof in the absence of registration under applicable securities laws or
an exemption therefrom as the Corporation may in good faith deem
appropriate.
(l) 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 Shares or other securities or property on conversion of the Series F
Preferred Shares pursuant hereto; provided, however, that the Corporation
-------- -------
shall not be required to pay any tax that may
21
<PAGE>
be payable in respect of any transfer involved in the issue or delivery of
Common Shares or other securities or property in a name other than that of
the holder of the Series F Preferred Shares to be converted, and no such
issue or delivery shall be made unless and until the person requesting such
issue or delivery has paid to the Corporation the amount of any such tax or
established, to the reasonable satisfaction of the Corporation, that such
tax has been paid.
Section 7. Shares To Be Retired. All Series F Preferred Shares 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 capital stock of the
Corporation, without designation as to class or series.
Section 8. Ranking. Any class or series of shares of capital stock of the
-------
Corporation shall be deemed to rank:
(a) prior to the Series F Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority to
the holders of Series F Preferred Shares;
(b) on a parity with the Series F Preferred Shares, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof shall
be different from those of the Series F Preferred Shares, if the holders of
such class or series and the Series F Preferred Shares shall be entitled to
the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of
accrued and unpaid dividends per share or liquidation preferences, without
preference or priority one over the other ("Parity Shares");
-------------
(c) junior to the Series F Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be Junior Shares; and
(d) junior to the Series F Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully Junior
Shares.
Section 9. Voting. If and whenever four quarterly dividends (whether or
------
not consecutive) payable on the Series F Preferred Shares or any series or class
of Parity Shares shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, the number of
22
<PAGE>
directors then constituting the Board of Directors shall be increased by two and
the holders of Series F Preferred Shares, together with the holders of shares of
every other series of Parity Shares (any such other series, the "Voting
------
Preferred Shares"), voting as a single class regardless of series, shall be
- ----------------
entitled to elect the two additional directors to serve on the Board of
Directors at any annual meeting of stockholders or special meeting held in place
thereof, or at a special meeting of the holders of the Series F Preferred Shares
and the Voting Preferred Shares called as hereinafter provided. Whenever all
arrears in dividends on the Series F Preferred Shares and the Voting Preferred
Shares then outstanding shall have been paid and dividends thereon for the
current quarterly dividend period shall have been paid or declared and set apart
for payment, then the right of the holders of the Series F Preferred Shares and
the Voting Preferred Shares to elect such additional two directors shall cease
(but subject always to the same provision for the vesting of such voting rights
in the case of any similar future arrearage in quarterly dividends), and the
terms of office of all persons elected as directors by the holders of the Series
F Preferred Shares and the Voting Preferred Shares shall forthwith terminate and
the number of the Board of Directors shall be reduced accordingly. At any time
after such voting power shall have been so vested in the holders of Series F
Preferred Shares and the Voting Preferred Shares, the Secretary of the
Corporation may, and upon the written request of any holder of Series F
Preferred Shares (addressed to the Secretary at the principal office of the
Corporation) shall, call a special meeting of the holders of the Series F
Preferred Shares and of the Voting Preferred Shares for the election of the
directors to be elected by them as herein provided, such call to be made by
notice similar to that provided in the Bylaws of the Corporation for a special
meeting of the stockholders or as required by law. If any such special meeting
required to be called as above provided shall not be called by the Secretary
within 20 days after receipt of any such request, then any holder of Series F
Preferred Shares may call such meeting, upon the notice above provided, and for
that purpose shall have access to the records of the Corporation. The directors
elected at any such special meeting shall hold office until the next annual
meeting of the stockholders or special meeting held in lieu thereof if such
office shall not have previously terminated as above provided. If any vacancy
shall occur among the directors elected by the holders of the Series F Preferred
Shares and the Voting Preferred Shares, a successor shall be elected by the
Board of Directors, upon the nomination of the then-remaining director elected
by the holders of the Series F Preferred Shares and the Voting Preferred Shares
or the successor of such remaining director, to serve until the next annual
meeting of the stockholders or special meeting held in place thereof if such
office shall not have previously terminated as provided above.
So long as any Series F Preferred Shares are outstanding, in addition to
any other vote or consent of stockholders required by law or by the
Corporation's Articles of Incorporation, the affirmative vote of at least 66%
of the votes entitled to be cast by the holders of the Series F Preferred Shares
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating:
23
<PAGE>
(a) Any amendment, alteration or repeal of any of the provisions of
the Corporation's Articles of Incorporation, the Corporation's By-Laws or
these Articles Supplementary that materially and adversely affects the
voting powers, rights or preferences of the holders of the Series F
Preferred Shares; provided, however, that the amendment of the provisions
-------- -------
of the Corporation's Articles of Incorporation so as to authorize or create
or to increase the authorized amount of, any Fully Junior Shares, Junior
Shares that are not senior in any respect to the Series F Preferred Shares
or any Parity Shares shall not be deemed to materially adversely affect the
voting powers, rights or preferences of the holders of Series F Preferred
Shares; or
(b) A share exchange that affects the Series F Preferred Shares, a
consolidation with or merger of the Corporation into another entity, or a
consolidation with or merger of another entity into the Corporation, unless
in each such case each Series F Preferred Share (i) shall remain
outstanding without a material and adverse change to its terms and rights
or (ii) shall be converted into or exchanged for convertible preferred
shares of the surviving entity having preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption thereof identical to
that of a Series F Preferred Share (except for changes that do not
materially and adversely affect the holders of the Series F Preferred
Shares); or
(c) The authorization, reclassification or creation of, or the
increase in the authorized amount of, any shares of any class or any
security convertible into shares of any class ranking prior to the Series F
Preferred Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation or in the payment of
dividends;
provided, however, that no such vote of the holders of Series F Preferred Shares
- -------- -------
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series F Preferred Shares at the time outstanding to the
extent such redemption is authorized by Section 5 of these Articles
Supplementary.
For purposes of the foregoing provisions of this Section 9, each Series F
Preferred Share shall have one (1) vote per share, except that when any other
series of Preferred Shares shall have the right to vote with the Series F
Preferred Shares as a single class on any matter, then the Series F Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $27.08 of stated liquidation preference. Except as otherwise required
by applicable law or as set forth herein, the Series F Preferred Shares shall
not have any relative, participating, optional or other special voting rights
and powers other than as set forth herein,
24
<PAGE>
and the consent of the holders thereof shall not be required for the taking of
any Corporation action.
Section 10. Record Holders. The Corporation and the Transfer Agent may
--------------
deem and treat the record holder of any Series F Preferred Shares 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.
25
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be signed its name and on its behalf by its authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation,
that to the best of their knowledge, information and belief, all matters and
facts set forth herein relating to the authorization and approval of this
document are true in all material respects and this statement is made under
penalties of perjury.
July 9, 1999
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By: /s/ W.D. Minami
-----------------------------------
Its: Senior Vice President
Attest:
/s/ Robert D. Zimet
- -----------------------------
Secretary
<PAGE>
EXHIBIT 99.3
Series G Cumulative Convertible
Redeemable Preferred Stock
ARTICLES SUPPLEMENTARY
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
======================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series G Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
=======================
Dated as of July 9, 1999
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
=======================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series G Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
=======================
Charles E. Smith Residential Realty, Inc., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland pursuant to section 8-203(b) of the Annotated Code of
Maryland that:
FIRST: Pursuant to authority granted by the Amended and Restated Articles
of Incorporation of the Corporation, the Board of Directors adopted a resolution
by Unanimous Written Consent dated July 1, 1999 designating and classifying
641,026 unissued and undesignated shares of preferred stock as Series G
Cumulative Convertible Redeemable Preferred Stock.
SECOND: The following is a description of the Series G Cumulative
Convertible Redeemable Preferred Stock, including the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption thereof:
Section 1. Number of Shares and Designation. This class of preferred
--------------------------------
stock shall be designated as Series G Cumulative Convertible Redeemable
Preferred Stock and the number of shares which shall constitute such series
shall not be more than 641,026 shares, par value $0.01 per share, which number
may be decreased (but not below the number thereof then outstanding) from time
to time by the Board of Directors.
Section 2. Definitions. For purposes of the Series G Preferred Shares,
-----------
the following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
------------------
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series G Preferred
Shares.
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or
------------
a day on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
---------
required under Section 5(d) as the Call Date.
"Common Shares" shall mean the shares of Common Stock, par value
-------------
$0.01 per share, of the Corporation.
"Constituent Person" shall have the meaning set forth in Section
------------------
6(e).
"Conversion Price" shall mean the conversion price per Common Share
----------------
for which the Series G Preferred Shares are convertible, as such Conversion
Price may be adjusted pursuant to Section 6. The initial conversion price
shall be $39.00 (equivalent to a conversion rate of one Common Share for
each Series G Preferred Share).
"Current Market Price" of publicly traded shares of Common Stock or
--------------------
any other class of shares of capital stock or other security of the
Corporation or any other issuer for any day shall mean the last reported
sales price, regular way on such day, or, if no sale takes place on such
day, the average of the reported closing bid and asked prices on such day,
regular way, in either case as reported on the New York Stock Exchange
("NYSE") or, if such security is not listed or admitted for trading on the
----
NYSE, on the principal national securities exchange on which such security
is listed or admitted for trading or, if not listed or admitted for trading
on any national securities exchange, on the Nasdaq Stock Market ("NASDAQ")
------
or, if such security is not quoted on such National Market System, the
average of the closing bid and asked prices on such day in the over-the-
counter market as reported by NASDAQ or, if bid and asked prices for such
security on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by any NYSE
member firm regularly making a market in such security selected for such
purpose by the Board of Directors.
"Dividend Payment Date" shall mean (i) for any Dividend Period with
---------------------
respect to which the Corporation pays a dividend on the Common Shares, the
date on which such dividend is paid, or (ii) for any Dividend Period with
respect to which the Corporation does not pay a dividend on the Common
Shares, a date to be set by the Board of Directors, which date shall not be
later than the forty-fifth calendar day after the end of the applicable
Dividend Period.
<PAGE>
"Dividend Periods" shall mean quarterly dividend periods commencing
----------------
on January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period, which shall commence on the
Issue Date and end on and include the last calendar day of the calendar
quarter containing the Issue Date, and other than the Dividend Period
during which any Series G Preferred Shares shall be redeemed pursuant to
Section 5, which shall end on and include the Call Date with respect to the
Series G Preferred Shares being redeemed).
"Expiration Time" shall have the meaning set forth in Section
---------------
6(d)(iv).
"Fair Market Value" shall mean the average of the daily Current
-----------------
Market Prices of a Common Share on the five (5) consecutive Trading Days
selected by the Corporation commencing not more than 20 Trading Days
before, and ending not later than, the earlier of the day in question and
the day before the "ex date" with respect to the issuance or distribution
requiring such computation. The term "ex date," when used with respect to
any issuance or distribution, means the first day on which the Common
Shares trade regular way, without the right to receive such issuance or
distribution, on the exchange or in the market, as the case may be, used to
determine that day's Current Market Price.
"Fully Junior Shares" shall mean the Common Shares and any other
-------------------
class or series of shares of capital stock of the Corporation now or
hereafter issued and outstanding over which the Series G Preferred Shares
have preference or priority in both (i) the payment of dividends and (ii)
the distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
"Funds from Operations" shall mean net income (loss) (computed in
---------------------
accordance with generally accepted accounting principles) excluding gains
(or losses) from debt restructuring, and distributions in excess of
earnings allocated to other Operating Partnership interests or minority
interests (as reflected in the financial statements of the Corporation)
plus depreciation/amortization of assets unique to the real estate
industry, all computed in a manner consistent with the revised definition
of Funds From Operations adopted by the National Association of Real Estate
Investment Trusts (NAREIT), in its White Paper dated March 1995, as such
definitions may be modified from time to time, as determined by the
Corporation in good faith.
"Issue Date" shall mean the date on which the first Series G
----------
Preferred Shares are issued.
"Junior Shares" shall mean the Common Shares and any other class or
-------------
series of capital stock of the Corporation now or hereafter issued and
outstanding over which the
3
<PAGE>
Series G Preferred Shares have preference or priority in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Corporation.
"Non-Electing Share" shall have the meaning set forth in Section
------------------
6(e).
"Operating Partnership" shall mean the Charles E. Smith Residential
---------------------
Realty L.P., a Delaware limited partnership.
"Parity Shares" shall have the meaning set forth in Section 8(b).
-------------
"Person" shall mean any individual, firm, partnership, corporation,
------
limited liability company or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Purchased Shares" shall have the meaning set forth in Section
----------------
6(d)(iv).
"Securities" and "Security" shall have the meanings set forth in
---------- --------
Section 6(d)(iii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Series G Preferred Shares" shall mean the shares of Series G
-------------------------
Cumulative Convertible Redeemable Preferred Stock.
"Set apart for payment" shall be deemed to include, without any
---------------------
action other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distribution by the Board
of Directors, the allocation of funds to be so paid on any series or class
of shares of capital stock of the Corporation; provided, however, that if
-------- -------
any funds capital stock ranking on a parity with the Series G Preferred
Shares as to the payment of dividends 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 G Preferred
Shares shall mean placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in
-----------
question are traded on the NYSE, or if such securities are not listed or
admitted for trading on the NYSE, on the principal national securities
exchange on which such securities are listed or admitted, or if not listed
or admitted for trading on any national securities exchange, on the
National Market System of NASDAQ, or if such securities are not quoted on
such National Market System, in the securities market in which the
securities are traded.
4
<PAGE>
"Transaction" shall have the meaning set forth in Section 6(e).
-----------
"Transfer Agent" shall mean First Union National Bank, or such
--------------
other agent or agents of the Corporation as may be designated by the Board
of Directors or their designee as the transfer agent, registrar and
dividend disbursing agent for the Series G Preferred Shares.
"Units" shall mean Partnership Units as that term is defined in the
-----
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
"Voting Preferred Shares" shall have the meaning set forth in
-----------------------
Section 9.
"Weighted Average Trading Price" shall mean, for any Trading Day,
------------------------------
the number obtained by dividing (i) the sum of the products, for each sale
of Common Shares on such Trading Day, of (a) the sale price per Common
Share and (b) the number of Common Shares sold by (ii) the total number of
Common Shares sold on such Trading Day.
Section 3. Dividends.
---------
(a) The holders of Series G Preferred Shares shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative preferential
dividends payable in cash in an amount per share equal to the greater of
(i) (A) 7.75% of the Liquidation Preference per annum (equivalent to
$3.0225 per Series G Preferred Share) from the Issue Date up to and
including the first anniversary of the Issue Date, (B) 8.25% of the
Liquidation Preference per annum (equivalent to $3.2175 per Series G
Preferred Share) from the first day after the period described in (A) up to
and including the second anniversary of the Issue Date and (C) 8.50% of the
Liquidation Preference per annum (equivalent to $3.315 per Series G
Preferred Share) thereafter or (ii) the ordinary cash dividends (determined
on each Dividend Payment Date) on the Common Shares, or portion thereof,
into which a Series G Preferred Share is convertible. The dividends
referred to in clause (ii) of the preceding sentence shall equal the number
of Common Shares, or portion thereof, into which a Series G Preferred Share
is convertible, multiplied by the most current quarterly dividend on a
Common Share on or before the applicable Dividend Payment Date. If the
Corporation pays an ordinary cash dividend on the Common Shares with
respect to a Dividend Period after the date on which the Dividend Payment
Date is declared pursuant to clause (ii) of the definition of Dividend
Payment Date and the dividend calculated pursuant to clause (ii) of this
paragraph (a) with respect to such Dividend Period is greater than the
dividend previously declared on the Series G Preferred Shares with respect
to such Dividend Period, the Corporation shall
5
<PAGE>
pay an additional dividend to the holders of the Series G Preferred Shares
on the date on which the dividend on the Common Shares is paid, in an
amount equal to the difference between (y) the dividend calculated pursuant
to clause (ii) of this paragraph (a) and (z) the amount of dividends
previously declared on the Series G Preferred Shares with respect to such
Dividend Period. The dividends shall begin to accrue and shall be fully
cumulative from the first day of the applicable Dividend Period, whether or
not in any Dividend Period or Periods there shall be funds of the
Corporation legally available for the payment of such dividends, and shall
be payable quarterly, when, as and if declared by the Board of Directors,
in arrears on Dividend Payment Dates. Each such dividend shall be payable
in arrears to the holders of record of Series G Preferred Shares as they
appear in the records of the Corporation at the close of business on such
record dates, not less than 10 nor more than 50 days preceding such
Dividend Payment Dates thereof, as shall be fixed by the Board of
Directors. Accrued and unpaid dividends for any past Dividend Periods may
be declared and paid at any time and for such interim periods, without
reference to any regular Dividend Payment Date, to holders of record on
such date, not less than 10 nor more than 50 days preceding the payment
date thereof, as may be fixed by the Board of Directors. Any dividend
payment made on Series G Preferred Shares shall first be credited against
the earliest accrued but unpaid dividend due with respect to Series G
Preferred Shares which remains payable.
(b) The amount of dividends referred to in clause (i) of Section 3(a)
payable for each full Dividend Period on the Series G Preferred Shares
shall be computed by dividing the annual dividend rate by four. The
initial Dividend Period will include a partial dividend for the period from
the Issue Date until the last calendar day of the calendar quarter
containing the Issue Date. The amount of dividends payable for such
period, or any other period shorter than a full Dividend Period, on the
Series G Preferred Shares shall be computed on the basis of a 360-day year
of twelve 30-day months. Holders of Series G Preferred Shares shall not be
entitled to any dividends, whether payable in cash, property or shares, in
excess of cumulative dividends, as herein provided, on the Series G
Preferred Shares. No interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on the Series G
Preferred Shares which may be in arrears.
(c) So long as any Series G Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any class or series of
Parity Shares for any period unless full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series G
Preferred Shares for all Dividend Periods terminating on or prior to the
dividend payment date on such class or series of Parity Shares. When
dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all
6
<PAGE>
dividends declared upon Series G Preferred Shares and all dividends
declared upon any other class or series of Parity Shares shall be declared
ratably in proportion to the respective amounts of dividends accumulated
and unpaid on the Series G Preferred Shares and accumulated and unpaid on
such Parity Shares.
(d) So long as any Series G Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of,
or options, warrants or rights to subscribe for or purchase shares of,
Fully Junior Shares) shall be declared or paid or set apart for payment or
other distribution shall be declared or made or set apart for payment upon
Junior Shares, nor shall any Junior Shares be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition
of Common Shares made for purposes of an employee incentive or benefit
plan of the Corporation or any subsidiary) for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption
of any Junior Shares) by the Corporation, directly or indirectly (except by
conversion into or exchange for Fully Junior Shares), unless in each case
(i) the full cumulative dividends on all outstanding Series G Preferred
Shares and any other Parity Shares of the Corporation shall have been or
contemporaneously are declared and paid or declared and set apart for
payment for all past Dividend Periods with respect to the Series G
Preferred Shares and all past dividend periods with respect to such Parity
Shares and (ii) sufficient funds shall have been or contemporaneously are
declared and paid or declared and set apart for the payment of the dividend
for the current Dividend Period with respect to the Series G Preferred
Shares and the current dividend period with respect to such Parity Shares.
(e) No distributions on Series G Preferred Shares shall be declared
by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of
the Corporation, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or
provides that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such declaration
or payment shall be restricted or prohibited by law.
Section 4. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Junior Shares, the holders
of the Series G Preferred Shares shall be entitled to receive Thirty Nine
Dollars ($39.00) (the "Liquidation Preference") per Series G Preferred
Share plus an amount equal to all dividends (whether or not earned or
declared) accrued and unpaid thereon to the date of final distribution to
such holders; but such holders shall not be entitled to any further
payment; provided, that the
--------
7
<PAGE>
dividend payable with respect to the Dividend Period containing the date of
final distribution shall be equal to the greater of (i) the dividend
provided in Section 3(a)(i) or (ii) the dividend determined pursuant to
Section 3(a)(ii) for the preceding Dividend Period. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of
the Corporation, or proceeds thereof, distributable among the holders of
the Series G Preferred Shares shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other shares
of any class or series of Parity Shares, then such assets, or the proceeds
thereof, shall be distributed among the holders of Series G Preferred
Shares and any such other Parity Shares ratably in accordance with the
respective amounts that would be payable on such Series G Preferred Shares
and any such other Parity Shares if all amounts payable thereon were paid
in full. For the purposes of this Section 4, (i) a consolidation or merger
of the Corporation with one or more corporations, real estate investment
trusts or other entities, (ii) a sale, lease or conveyance of all or
substantially all of the Corporation's property or business or (iii) a
statutory share exchange shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series or
class or classes of shares of capital stock ranking on a parity with or
prior to the Series G Preferred Shares upon liquidation, dissolution or
winding up, upon any liquidation, dissolution or winding up of the
Corporation, after payment shall have been made in full to the holders of
the Series G Preferred Shares, as provided in this Section 4, 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 G Preferred Shares shall not be entitled to share
therein.
Section 5. Redemption at the Option of the Corporation.
-------------------------------------------
(a) The Series G Preferred Shares shall not be redeemable by the
Corporation prior to the sixth anniversary of the Issue Date. On and after
the sixth anniversary of the Issue Date, the Corporation, at its option,
may redeem the Series G Preferred Shares, in whole at any time or from time
to time in part as set forth herein, subject to the provisions described
below:
(i) Series G Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation, at any time on or after the
sixth anniversary of the Issue Date by issuing and delivering to
each holder for each Series G Preferred Share to be redeemed such
number of authorized but previously unissued Common Shares as
equals the Liquidation Preference (excluding any accumulated,
accrued and unpaid dividends which are to be paid in cash as
provided below) per Series G Preferred Share divided by the
Conversion Price
8
<PAGE>
as in effect as of the opening of business on the Call Date; provided,
however, that the Corporation may redeem Series G Preferred Shares
pursuant to this paragraph (a)(i) only if (A) the Weighted Average
Trading Price, for twenty (20) Trading Days, within the last thirty
(30) Trading Days immediately before the date of the notice given
pursuant to Section 5(d), equals or exceeds 108% of the Conversion
Price in effect on the date of the notice given pursuant to Section
5(d) and (B) at least 1,000,000 Common Shares were traded during such
30 Trading Days.
(ii) Series G Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation at any time on or after the
sixth anniversary of the Issue Date out of funds legally available
therefor at a redemption price payable in cash equal to the
Liquidation Preference per Series G Preferred Share (plus all
accumulated, accrued and unpaid dividends as provided below).
(b) Upon any redemption of Series G Preferred Shares pursuant to this
Section 5, the Corporation shall pay all accrued and unpaid dividends, if
any, thereon to the Call Date, without interest. If the Call Date falls
after a dividend payment record date and prior to the corresponding
Dividend Payment Date, then each holder of Series G Preferred Shares at the
close of business on such dividend payment record date shall be entitled to
the dividend payable on such shares on the corresponding Dividend Payment
Date notwithstanding any redemption of such shares before such Dividend
Payment Date. Except as provided above, the Corporation shall make no
payment or allowance for unpaid dividends, whether or not in arrears, on
Series G Preferred Shares called for redemption.
(c) If full cumulative dividends on the Series G Preferred Shares and
any other class or series of Parity Shares of the Corporation have not been
declared and paid or declared and set apart for payment, the Series G
Preferred Shares may not be redeemed under this Section 5 in part and the
Corporation may not purchase or acquire Series G Preferred Shares,
otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Series G Preferred Shares.
(d) Notice of the redemption of any Series G Preferred Shares under
this Section 5 shall be mailed by first-class mail to each holder of record
of Series G Preferred Shares to be redeemed at the address of each such
holder as shown on the Corporation's records, not less than 30 nor more
than 90 days prior to the Call Date. Neither the failure to mail any
notice required by this paragraph (d), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to the other holders. Any notice which was mailed in the manner herein
provided shall be conclusively presumed to have been duly given on the date
mailed whether or not the holder receives the notice. Each such mailed
notice shall state, as appropriate: (1) the Call
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<PAGE>
Date; (2) the number of Series G Preferred Shares to be redeemed and, if
fewer than all the shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder; (3) the redemption
price if the Series G Preferred Shares are redeemed for cash and the number
of Common Shares to be issued if the Series G Preferred Shares are redeemed
for Common Shares; (4) the place or places at which certificates for such
shares are to be surrendered; (5) the then-current Conversion Price; and
(6) that dividends on the shares to be redeemed shall cease to accrue on
such Call Date except as otherwise provided herein. Notice having been
mailed as aforesaid, from and after the Call Date (unless the Corporation
shall fail to make available an amount of cash necessary to effect such
redemption), (i) except as otherwise provided herein, dividends on the
Series G Preferred Shares so called for redemption shall cease to accrue,
(ii) such shares shall no longer be deemed to be outstanding, and (iii) all
rights of the holders thereof as holders of Series G Preferred Shares of
the Corporation shall cease (except the rights to convert and to receive
the Common Shares and/or cash payable upon such redemption, without
interest thereon, upon surrender and endorsement of their certificates if
so required and to receive any dividends payable thereon). The
Corporation's obligation to provide Common Shares and/or cash in accordance
with the preceding sentence shall be deemed fulfilled if, on or before the
Call Date, the Corporation shall deposit with a bank or trust company
(which may be an affiliate of the Corporation) that has an office in the
Borough of Manhattan, City of New York, and that has, or is an affiliate of
a bank or trust company that has, capital and surplus of at least
$50,000,000, necessary for such redemption, in trust, with irrevocable
instructions that such Common Shares and/or cash be applied to the
redemption of the Series G Preferred Shares so called for redemption. In
the case of any redemption pursuant to paragraph (a)(i) of this Section 5,
at the close of business on the Call Date, each holder of Series G
Preferred Shares to be redeemed (unless the Corporation defaults in the
delivery of the Common Shares or cash payable on such Call Date) shall be
deemed to be the record holder of the Common Shares into which such Series
G Preferred Shares are to be converted at redemption, regardless of whether
such holder has surrendered the certificates representing the Series G
Preferred Shares to be so redeemed. No interest shall accrue for the
benefit of the holders of Series G Preferred Shares to be redeemed on any
cash so set aside by the Corporation. Subject to applicable escheat laws,
any such cash unclaimed at the end of two years from the Call Date shall
revert to the general funds of the Corporation, after which reversion the
holders of such shares so called for redemption shall look only to the
general funds of the Corporation for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Corporation shall so require and
if the notice shall so state), such shares shall be exchanged for any cash
(without interest thereon) for which such shares have been redeemed. If
fewer than all the outstanding Series G Preferred Shares are to be
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<PAGE>
redeemed, shares to be redeemed shall be selected by the Corporation from
outstanding Series G Preferred Shares not previously called for redemption
pro rata (as nearly as may be), by lot or by any other method determined by
the Corporation in its sole discretion to be equitable. If fewer than all
the Series G Preferred Shares represented by any certificate are redeemed,
then new certificates representing the unredeemed shares shall be issued
without cost to the holder thereof.
(e) In the case of any redemption pursuant to paragraph (a)(i) of
this Section 5,
(i) no fractional Common Shares or scrip representing fractions
of Common Shares shall be issued upon redemption of the Series G
Preferred Common Shares. Instead of any fractional interest in Common
Shares that would otherwise be deliverable upon redemption of Series G
Preferred Shares, the Corporation shall pay to the holder of such
share an amount in cash (rounded to the nearest cent) based upon the
Current Market Price of the Common Shares on the Trading Day
immediately preceding the Call Date. If more than one share shall be
surrendered for redemption at one time by the same holder, the number
of full Common Shares issuable upon redemption thereof shall be
computed on the basis of the aggregate number of Series G Preferred
Shares so surrendered.
(ii) the Corporation covenants that any Common Shares issued
upon redemption of Series G Preferred Shares shall be validly issued,
fully paid and non-assessable. The Corporation shall endeavor to list
the Common Shares required to be delivered upon any such redemption of
Series G Preferred Shares, prior to such redemption, upon each
national securities exchange, if any, upon which the outstanding
Common Shares are listed at the time of such delivery.
Section 6. Conversion. Holders of Series G Preferred Shares shall have
----------
the right to convert all or a portion of such shares into Common Shares, as
follows:
(a) Subject to and upon compliance with the provisions of this
Section 6 and the provisions of Article VIII of the Corporation's Articles
of Incorporation, a holder of Series G Preferred Shares shall have the
right, at any time, at his or her option, to convert such shares into the
number of fully paid and non-assessable Common Shares obtained by dividing
the aggregate Liquidation Preference of such shares (exclusive of accrued
but unpaid dividends) by the Conversion Price (as in effect at the time and
on the date provided for in the last paragraph of paragraph (b) of this
Section 6) by surrendering such shares to be converted, such surrender to
be made in the manner provided in paragraph (b) of this Section 6;
provided, however, that the right to convert shares called for redemption
-------- -------
pursuant to Section 5 shall terminate at the close of
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<PAGE>
business on the fifth Business Day prior to the Call Date fixed for such
redemption, unless the Corporation shall default in making payment of the
cash payable upon such redemption under Section 5.
(b) In order to exercise the conversion right, the holder of each
Series G Preferred Share to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or in
blank, at the office of the Transfer Agent, accompanied by written notice
to the Corporation that the holder thereof elects to convert such Series G
Preferred Shares. Unless the shares issuable on conversion are to be
issued in the same name as the name in which such Series G Preferred Share
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).
Holders of Series G Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment
record date and prior to such Dividend Payment Date. However, Series G
Preferred Shares surrendered for conversion during the period between the
close of business on any dividend payment record date and the opening of
business on the corresponding Dividend Payment Date (except shares
converted after the issuance of notice of redemption with respect to a Call
Date during such period, such Series G Preferred Shares being entitled to
such dividend on the Dividend Payment Date) must be accompanied by payment
of an amount equal to the dividend payable on such shares on such Dividend
Payment Date. A holder of Series G Preferred Shares on a dividend payment
record date who (or whose transferee) tenders any such shares for
conversion into Common Shares on the corresponding Dividend Payment Date
will receive the dividend payable by the Corporation on such Series G
Preferred Shares on such date, and the converting holder need not include
payment of the amount of such dividend upon surrender of Series G Preferred
Shares for conversion. Except as provided above, the Corporation shall make
no payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the Common Shares issued upon such
conversion.
As promptly as practicable after the surrender of certificates for
Series G Preferred Shares as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on his or her written
order, a certificate or certificates for the number of full Common Shares
issuable upon the conversion of such shares in accordance with provisions
of this Section 6, and any fractional interest in respect of a
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<PAGE>
Common Share arising upon such conversion shall be settled as provided in
paragraph (c) of this Section 6.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
Series G Preferred Shares shall have been surrendered and such notice shall
have been received by the Corporation as aforesaid (and if applicable,
payment of an amount equal to the dividend payable on such shares shall
have been received by the Corporation as described above), and the person
or persons in whose name or names any certificate or certificates for
Common Shares shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented
thereby at such time on such date and such conversion shall be at the
Conversion Price in effect at such time on such date unless the share
transfer books of the Corporation shall be closed on that date, in which
event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on
which such share transfer books are open, but such conversion shall be at
the Conversion Price in effect on the date on which such shares shall have
been surrendered and such notice received by the Corporation.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series G Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise
be deliverable upon the conversion of a Series G Preferred Share, the
Corporation shall pay to the holder of such share an amount in cash based
upon the Current Market Price of the Common Shares on the Trading Day
immediately preceding the date of conversion. If more than one share shall
be surrendered for conversion at one time by the same holder, the number of
full Common Shares issuable upon conversion thereof shall be computed on
the basis of the aggregate number of Series G Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after July 2, 1999 (A) pay a
dividend or make a distribution on its capital shares in Common
Shares, (B) subdivide its outstanding Common Shares into a greater
number of shares, (C) combine its outstanding Common Shares into a
smaller number of shares or (D) issue any shares of capital stock by
reclassification of its Common Shares, the Conversion Price in effect
at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or
distribution or at the opening of business on the Business Day next
following the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be
adjusted so that the holder of any Series G Preferred Share thereafter
surrendered for conversion shall be entitled to receive
13
<PAGE>
the number of Common Shares that such holder would have owned or have
been entitled to receive after the happening of any of the events
described above as if such Series G Preferred Shares had been
converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a
subdivision, combination or reclassification. An adjustment made
pursuant to this subparagraph (i) shall become effective immediately
after the opening of business on the Business Day next following the
record date (except as provided in paragraph (h) below) in the case of
a dividend or distribution and shall become effective immediately
after the opening of business on the Business Day next following the
effective date in the case of a subdivision, combination or
reclassification.
(ii) If the Corporation shall issue after July 2, 1999 rights,
options or warrants to all holders of Common Shares entitling them
(for a period expiring within 45 days after the record date mentioned
below) to subscribe for or purchase Common Shares at a price per share
less than 94% (100% if a stand-by underwriter is used and charges the
Corporation a commission) of the Fair Market Value per Common Share on
the record date for the determination of stockholders entitled to
receive such rights, options or warrants, then the Conversion Price in
effect at the opening of business on the Business Day next following
such record date shall be adjusted to equal the price determined by
multiplying (A) the Conversion Price in effect immediately prior to
the opening of business on the Business Day next following the date
fixed for such determination by (B) a fraction, the numerator of which
shall be the sum of (x) the number of Common Shares outstanding on the
close of business on the date fixed for such determination and (y) the
number of shares that the aggregate proceeds to the Corporation from
the exercise of such rights, options or warrants for Common Shares
would purchase at 94% of such Fair Market Value (or 100% in the case
of a stand-by underwriting), and the denominator of which shall be the
sum of (x) the number of Common Shares outstanding on the close of
business on the date fixed for such determination and (y) the number
of additional Common Shares offered for subscription or purchase
pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately after the opening of business on the day
next following such record date (except as provided in paragraph (h)
below). In determining whether any rights, options or warrants
entitle the holders of Common Shares to subscribe for or purchase
Common Shares at less than 94% of such Fair Market Value (or 100% in
the case of a stand-by underwriting), there shall be taken into
account any consideration received by the Corporation upon issuance
and upon exercise of such rights, options or warrants, the value of
such consideration, if other than cash, to be determined by the Board
of Directors.
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<PAGE>
(iii) If the Corporation shall distribute to all holders of its
Common Shares any securities of the Corporation (other than Common
Shares) or evidence of its indebtedness or assets (excluding
cumulative cash dividends or distributions paid with respect to the
Common Shares after December 31, 1998 which are not in excess of the
following: the sum of (A) the Corporation's cumulative undistributed
Funds from Operations at December 31, 1998, plus (B) the cumulative
amount of Funds from Operations, as determined by the Board of
Directors, after December 31, 1998, minus (C) the cumulative amount of
dividends accrued or paid in respect of the Series G Preferred Shares
or any other class or series of preferred stock of the Corporation
after July 2, 1999) or rights, options or warrants to subscribe for or
purchase any of its securities (excluding those rights, options and
warrants issued to all holders of Common Shares entitling them for a
period expiring within 45 days after the record date referred to in
subparagraph (ii) above to subscribe for or purchase Common Shares,
which rights and warrants are referred to in and treated under subpara
graph (ii) above) (any of the foregoing being hereinafter in this
subparagraph (iii) collectively called the "Securities" and
----------
individually a "Security"), then in each such case the Conversion
--------
Price shall be adjusted so that it shall equal the price determined by
multiplying (x) the Conversion Price in effect immediately prior to
the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by (y) a fraction,
the numerator of which shall be the Fair Market Value per Common Share
on the record date mentioned below less the then fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive), of the portion of the Securities or assets or evidences
of indebtedness so distributed or of such rights, options or warrants
applicable to one Common Share, and the denominator of which shall be
the Fair Market Value per Common Share on the record date mentioned
below. Such adjustment shall become effective immediately at the
opening of business on the Business Day next following (except as
provided in paragraph (h) below) the record date for the determination
of stockholders entitled to receive such distribution. For the
purposes of this subparagraph (iii), the distribution of a Security,
which is distributed not only to the holders of the Common Shares on
the date fixed for the determination of stockholders entitled to such
distribution of such Security, but also is distributed with each
Common Share delivered to a Person converting a Series G Preferred
Share after such determination date, shall not require an adjustment
of the Conversion Price pursuant to this subparagraph (iii); provided
--------
that on the date, if any, on which a person converting a Series G
Preferred Share would no longer be entitled to receive such Security
with a Common Share (other than as a result of the termination of all
such Securities), a distribution of such Securities shall be deemed to
have occurred and the Conversion Price shall be adjusted as provided
in this subparagraph (iii) (and
15
<PAGE>
such day shall be deemed to be "the date fixed for the determination
of the stockholders entitled to receive such distribution" and "the
record date" within the meaning of the two preceding sentences).
(iv) In case a tender or exchange offer (which term shall not
include open market repurchases by the Corporation) made by the
Corporation or any subsidiary of the Corporation for all or any
portion of the Common Shares shall expire and such tender or exchange
offer shall involve the payment by the Corporation or such subsidiary
of consideration per Common Share having a fair market value (as
determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the
Board of Directors), at the last time (the "Expiration Time") tenders
---------------
or exchanges may be made pursuant to such tender or exchange offer,
that exceeds the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, the Conversion Price shall be
reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
effectiveness of the Conversion Price reduction contemplated by this
subparagraph, by a fraction of which the numerator shall be the number
of Common Shares outstanding (including any tendered or exchanged
shares) at the Expiration Time, multiplied by the Current Market Price
per Common Share on the Trading Day next succeeding the Expiration
Time, and the denominator shall be the sum of (A) the fair market
value (determined as aforesaid) of the aggregate consideration payable
to stockholders based upon the acceptance (up to any maximum specified
in the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Expiration Time (the
shares deemed so accepted, up to any maximum, being referred to as the
"Purchased Shares") and (B) the product of the number of Common Shares
----------------
outstanding (less any Purchased Shares) at the Expiration Time and the
Current Market Price per Common Share on the Trading Day next
succeeding the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day following the
Expiration Time.
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase or decrease
of at least 1% in such price; provided, however, that any adjustments
-------- -------
that by reason of this subparagraph (v) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment until made; and provided, further, that any adjustment
-------- -------
shall be required and made in accordance with the provisions of this
Section 6 (other than this subparagraph (v)) not later than such time
as may be required in order to preserve the tax-free nature of a
distribution to the holders of Common Shares. Notwithstanding any
other provisions of this
16
<PAGE>
Section 6, the Corporation shall not be required to make any
adjustment of the Conversion Price for the issuance of any Common
Shares pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Corporation and the
investment of additional optional amounts in Common Shares under such
plan. All calculations under this Section 6 shall be made to the
nearest cent (with $.005 being rounded upward) or to the nearest one-
tenth of a share (with .05 of a share being rounded upward), as the
case may be. Anything in this paragraph (d) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion Price, in
addition to those required by this paragraph (d), as it in its
discretion shall determine to be advisable in order that any share
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase shares or
securities, or distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its stockholders shall
not be taxable.
(e) If the Corporation shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all of its Common Shares, sale of all
or substantially all of the Corporation's assets or recapitalization of the
Common Shares and excluding any transaction as to which subparagraph (d)(i)
of this Section 6 applies) (each of the foregoing being referred to herein
as a "Transaction"), in each case as a result of which all or substantially
-----------
all of the Corporation's Common Shares are converted into the right to
receive shares, securities or other property (including cash or any
combination thereof), each Series G Preferred Share which is not redeemed
or converted into the right to receive shares, securities or other property
prior to such Transaction shall thereafter be convertible into the kind and
amount of shares, securities and other property (including cash or any
combination thereof) receivable upon the consummation of such Transaction
by a holder of that number of Common Shares into which one Series G
Preferred Share was convertible immediately prior to such Transaction,
assuming such holder of Common Shares (i) is not a Person with which the
Corporation consolidated or into which the Corporation merged or which
merged into the Corporation or to which such sale or transfer was made, as
the case may be ("Constituent Person"), or an affiliate of a Constituent
------------------
Person and (ii) failed to exercise his rights of election, if any, as to
the kind or amount of shares, securities and other property (including
cash) receivable upon such Transaction (provided that if the kind or amount
of shares, securities and other property (including cash) receivable upon
such Transaction is not the same for each Common Share held immediately
prior to such Transaction by other than a Constituent Person or an
affiliate thereof and in respect of which such rights of election shall not
have been exercised ("Non-Electing Share"), then for the purpose of this
------------------
paragraph (e) the kind and amount of shares, securities and other property
(including cash) receivable upon such Transaction by each Non-Electing
17
<PAGE>
Share shall be deemed to be the kind and amount so receivable per share by
a plurality of the Non-Electing Shares). The Corporation shall not be a
party to any Transaction unless the terms of such Transaction are
consistent with the provisions of this paragraph (e), and it shall not
consent or agree to the occurrence of any Transaction until the Corporation
has entered into an agreement with the successor or purchasing entity, as
the case may be, for the benefit of the holders of the Series G Preferred
Shares that will contain provisions enabling the holders of the Series G
Preferred Shares that remain outstanding after such Transaction to convert
into the consideration received by holders of Common Shares at the
Conversion Price in effect immediately prior to such Transaction. The
provisions of this paragraph (e) shall similarly apply to successive
Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Shares (other than cash dividends or
distributions paid with respect to the Common Shares after December
31, 1998 not in excess of the sum of the Corporation's cumulative
undistributed Funds from Operations at December 31, 1998, plus the
cumulative amount of Funds from Operations, as determined by the Board
of Directors, after December 31, 1998, minus the cumulative amount of
dividends accrued or paid in respect of the Series G Preferred Shares
or any other class or series of preferred shares of capital stock of
the Corporation after July 2, 1999); or
(ii) the Corporation shall authorize the granting to all
holders of Common Shares of rights, options or warrants to subscribe
for or purchase any shares of any class or any other rights, options
or warrants; or
(iii) there shall be any reclassification of the Common Shares
(other than an event to which subparagraph (d)(i) of this Section 6
applies) or any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is
required, or a statutory share exchange, or a self tender offer by the
Corporation for all or substantially all of its outstanding Common
Shares or the sale or transfer of all or substantially all of the
assets of the Corporation as an entirety; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent and
shall cause to be mailed to the holders of Series G Preferred Shares at
their addresses as shown on the records of the Corporation, as promptly as
possible, but at least 10 days prior to the
18
<PAGE>
applicable date hereinafter specified, a notice stating (A) the date on
which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, options or warrants, or, if a record is
not to be taken, the date as of which the holders of Common Shares of
record to be entitled to such dividend, distribution or rights, options or
warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, statutory share exchange, sale,
transfer, liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Shares of record shall be entitled to exchange their Common Shares for
securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, statutory share exchange, sale,
transfer, liquidation, dissolution or winding up. Failure to give or
receive such notice or any defect therein shall not affect the legality or
validity of the proceedings described in this Section 6.
(g) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment
which certificate shall be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment of
the Conversion Price setting forth the adjusted Conversion Price and the
effective date of such adjustment and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Series G Preferred
Share at such holder's last address as shown on the records of the
Corporation.
(h) In any case in which paragraph (d) of this Section 6 provides
that an adjustment shall become effective on the day next following the
record date for an event, the Corporation may defer until the occurrence of
such event (A) issuing to the holder of any Series G Preferred Share
converted after such record date and before the occurrence of such event
the additional Common Shares issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares issuable
upon such conversion before giving effect to such adjustment and (B) paying
to such holder any amount of cash in lieu of any fraction pursuant to
paragraph (c) of this Section 6.
(i) There shall be no adjustment of the Conversion Price in case of
the issuance of any shares of capital stock of the Corporation in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 6. If any action or transaction
would require adjustment of the Conversion Price pursuant to more than one
paragraph of this Section 6, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
19
<PAGE>
(j) If the Corporation shall take any action affecting the Common
Shares, other than action described in this Section 6, that in the opinion
of the Board of Directors would materially and adversely affect the
conversion rights of the holders of the Series G Preferred Shares, the
Conversion Price for the Series G Preferred Shares may be adjusted, to the
extent permitted by law, in such manner, if any, and at such time, as the
Board of Directors, in its sole discretion, may determine to be equitable
in the circumstances.
(k) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Shares, for the purpose of effecting
conversion of the Series G Preferred Shares, the full number of Common
Shares deliverable upon the conversion of all outstanding Series G
Preferred Shares not theretofore converted. For purposes of this paragraph
(k), the number of Common Shares that shall be deliverable upon the
conversion of all outstanding Series G Preferred Shares shall be computed
as if at the time of computation all such outstanding shares were held by a
single holder.
The Corporation covenants that any Common Shares issued upon
conversion of the Series G Preferred Shares shall be validly issued, fully
paid and non-assessable. Before taking any action that would cause an
adjustment reducing the Conversion Price below the then-par value of the
Common Shares deliverable upon conversion of the Series G Preferred Shares,
the Corporation will take any action that, in the opinion of its counsel,
may be necessary in order that the Corporation may validly and legally
issue fully paid and (subject to any customary qualification based upon the
nature of a real estate investment trust) non-assessable Common Shares at
such adjusted Conversion Price.
The Corporation shall endeavor to list the Common Shares required to
be delivered upon conversion of the Series G Preferred Shares, prior to
such delivery, upon each national securities exchange, if any, upon which
the outstanding Common Shares are listed at the time of such delivery.
The Corporation shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the issuance
of any securities that the Corporation shall be obligated to deliver upon
conversion of the Series G Preferred Shares. In addition to any legend
required by Article VIII of the Articles of Incorporation, the certificates
evidencing such securities shall bear such legends restricting transfer
thereof in the absence of registration under applicable securities laws or
an exemption therefrom as the Corporation may in good faith deem
appropriate.
(l) 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 Shares or other
20
<PAGE>
securities or property on conversion of the Series G Preferred Shares
pursuant hereto; 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 Shares or other securities or
property in a name other than that of the holder of the Series G Preferred
Shares to be converted, and no such issue or delivery shall be made unless
and until the person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or established, to the reasonable
satisfaction of the Corporation, that such tax has been paid.
Section 7. Shares To Be Retired. All Series G Preferred Shares 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 capital stock of the
Corporation, without designation as to class or series.
Section 8. Ranking. Any class or series of shares of capital stock of the
-------
Corporation shall be deemed to rank:
(a) prior to the Series G Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority to
the holders of Series G Preferred Shares;
(b) on a parity with the Series G Preferred Shares, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof shall
be different from those of the Series G Preferred Shares, if the holders of
such class or series and the Series G Preferred Shares shall be entitled to
the receipt of dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of
accrued and unpaid dividend s per share or liquidation preferences, without
preference or priority one over the other ("Parity Shares");
-------------
(c) junior to the Series G Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series shall be Junior Shares; and
(d) junior to the Series G Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully Junior
Shares.
21
<PAGE>
Section 9. Voting. If and whenever four quarterly dividends (whether or
------
not consecutive) payable on the Series G Preferred Shares or any series or class
of Parity Shares shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, the number of directors then constituting the
Board of Directors shall be increased by two and the holders of Series G
Preferred Shares, together with the holders of shares of every other series of
Parity Shares (any such other series, the "Voting Preferred Shares"), voting as
-----------------------
a single class regardless of series, shall be entitled to elect the two
additional directors to serve on the Board of Directors at any annual meeting of
stockholders or special meeting held in place thereof, or at a special meeting
of the holders of the Series G Preferred Shares and the Voting Preferred Shares
called as hereinafter provided. Whenever all arrears in dividends on the Series
G Preferred Shares and the Voting Preferred Shares then outstanding shall have
been paid and dividends thereon for the current quarterly dividend period shall
have been paid or declared and set apart for payment, then the right of the
holders of the Series G Preferred Shares and the Voting Preferred Shares to
elect such additional two directors shall cease (but subject always to the same
provision for the vesting of such voting rights in the case of any similar
future arrearage in quarterly dividends), and the terms of office of all persons
elected as directors by the holders of the Series G Preferred Shares and the
Voting Preferred Shares shall forthwith terminate and the number of the Board of
Directors shall be reduced accordingly. At any time after such voting power
shall have been so vested in the holders of Series G Preferred Shares and the
Voting Preferred Shares, the Secretary of the Corporation may, and upon the
written request of any holder of Series G Preferred Shares (addressed to the
Secretary at the principal office of the Corporation) shall, call a special
meeting of the holders of the Series G Preferred Shares and of the Voting
Preferred Shares for the election of the directors to be elected by them as
herein provided, such call to be made by notice similar to that provided in the
Bylaws of the Corporation for a special meeting of the stockholders or as
required by law. If any such special meeting required to be called as above
provided shall not be called by the Secretary within 20 days after receipt of
any such request, then any holder of Series G Preferred Shares may call such
meeting, upon the notice above provided, and for that purpose shall have access
to the records of the Corporation. The directors elected at any such special
meeting shall hold office until the next annual meeting of the stockholders or
special meeting held in lieu thereof if such office shall not have previously
terminated as above provided. If any vacancy shall occur among the directors
elected by the holders of the Series G Preferred Shares and the Voting Preferred
Shares, a successor shall be elected by the Board of Directors, upon the
nomination of the then-remaining director elected by the holders of the Series G
Preferred Shares and the Voting Preferred Shares or the successor of such
remaining director, to serve until the next annual meeting of the stockholders
or special meeting held in place thereof if such office shall not have
previously terminated as provided above.
So long as any Series G Preferred Shares are outstanding, in addition to
any other vote or consent of stockholders required by law or by the
Corporation's Articles of Incorporation, the affirmative vote of at least 66%
of the votes entitled to be cast by the holders of the Series
22
<PAGE>
G Preferred Shares given in person or by proxy, either in writing without a
meeting or by vote at any meeting called for the purpose, shall be necessary for
effecting or validating:
(a) Any amendment, alteration or repeal of any of the provisions of
the Corporation's Articles of Incorporation, the Corporation's By-Laws or
these Articles Supplementary that materially and adversely affects the
voting powers, rights or preferences of the holders of the Series G
Preferred Shares; provided, however, that the amendment of the provisions
-------- -------
of the Corporation's Articles of Incorporation so as to authorize or create
or to increase the authorized amount of, any Fully Junior Shares, Junior
Shares that are not senior in any respect to the Series G Preferred Shares
or any Parity Shares shall not be deemed to materially adversely affect the
voting powers, rights or preferences of the holders of Series G Preferred
Shares; or
(b) A share exchange that affects the Series G Preferred Shares, a
consolidation with or merger of the Corporation into another entity, or a
consolidation with or merger of another entity into the Corporation, unless
in each such case each Series G Preferred Share (i) shall remain
outstanding without a material and adverse change to its terms and rights
or (ii) shall be converted into or exchanged for convertible preferred
shares of the surviving entity having preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption thereof identical to
that of a Series G Preferred Share (except for changes that do not
materially and adversely affect the holders of the Series G Preferred
Shares); or
(c) The authorization, reclassification or creation of, or the
increase in the authorized amount of, any shares of any class or any
security convertible into shares of any class ranking prior to the Series G
Preferred Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation or in the payment of
dividends;
provided, however, that no such vote of the holders of Series G Preferred Shares
- -------- -------
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series G Preferred Shares at the time outstanding to the
extent such redemption is authorized by Section 5 of these Articles
Supplementary.
For purposes of the foregoing provisions of this Section 9, each Series G
Preferred Share shall have one (1) vote per share, except that when any other
series of Preferred Shares shall have the right to vote with the Series G
Preferred Shares as a single class on any matter, then the Series G Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $27.08 of stated liquidation preference. Except as otherwise required
by
23
<PAGE>
applicable law or as set forth herein, the Series G Preferred Shares shall not
have any relative, participating, optional or other special voting rights and
powers other than as set forth herein, and the consent of the holders thereof
shall not be required for the taking of any Corporation action.
Section 10. Record Holders. The Corporation and the Transfer Agent may
--------------
deem and treat the record holder of any Series G Preferred Shares 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.
24
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be signed its name and on its behalf by its authorized officers who
acknowledge that these Articles Supplementary are the act of the Corporation,
that to the best of their knowledge, information and belief, all matters and
facts set forth herein relating to the authorization and approval of this
document are true in all material respects and this statement is made under
penalties of perjury.
July 9, 1999
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By: /s/ W.D. Minami
----------------
Its: Senior Vice President
Attest:
/s/ Robert D. Zimet
- --------------------
Secretary
<PAGE>
EXHIBIT 99.4
TWENTY-THIRD AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
THIS TWENTY-THIRD AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CHARLES E. SMITH RESIDENTIAL REALTY L.P. (this "Twenty-
Third Amendment"), dated as of July 13, 1999, is entered into by Charles E.
Smith Residential Realty, Inc., a Maryland corporation, as general partner (the
"General Partner") of Charles E. Smith Residential Realty L.P. (the
"Partnership"), for itself and on behalf of the limited partners of the
Partnership.
WHEREAS, Section 4.2.B of the First Amended and Restated Agreement of
Limited Partnership of the Partnership (as heretofore amended, the "Partnership
Agreement") provides that the General Partner shall not issue additional
convertible securities containing the right to subscribe for or purchase shares
of Common Stock of the General Partner ("REIT Shares" and collectively, the "New
Securities"), other than to all holders of REIT Shares, unless the General
Partner causes the Partnership to issue to the General Partner Partnership
Interests having designations, preferences and other rights, all such that the
economic interests are substantially the same as those of the New Securities;
WHEREAS, the General Partner has entered into a Preferred Share Purchase
Agreement dated as of July 2, 1999, pursuant to which the General Partner has
agreed to issue, among other things, shares of a newly created series of capital
stock, designated Series E Cumulative Convertible Redeemable Preferred Stock
(the "Series E Preferred Stock"); and
WHEREAS, pursuant to the authority granted to the General Partner
pursuant to Section 4.2 of the Partnership Agreement, the General Partner
desires to amend the Partnership Agreement (i) to establish a new class of
Units, to be entitled Series E Cumulative Convertible Redeemable Preferred Units
(the "Series E Preferred Units"), and to set forth the designations, rights,
powers, preferences and duties of such Series E Preferred Units, which are
substantially the same as those of the Series E Preferred Stock, and (ii) to
make certain other changes to the Partnership Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement, as
follows:
1. Section 4.2 of the Partnership Agreement is hereby amended by adding
after Section 4.2.G the following section:
H. Series E Preferred Units. Under the authority granted to
------------------------
it by Section 4.2.A. hereof, the General Partner hereby establishes an
additional class of Partnership Units entitled "Series E Cumulative
Convertible Redeemable Preferred Units" (the "Series E Preferred Units").
<PAGE>
Series E Preferred Units shall have the designations, preferences,
rights, powers and duties as set forth in Exhibit J hereto.
---------
2. Exhibits to Partnership Agreement.
---------------------------------
A. The General Partner shall maintain the information set forth in
Exhibit A to the Partnership Agreement, as such information shall change from
time to time, in such form as the General Partner deems appropriate for the
conduct of the Partnership's affairs, and Exhibit A shall be deemed amended from
time to time to reflect the information so maintained by the General Partner,
whether or not a formal amendment to the Partnership Agreement has been executed
amending such Exhibit A. In addition to the designation of Series E Preferred
Units pursuant to this Twenty-Third Amendment, such information shall reflect
(and Exhibit A shall be deemed amended from time to time to reflect) the
issuance of any additional Partnership Units to the General Partner or any other
Person, the transfer of Partnership Units and the redemption of any Partnership
Units, all as contemplated herein.
B. The Partnership Agreement is hereby amended by attaching
thereto as Exhibit J the Exhibit J attached hereto.
--------- ---------
3. Certain Capitalized Terms. All capitalized terms used in this
-------------------------
Twenty-Third Amendment and not otherwise defined shall have the meanings
assigned in the Partnership Agreement. Except as modified herein, all terms and
conditions of the Partnership Agreement shall remain in full force and effect,
which terms and conditions the General Partner hereby ratifies and affirms.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Twenty-Third
Amendment as of the date first set forth above.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.,
as General Partner of
Charles E. Smith Residential Realty L.P.
and on behalf of existing Limited Partners
By: /s/ Ernest A Gerardi, Jr.
Name: Ernest A. Gerardi, Jr.
Title: President
3
<PAGE>
EXHIBIT J
DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS AND LIMITATIONS AS TO
SERIES E PREFERRED UNITS
The Series E Preferred Units shall have the following designations,
preferences, rights, powers and duties:
(1) Certain Defined Terms. The following capitalized terms used in
---------------------
this Exhibit J shall have the respective meanings set forth below:
---------
"Distribution Date" means (i) for any Distribution Period with respect
to which the Partnership pays a distribution on the Class A Units, the date
on which such distribution is paid, or (ii) for any Distribution Period
with respect to which the Partnership does not pay a distribution on the
Class A Units, the date set by the General Partner for payment of dividends
on the Series E Preferred Stock, which date shall not be later than the
forty-fifth calendar day after the end of the applicable Distribution
Period.
"Distribution Period" means quarterly periods commencing on January 1,
April 1, July 1 and October 1 of each year and ending on and including the
day preceding the first day of the next succeeding Distribution Period
(other than the initial Distribution Period, which shall commence on the
Issue Date and end on and include the last calendar day of the calendar
quarter containing the Issue Date, and other than the Distribution Period
during which any Series E Preferred Units shall be redeemed pursuant to
Section 4, which shall end on and include the date of such redemption.
"Fully Junior Units" shall mean the Common Units and any other class
or series of Partnership Units now or hereafter issued and outstanding over
which the Series E Preferred Units have preference or priority in both (i)
the payment of dividends and (ii) the distribution of assets on any
liquidation, dissolution or winding up of the Partnership.
"Issue Date" shall mean the date on which the first Series E Preferred
Units are issued.
"Junior Units" shall mean the Common Units and any other class or
series of Partnership Units now or hereafter issued and outstanding over
which the Series E Preferred Units have preference or priority in the
payment of dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Partnership.
"Parity Units" has the meaning ascribed thereto in Section 6(B).
(2) Distributions.
-------------
J-1
<PAGE>
(A) The General Partner, in its capacity as the holder of the then
outstanding Series E Preferred Units, shall be entitled to receive out of
funds legally available therefor, when, as and if declared by the General
Partner, distributions payable in cash at the rate per Series E Preferred
Unit equal to the greater of (a)(i) $2.82875 per annum from the Issue Date
up to and including the first anniversary of the Issue Date, (ii) $3.01125
per annum from the day after the period described in (i) up to and
including the second anniversary of the Issue Date and (iii) $3.1025 per
annum thereafter, or (b) the ordinary cash distributions (determined on
each Distribution Date) paid on the number of Class A Units, or portion
thereof, into which a Series E Preferred Unit is convertible. The
distributions referred to in clause (b) of the preceding sentence shall
equal the number of Class A Units, or portion thereof, into which a Series
E Preferred Unit is convertible, multiplied by the most recent quarterly
distribution on a Class A Unit on or before the applicable Distribution
Date. If the Partnership pays an ordinary cash distribution on the Class A
Units with respect to a Distribution Period after the date on which the
Distribution Date is declared pursuant to clause (ii) of the definition of
Distribution Date and the distribution calculated with respect to clause
(b) of the first sentence of this Section 2(A) is greater than the
distribution previously declared on the Series E Preferred Units with
respect to such Distribution Period, the Partnership shall pay an
additional distribution in respect of the Series E Preferred Units on the
date on which the distribution on the Class A Units is paid, in an amount
equal to the difference between (y) the distribution calculated pursuant to
clause (b) of the first sentence of this Section 2(A) and (z) the amount of
distributions previously declared on the Series E Preferred Units with
respect to such Distribution Period. Distributions shall begin to accrue
and shall be fully cumulative from the first day of the applicable
Distribution Period, whether or not in any Distribution Period or Periods
there shall be funds of the Partnership legally available for the payment
of such distributions, and shall be payable quarterly, when, as and if
declared by the General Partner, in arrears on Distribution Dates. Accrued
and unpaid distributions for any past Distribution Periods may be declared
and paid at any time and for such interim periods, without reference to any
regular Distribution Date, to the General Partner on such date as may be
fixed by the General Partner for payment of the corresponding dividend on
the Series E Preferred Stock. Any distribution made on the Series E
Preferred Units shall first be credited against the earliest accrued but
unpaid distribution due with respect to Series E Preferred Units which
remains payable.
(B) The amount of distributions referred to in clause (a) of the first
sentence of Section 2(A) shall be equal to the annual distribution rate
payable for each full Distribution Period for the Series E Preferred Units
shall be computed by dividing by four. The distribution for the initial
Distribution Period will include a partial distribution for the period from
the Issue Date until the last calendar day of the calendar quarter
containing the Issue Date. The amount of distributions payable for such
initial Distribution Period, or any other period shorter than a full
Distribution Period, on the Series E Preferred Units shall be computed on
the basis of a 360-day year of twelve 30-day months.
J-2
<PAGE>
No interest, or sum of money in lieu of interest, shall be payable in
respect of any distribution payment or payments on the Series E Preferred
Units that may be in arrears.
(C) So long as any Series E Preferred Units are outstanding, no
distributions, except as described in the immediately following sentence,
shall be declared or paid or set apart for payment on any class or series
of Parity Units for any period unless full cumulative distributions have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series
E Preferred Units for all Distribution Periods terminating on or prior to
the distribution payment date for such class or series of Parity Units.
When distributions are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, all distributions declared upon
Series E Preferred Units and all distributions declared upon any other
class or series of Parity Units shall be declared ratably in proportion to
the respective amounts of distributions accumulated and unpaid on the
Series E Preferred Units and accumulated and unpaid on such Parity Units.
(D) So long as any Series E Preferred Units are outstanding, no
distributions (other than distributions paid solely in Fully Junior Units
or options, warrants or rights to subscribe for or purchase Fully Junior
Units) shall be declared or paid or set apart for payment or other
distribution shall be declared or made or set apart for payment upon Junior
Units, nor shall any Junior Units be redeemed, purchased or otherwise
acquired (other than a redemption, purchase or other acquisition of Class A
Units made for purposes of an employee incentive or benefit plan of the
General Partner or any subsidiary) for any consideration (or any moneys be
paid to or made available for a sinking fund for the redemption of any such
Junior Units) by the Partnership, directly or indirectly (except by
conversion into or exchange for Fully Junior Units), unless in each case
(i) the full cumulative distributions on all outstanding Series E Preferred
Units and any other Parity Units of the Partnership shall have been paid or
declared and set apart for payment for all past Distribution Periods with
respect to the Series E Preferred Units and all past distribution periods
with respect to such Parity Units and (ii) sufficient funds shall have been
paid or set apart for the payment of the distribution for the current
Distribution Period with respect to the Series E Preferred Units and the
current distribution period with respect to such Parity Units.
(E) No distributions on the Series E Preferred Units shall be declared
by the General Partner or paid or set apart for payment by the Partnership
at such time as the terms and provisions of any agreement of the General
Partner or the Partnership, including any agreement relating to
indebtedness of either of them, prohibits such declaration, payment, or
setting apart for payment or provides that such declaration, payment or
setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or
prohibited by law.
J-3
<PAGE>
(3) Liquidation Preference.
----------------------
(A) In the event of any liquidation, dissolution or winding up of
the Partnership, whether voluntary or involuntary, before any payment or
distribution of the assets of the Partnership shall be made to or set apart
for the holders of Junior Units, the General Partner, in its capacity as
holder of the Series E Preferred Units, shall be entitled to receive
Thirty-Six Dollars and Fifty Cents ($36.50) (the "Series E Liquidation
Preference") per Series E Preferred Unit plus an amount equal to all
distributions (whether or not earned or declared) accrued and unpaid
thereon to the date of final distribution to the General Partner, in its
capacity as such holder; but the General Partner, in its capacity as the
holder of Series E Preferred Units, shall not be entitled to any further
payment; provided that the distribution payable with respect to the
Distribution Period containing the date of final distribution shall be
equal to the greater of (i) the distribution provided in clause (a) of the
first sentence of Section 2(A) or (ii) the distribution determined pursuant
to clause (b) of the first sentence of Section 2(A) for the preceding
Distribution Period. If, upon any liquidation, dissolution or winding up of
the Partnership, the assets of the Partnership, or proceeds thereof,
distributable to the General Partner, in its capacity as the holder of
Series E Preferred Units, shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other class
or series of Parity Units, then such assets, or the proceeds thereof, shall
be distributed among the General Partner, in its capacity as the holder of
such Series E Preferred Units, and the holders of such other Parity Units
ratably in accordance with the respective amounts that would be payable on
such Series E Preferred Units and such other Parity Units if all amounts
payable thereon were paid in full. For the purposes of this Section 3, (x)
a consolidation or merger of the Partnership with one or more partnerships,
limited liability companies, corporations, real estate investment trusts or
other entities and (y) a sale, lease or conveyance of all or substantially
all of the Partnership's property or business shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Partnership.
(B) Subject to the rights of the holders of Partnership Units of
any series or class ranking on a parity with or prior to the Series E
Preferred Units upon any liquidation, dissolution or winding up of the
Partnership, after payment shall have been made in full to the General
Partner, in its capacity as the holder of the Series E Preferred Units, as
provided in this Section 3, any other series or class or classes of Junior
Units shall, subject to any respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the General Partner, in its capacity as the holder
of the Series E Preferred Units, shall not be entitled to share therein.
4. Redemption Right.
----------------
(A) Except as provided in Section 4(B), the Series E Preferred
Units shall not be redeemable prior to the third anniversary of the Issue
Date.
J-4
<PAGE>
On and after the third anniversary of the Issue Date, the General Partner
may cause the Partnership to redeem the Series E Preferred Units, in whole
or in part, (x) for Class A Units, subject to the conditions set forth in
paragraph (i) below, or (y) for cash in an amount per Series E Preferred
Unit equal to the Series E Liquidation Preference plus accrued and unpaid
distributions (the "Redemption Price"), in each case subject to the
conditions set forth below.
(i) The Series E Preferred Units shall be redeemed only if the
General Partner shall concurrently therewith redeem an
equivalent number of shares of Series E Preferred Stock for
REIT Shares or cash, as the case may be. Such redemption of
Series E Preferred Units shall occur substantially concurrently
with the redemption by the General Partner of such Series E
Preferred Shares (such date of redemption the "Redemption
Date").
(ii) In the event that the General Partner redeems shares of Series
E Preferred Stock in exchange for REIT Shares, an equivalent
number of Series E Preferred Units shall be converted into a
number of Class A Units equal to (x) the number of REIT Shares
issued by the General Partner in redemption of such shares of
Series E Preferred Stock divided by (y) the Conversion Factor.
(iii) In the event that the General Partner redeems shares of Series
E Preferred Stock for cash (including payments of cash in lieu
of fractional REIT Shares), the Partnership shall redeem a like
number of Series E Preferred Units in exchange for the amount
of cash that the General Partner is required to pay pursuant to
the terms of the Series E Preferred Stock in connection with
such redemption.
(iv) Upon any redemption of Series E Preferred Units, the
Partnership shall pay any accrued and unpaid distributions with
respect to the Series E Preferred Units being redeemed for any
Distribution Period ending on or prior to the Redemption Date.
If the Redemption Date falls after a Partnership Record Date
and prior to the corresponding Distribution Date, then the
General Partner, in its capacity as the holder of the Series E
Preferred Units being redeemed, shall be entitled to
distributions payable on the corresponding Distribution Date
notwithstanding the redemption of such Series E Preferred Units
before such Distribution Date. Except as provided above, the
Partnership shall make no payment or allowance for unpaid
distributions, whether or not in arrears, on Series E Preferred
Units called for redemption.
(v) Any Class A Unit issued upon redemption of the Series E
Preferred Units shall be validly issued, fully paid and non-
assessable.
J-5
<PAGE>
(B) In the event that the General Partner is required to redeem
any shares of Series E Preferred Stock pursuant to the terms thereof, the
Partnership shall redeem an equivalent number of Series E Preferred Units
for consideration equal to the consideration payable by the General Partner
upon redemption of such shares of Series E Preferred Stock.
5. Conversion to Class A Units.
---------------------------
(A) In the event that a holder of Series E Preferred Stock
exercises its right to convert such Series E Preferred Stock into REIT
Shares, then, concurrently therewith, an equivalent number of Series E
Preferred Units shall be automatically converted into a number of Class A
Units equal to (x) the number of REIT Shares issued upon conversion of such
Series E Preferred Shares divided by (y) the Conversion Factor. Any such
conversion will be effective at the same time as the conversion of Series E
Preferred Stock into REIT Shares is effective.
(B) The General Partner, in its capacity as the holder of Series E
Preferred Units that are converted pursuant to this Section 5 effective
during the period after a Partnership Record Date and prior to the opening
of business on the corresponding Distribution Date, shall not be entitled
to receive the distribution payable on such Series E Preferred Units on
such Distribution Date notwithstanding such conversion thereof following
the corresponding Partnership Record Date and prior to such Distribution
Date.
6. Ranking. Any class or series of Partnership Units shall be
-------
deemed to rank:
(A) prior to the Series E Preferred Units, as to the payment of
distributions and as to distribution of assets upon liquidation,
dissolution or winding up of the Partnership, if the holders of such class
or series of Partnership Units shall be entitled to the receipt of
distributions or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders of
Series E Preferred Units;
(B) on a parity with the Series E Preferred Units as to the
payment of distributions and as to the distribution of assets upon
liquidation, dissolution or winding up of the Partnership, whether or not
the distribution rates, distribution payment dates or redemption or
liquidation prices per Partnership Unit be different from those of the
Series E Preferred Units, if the holders of such class or series of
Partnership Units and the Series E Preferred Units shall be entitled to the
receipt of distributions and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of
accrued and unpaid distributions per Partnership Unit or liquidation
preferences, without preference or priority one over the other ("Parity
Units");
J-6
<PAGE>
(C) junior to the Series E Preferred Units, as to the payment of
distributions or as to the distribution of assets upon liquidation,
dissolution or winding up of the Partnership, if such class or series of
Partnership Units shall be Junior Units; and
(D) junior to the Series E Preferred Units, as to the payment of
distributions and as to the distribution of assets upon liquidation,
dissolution or winding up of the Partnership, if such class or series of
Partnership Units shall be Fully Junior Units;
7. Voting. Except as required by law, the General Partner, in its
------
capacity as the holder of the Series E Preferred Units, shall not be
entitled to vote at any meeting of the Partners or for any other purpose or
otherwise to participate in any action taken by the Partnership or the
Partners, or to receive notice of any meeting of the Partners.
8. Restriction on Ownership. The Series E Preferred Units shall be
------------------------
owned and held solely by the General Partner.
9. General. The rights of the General Partner, in its capacity as
-------
the holder of the Series E Preferred Units, are in addition to and not in
limitation on any other rights or authority of the General partner, in any
other capacity, under the Agreement. In addition, nothing contained in
this Exhibit J shall be deemed to limit or otherwise restrict any rights or
---------
authority of the General Partner under the Agreement, other than in its
capacity as the holder of the Series E Preferred Units.
* * * *
J-7
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,005
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,146
<PP&E> 1,426,467
<DEPRECIATION> (241,556)
<TOTAL-ASSETS> 1,284,914
<CURRENT-LIABILITIES> 33,050
<BONDS> 863,506
0
121,500
<COMMON> (178,582)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,284,914
<SALES> 0
<TOTAL-REVENUES> 139,555
<CGS> 0
<TOTAL-COSTS> 70,099
<OTHER-EXPENSES> 4,692
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<INCOME-PRETAX> 41,614
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<DISCONTINUED> 0
<EXTRAORDINARY> 359
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<NET-INCOME> 36,500
<EPS-BASIC> 1.14
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