<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 September 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: 1-13174
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
(Exact name of registrant as specified in its charter)
Maryland 54-1681655
(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:
Shares of Common Stock
(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 November 1, 1999, there were 19,760,104 shares of Common Stock of the
Registrant issued and outstanding.
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
FORM 10-Q
INDEX
Pages
-----
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
Charles E. Smith Residential Realty, Inc. Financial
Statements as of September 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 Shareholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2: Management Discussion and Analysis of
Financial Condition and Results of Operations 16
PART II: OTHER INFORMATION 31
SIGNATURES 34
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Rental property, net $ 1,217,012 926,749
Rental property under development 148,264 167,214
Escrow funds 9,575 23,819
Investment in and advances to Property Service Businesses 46,903 28,633
Investment in joint ventures 19,555 -
Deferred charges, net 18,333 18,081
Security deposits 2,169 2,408
Other assets 27,372 18,495
------------------ -----------------
$ 1,489,183 $ 1,185,399
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans and notes payable:
Mortgage loans $ 784,081 $ 622,386
Construction loans 73,095 63,193
Line of credit and note payable 38,488 105,000
------------------ -----------------
Total mortgage loans and notes payable 895,664 790,579
Accounts payable and accrued expenses 46,175 22,830
Security deposits 2,169 2,408
------------------ -----------------
Total liabilities 944,008 815,817
------------------ -----------------
Commitments and contingencies
Minority Interest 141,825 104,605
Shareholders' equity
Preferred stock - $0.01 par value; 2,640,325 shares authorized;
Series A Cumulative Convertible Redeemable Preferred
Stock, liquidation preference of $27.08; 2,640,325 shares
issued and outstanding at September 30, 1999 and December 31,
1998, respectively 71,500 71,500
Preferred stock - $ 0.01 par value; 1,216,666 shares authorized;
Series B Cumulative Convertible Redeemable Preferred
Stock, liquidation preference of $28.50; 714,628 shares
issued and outstanding at December 31, 1998 - 20,367
Preferred stock - $0.01 par value; 500 shares authorized;
Series C Cumulative Redeemable Preferred Stock,
liquidation preference of $100,000; 500 shares issued and
outstanding 50,000 50,000
Preferred stock - $0.01 par value; 684,931 shares authorized;
Series E Cumulative Convertible Redeemable Preferred Stock,
liquidation preference of $36.50; 684,931 shares issued and
outstanding at September 30, 1999 25,000 -
Preferred stock - $0.01 par value; 4,040,404 shares authorized;
Series H Cumulative Convertible Redeemable Preferred Stock,
liquidation preference of $25.00; 2,200,000 shares issued and
outstanding at September 30, 1999 55,000 -
Common stock - $0.01 par value; 80,000,000 shares
authorized; 19,758,104 and 18,212,600 shares issued
and outstanding at September 30, 1999 and December 31, 1998,
respectively 195 182
Additional paid-in capital - includes contributed
deficit of $244,208 207,128 132,669
Retained deficit (5,473) (9,741)
------------------ -----------------
Total shareholders' equity 403,350 264,977
------------------ -----------------
$ 1,489,183 $ 1,185,399
================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rental Properties:
Revenues $ 79,194 $ 66,019 $ 218,749 $ 183,389
Expenses
Operating costs (26,759) (23,259) (70,189) (62,383)
Real estate taxes (5,950) (4,481) (16,678) (12,722)
Depreciation and amortization (8,363) (7,970) (24,304) (21,445)
---------- ----------- ----------- -----------
Total expenses (41,072) (35,710) (111,171) (96,550)
Equity in income of joint ventures 257 - 408 -
Equity in income of Property Service Businesses 2,127 2,693 3,255 5,584
Corporate general and administrative expenses (2,156) (2,177) (6,785) (6,405)
Interest income 329 388 605 855
Interest expense (15,421) (12,582) (42,040) (35,071)
---------- ----------- ----------- -----------
Income before gain on sale and extraordinary item 23,258 18,631 63,021 51,802
Gain on sales 5,214 - 7,065 3,120
Loss on unused treasury lock - (4,923) - (4,923)
---------- ----------- ----------- -----------
Income before extraordinary item 28,472 13,708 70,086 49,999
Extraordinary item - loss on extinguishment of debt - - (359) (4,702)
---------- ----------- ----------- -----------
Net income of the Operating Partnership 28,472 13,708 69,727 45,297
Minority Interest (10,702) (5,434) (26,239) (18,977)
---------- ----------- ----------- -----------
Net income 17,770 8,274 43,488 26,320
Less: Income attributable to preferred shares (3,090) (2,868) (7,845) (7,938)
---------- ----------- ----------- -----------
Net income attributable to common shares $ 14,680 $ 5,406 $ 35,643 $ 18,382
========== =========== =========== ===========
Earnings per common share - basic
Income before extraordinary item $ 0.75 $ 0.32 $ 1.87 $ 1.32
Extraordinary item - - (0.01) (0.16)
---------- ----------- ----------- -----------
Net income $ 0.75 $ 0.32 $ 1.86 $ 1.16
========== =========== =========== ===========
Earnings per common share - diluted
Income before extraordinary item $ 0.72 $ 0.32 $ 1.82 $ 1.31
Extraordinary item - - (0.01) (0.16)
---------- ----------- ----------- -----------
Net income $ 0.72 $ 0.32 $ 1.81 $ 1.15
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Common Series A Series B Series C Series E Series H
Stock Preferred Preferred Preferred Preferred Preferred
Outstanding Stock Stock Stock Stock Stock
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14,942,429 Balance, December 31, 1997 $ 45,000 $ 34,675 $ - $ - $ -
Operating Partnership equity exchanged
- for acquisitions - - - - -
Proceeds from issuance of Series A
- Preferred Stock 26,500 - - - -
Proceeds from issuance of Series C
- Preferred Stock - - 50,000 - -
- Offering costs associated with Preferred Stock - - - - -
Proceeds from issuance of Common Stock,
1,400,000 net of offering costs of $221 - - - - -
502,038 Conversion of Preferred Stock to Common Stock - (14,308) - - -
Conversion of Operating Partnership units
1,342,133 to common stock - - - - -
Repurchase and cancellation of Operating
- Partnership units - - - - -
- Amortization of grants - - - - -
5,000 Exercise of options - - - - -
21,000 Stock grants awarded - - - - -
- Net income - - - - -
- Dividends - - - - -
- Adjustment for Minority Interest - - - - -
- ---------- --------- --------- --------- --------- ---------
18,212,600 Balance, December 31, 1998 71, 500 20,367 50,000 0 0
Operating Partnership equity exchanged
- for acquisitions - - - - -
Proceeds from issuance of Series E
- Preferred Stock - - - 25,000 -
Proceeds from issuance of Series H
- Preferred Stock - - - - 55,000
- Offering costs associated with Preferred Stock - - - - -
714,628 Conversion of Preferred Stock to Common Stock - (20,367) - - -
Conversion of Operating Partnership units
647,094 to common stock - - - - -
- Amortization of grants - - - - -
152,400 Exercise of options - - - - -
31,382 Stock grants awarded - - - - -
- Net income - - - - -
- Dividends - - - - -
- Adjustment for Minority Interest - - - - -
- ---------- --------- --------- --------- --------- ---------
19,758,104 Balance, September 30, 1999 (unaudited) $ 71,500 $ - $ 50,000 $ 25,000 $ 55,000
========== ========= ========= ========= ========= =========
<CAPTION>
Common Additional Retained
Stock Common Paid-in Earnings
Outstanding Stock Capital (Deficit) Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14,942,429 Balance, December 31, 1997 150 $ 84,861 $ (6,372) $ 158,314
Operating Partnership equity exchanged
- for acquisitions - 11,820 - 11,820
Proceeds from issuance of Series A
- Preferred Stock - - - 26,500
Proceeds from issuance of Series C
- Preferred Stock - - - 50,000
- Offering costs associated with Preferred Stock - (1,874) - (1,874)
Proceeds from issuance of Common Stock,
1,400,000 net of offering costs of $221 14 45,440 - 45,454
502,038 Conversion of Preferred Stock to Common Stock 5 14,303 - -
Conversion of Operating Partnership units
1,342,133 to common stock 13 (13) - -
Repurchase and cancellation of Operating
- Partnership units - (594) - (594)
- Amortization of grants - 521 - 521
5,000 Exercise of options - 2,999 - 2,999
21,000 Stock grants awarded - - - -
- Net income - - 41,129 41,129
- Dividends - - (44,498) (44,498)
- Adjustment for Minority Interest - (24,794) - (24,794)
- -------------- -------- ---------- --------- ----------
18,212,600 Balance, December 31, 1998 182 132,669 (9,741) 264,977
Operating Partnership equity exchanged
- for acquisitions - 40,409 - 40,409
Proceeds from issuance of Series E
- Preferred Stock - - - 25,000
Proceeds from issuance of Series H
- Preferred Stock - - - 55,000
- Offering costs associated with Preferred Stock - (3,633) - (3,633)
714,628 Conversion of Preferred Stock to Common Stock 7 20,360 - -
Conversion of Operating Partnership units
647,094 to common stock 6 (6) - -
- Amortization of grants - 448 - 448
152,400 Exercise of options - 3,914 - 3,914
31,382 Stock grants awarded - - - -
- Net income - - 43,488 43,488
- Dividends - - (39,220) (39,220)
- Adjustment for Minority Interest - 12,967 - 12,967
- -------------- --------- ---------- --------- ----------
19,758,104 Balance, September 30, 1999 (unaudited) $ 195 $ 207,128 $ (5,473) $ 403,350
============== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ 110,590 $ 84,337
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions and development of rental property (236,106) (213,957)
Additions to rental property (14,703) (13,170)
Sales of property 75,666 -
Increase in investment in and advances to Property Service Businesses (12,861) (12,251)
Increase in investment in Joint Ventures (4,448) -
Acquisition deposits and other (15,194) 280
---------- -----------
Net cash used by investing activities (207,646) (239,098)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to deferred charges 920 -
Net proceeds from sale of common stock - 45,654
Net proceeds from sale of preferred stock and units 121,367 75,039
Mortgage loans, net 88,787 (51,416)
Lines of credit, net (66,512) 139,500
Construction loans, net 9,902 20,036
Prepayment penalties (1,038) (3,025)
Termination of treasury lock - (4,923)
Dividends and distributions - Common (51,539) (46,557)
Dividends and distributions - Preferred (8,744) (7,262)
Other, net 3,913 831
---------- -----------
Net cash provided by financing activities 97,056 167,877
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS - 13,116
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - -
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ 13,116
========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 47,215 $ 38,163
Capitalized interest 6,247 4,382
Purchase of property in exchange for Operating - -
Partnership units 34,321 11,820
Assumption of debt on acquisitions 73,586 33,456
Sale proceeds held in 1031 escrow 17,712 -
Purchase of property with 1031 escrow proceeds 17,712 -
Equity investments in exchange for Operating Partnership units 6,088 -
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
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, Inc. (the "Company") and Charles E.
Smith Residential Realty L.P. (the "Operating Partnership") and its subsidiary
financing partnerships. The Company consolidates the Operating Partnership due
to the Company's control as sole general partner. 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 September 30, 1999 and the results
of operations for the interim periods ended September 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 Company, through the Operating Partnership and its subsidiaries, is
engaged in the ownership, operation, management, leasing, acquisition, and
development of real estate properties, primarily residential multifamily
properties. As of September 30, 1999, the Operating Partnership owned 54
operating multifamily properties totaling 22,563 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 over 3,000 units under construction or pre-purchase
agreement at eight 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.
7
<PAGE>
2. ACQUISITIONS AND DISPOSITIONS
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 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 an 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 August 1999, the Company entered into an agreement with an affiliate of
Starwood Capital Group to jointly purchase and redevelop Alban Towers, a
historic landmark property in Washington, D.C. Estimated cost of the 226-unit
project is $53.0 million with completion expected in mid-2001.
8
<PAGE>
Under the agreement, the Company has the right to acquire Starwood's interest
for $100,000 at the end of five years.
In August 1999, the Company acquired a 95% non-voting interest in a
mechanical contracting company located in Maryland and an environmental
engineering firm with offices in Maryland and New York. These acquisitions
complement the current lines of business of Consolidated Engineering Services,
Inc. ("CES"), one of the Company's Property Service Businesses. The Company
invested $11.5 million which consisted of 161,765 Units valued at $5.4 million
and cash of $6.1 million.
During the third quarter of 1999, the Company also acquired land for cash
of $8.3 million and 7,797 Units valued at $0.2 million.
3. 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 guarantees were
released on September 30, 1999. The Company recognized $4.2 million of the $5.2
million gain and will defer the balance until completion of construction.
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 $62 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. The Company will provide development
services and a construction completion guarantee to the venture. A Company
affiliate will provide property management and marketing services.
9
<PAGE>
4. DEBT
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 the draw.
In August 1999, the Company obtained a variable rate, secured construction
loan of $32.5 million to finance the redevelopment of Alban Towers. The loan
bears interest at LIBOR plus 150 basis points (6.875% at September 30, 1999) and
matures in February 2002. The loan balance at September 30, 1999 was $1.3
million.
5. SHAREHOLDERS' EQUITY
In March 1999, 125,367 shares of Series B Cumulative Convertible Redeemable
Preferred Stock ("Series B Preferred Shares") were converted to common shares on
a one-for-one basis.
In May 1999, the remaining 589,261 shares of Series B Preferred Shares were
converted to common shares on a one-for-one basis.
In July 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,
less $0.9 million of offering costs. The Series E Preferred Shares were issued
on July 13, 1999. 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. Conversion to common stock is on a one-for-one
basis with call protection varying by series between three and six years.
10
<PAGE>
In September 1999, the Company issued 2,200,000 shares of Series H
Cumulative Convertible Redeemable Preferred Shares ("Series H Preferred
Shares"), $0.01 par value, for $53.5 million, net of offering costs of $1.5
million. The Series H Preferred Shares have a liquidation preference of $25 per
share and a five-year non-call provision. Dividends are payable quarterly at the
greater of 8.125% of the liquidation preference or the rate declared on the
shares of common stock of the Company into which a Series H Preferred Share is
convertible. The holders of the Series H Preferred Shares have the right, at any
time, to convert such shares to Common Shares at the initial conversion price of
$38.50 (equivalent to a conversion rate of approximately 0.65 Common Shares for
each Series H Preferred Share). Simultaneously with the above, the Operating
Partnership issued 1.8 million units of Series H Cumulative Convertible
Redeemable Preferred Units ("Series H Preferred Units") for $43.7 million, net
of offering costs of $1.3 million. The Series H Preferred Units have terms
similar to the Series H Preferred Shares.
6. PER SHARE DATA
Earnings per common share of the Company for the three and nine months
ended September 30, 1999 and 1998 is computed based on weighted average common
shares/units outstanding during the period as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------
1999 1998
---- ----
Basic Diluted Basic Diluted
----- ------- ------ -------
<S> <C> <C> <C> <C>
Weighted Average Common Shares 19.7 22.6 16.9 17.0
Weighted Average Common Operating
Partnership Units/1/ 13.7 13.7 13.8 13.8
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------
1999 1998
---- ----
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
Weighted Average Common Shares 19.1 22.3 15.9 16.0
Weighted Average Common Operating
Partnership Units/1/ 13.4 13.4 14.0 14.0
</TABLE>
/1/ Represents Operating Partnership units not held by Company
Operating Partnership units not held by the Company may be redeemed at the
Unitholders' sole discretion. Such redemption may be made for cash at the then
fair value of the Company's common stock, or, at the option of the Company, for
shares of common stock of the Company on a one-for-one basis, which does not
have a dilutive effect. During the nine months ended September 30, 1999, 0.6
million Operating Partnership units were redeemed for shares of common stock.
Options to purchase 0.8 million shares of common stock were not included in
the computation of diluted earnings per share because the options' exercise
price was higher than the average price of the common shares. Series E and
Series H Preferred Shares were also excluded from the calculation
11
<PAGE>
of diluted earnings per share since the conversion price was higher than the
average price of the common shares.
A reconciliation of income (before extraordinary item) and shares used to
calculate basic and diluted earnings per share for the three months ended
September 30, 1999 and the nine months ended September 30, 1999 and 1998 follows
(dilutive securities had no effect on earnings for the three months ended
September 30, 1998):
<TABLE>
<CAPTION>
Weighted Per Share
Income Average Shares Amount
-------------- -------------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C>
Three Months Ended September 30, 1999:
-------------------------------------
Income Before Extraordinary Item $ 28,472
Minority Interest (10,702)
Income Attributable to Preferred Shares (3,090)
--------
Earnings Per Share - Basic
Income Attributable to Common
Shareholders Before Extraordinary Item $ 14,680 19,669 $ 0.75
Effect of Dilutive Securities
Preferred Shares - Series A 1,453 2,640 (0.02)
Options/1/ 78 288 (0.01)
-------- ------ ------
Earnings Per Share - Diluted $ 16,211 22,597 $ 0.72
======== ====== ======
Nine Months Ended September 30, 1999:
------------------------------------
Income Before Extraordinary Item $ 70,086
Minority Interest (26,387)
Income Attributable to Preferred Shares (7,845)
--------
Earnings Per Share - Basic
Income Attributable to Common
Shareholders Before Extraordinary Item $ 35,854 19,129 $ 1.87
Effect of Dilutive Securities
Preferred Shares - Series A and B 4,593 2,979 (0.04)
Options/1/ 151 207 (0.01)
-------- ------ ------
Earnings Per Share - Diluted $ 40,598 22,315 $ 1.82
======== ====== ======
Nine Months Ended September 30, 1998:
------------------------------------
Income Before Extraordinary Item $ 49,999
Minority Interest (21,034)
Income Attributable to Preferred Shares (7,938)
--------
Earnings Per Share - Basic
Income Attributable to Common
Shareholders Before Extraordinary Item $ 21,027 15,870 $ 1.32
Effect of Dilutive Securities
Options/1/ 76 178 (0.01)
-------- ------ ------
Earnings Per Share - Diluted $ 21,103 16,048 $ 1.31
======== ====== ======
</TABLE>
/1/ Adjustment to numerator includes change in the Minority Interest share of
income.
12
<PAGE>
7. 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.)
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.
13
<PAGE>
Information concerning operations by segment for the three and nine months
ended September 30, 1999 and 1998 was as follows (in thousands):
Property Segments
<TABLE>
<CAPTION>
Three Months Ended Nine Months ended
September 30, September 30,
-------------------- ------------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Net Operating Income
- --------------------
Core Portfolio $ 33,757 $ 31,355 $ 101,560 $ 93,306
Acquisition Portfolio 9,837 5,117 22,244 10,260
Development Portfolio 1,288 126 2,999 (191)
Retail Portfolio 1,603 1,681 5,079 4,909
-------- -------- ---------- ----------
Consolidated Total 46,485 38,279 131,882 108,284
Depreciation and Amortization (8,363) (7,970) (24,304) (21,445)
Equity in Income of Property Service
Businesses and Joint Ventures 2,384 2,693 3,663 5,584
Corporate General and Administrative Expenses (2,156) (2,177) (6,785) (6,405)
Net interest expense (15,092) (12,194) (41,435) (34,216)
-------- -------- ---------- ----------
Income before Gain on Sale and
Extraordinary Item $ 23,258 $ 18,631 $ 63,021 $ 51,802
======== ======== ========== ==========
Revenues
- --------
Core Portfolio $ 56,284 $ 53,135 $ 164,564 $ 154,738
Acquisition Portfolio 17,404 10,054 40,211 20,871
Development Portfolio 3,049 387 6,421 474
Retail Portfolio 2,457 2,443 7,553 7,306
-------- -------- ---------- ----------
Consolidated Total $ 79,194 $ 66,019 $ 218,749 $ 183,389
======== ======== ========== ==========
Real Estate Assets, gross
- -------------------------
Core Portfolio $ 902,902 $ 910,859
Acquisition Portfolio 435,494 191,111
Development Portfolio 216,617 125,729
Retail Portfolio 60,051 60,017
---------- ----------
Sub-total 1,615,064 1,287,716
Accumulated Depreciation (249,788) (229,091)
---------- ----------
Consolidated Total, Net $1,365,276 $1,058,625
========== ==========
</TABLE>
Property Service Business Segment
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Funds from Operations $ 2,233 $ 2,904 $ 3,577 $ 5,703
Revenues 37,462 31,920 96,157 75,830
Depreciation 645 566 1,604 1,061
</TABLE>
14
<PAGE>
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.
In August 1999, CES expanded its facilities management services by
acquiring a similar business from CESCR for $1.4 million. This transaction
was completed concurrently with the sale to CESCR of the Company's retail
property management business, which primarily deals with non-Company owned
assets, for $1.0 million. The Company recognized a gain on the sale of
$1.0 million.
9. SUBSEQUENT EVENTS
In October 1999, the Company issued 666,667 shares of Series F Preferred
Shares under its agreement with Security Capital. The shares were issued at
$37.50 per share for a total of $24.4 million net of $0.6 million in offering
costs. A portion of the proceeds was used to pay down the Company's line of
credit.
In November 1999, the Company acquired a 1,339-unit multifamily property in
Miami Beach, Florida ("Forte Towers") for a capitalized cost of $ 85 million,
consisting of 694,586 shares of common stock valued at $23.6 million, assumed
debt of $ 34.3 million, and proceeds from the sale of 641,026 Series G Preferred
Shares.
15
<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 nine months ended September 30, 1999 and 1998 presented in the
Consolidated Statements of Operations and discussed below represent the
operations of Charles E. Smith Residential Realty, Inc. (the "Company"), Charles
E. Smith Residential Realty L.P. (the "Operating Partnership") and its
subsidiary financing partnerships. The Company consolidates the Operating
Partnership due to its control as sole general partner.
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 5.9% in the third quarter of 1999 as compared
with 1998.
A schedule of portfolio statistics follows:
16
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
- --------------------------------------------------------------------------------
Residential Portfolio Statistics
For the Three Months Ended September 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 Q3-99 Q3-99 Q3-98 Q3-99 Q3-98
- -------------------------- --------- --------- -------- --------- ------- ----- --------- ------
(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 $ 372 $1,078 9.4% 99.8% 1.6%
2501 Porter Street High-rise 202 760 1,003 1,655 9.6% 99.9% 0.3%
Albemarle High-rise 235 1,097 928 1,316 5.7% 96.4% -3.4%
Calvert-Woodley High-rise 136 1,001 529 1,297 9.7% 99.0% 0.3%
Cleveland House High-rise 216 894 824 1,271 9.9% 97.7% -1.2%
Connecticut Heights High-rise 519 536 1,526 980 8.0% 96.8% 1.0%
Corcoran House High-rise 138 464 375 907 7.7% 97.6% -2.0%
Statesman High-rise 281 593 722 856 3.5% 94.9% -4.1%
Van Ness South High-rise 625 956 2,247 1,198 6.1% 98.5% -0.8%
The Kenmore High-rise 376 725 953 845 11.3% 98.5% 1.6%
------ ----- ------- ------ ---- ----- ----
2,843 771 $ 9,479 $1,111 7.7% 97.8% -0.6%
Northern Virginia
Crystal City
------------
The Bennington High-rise 348 804 1,190 1,140 4.8% 96.9% -0.4%
Crystal House I High-rise 426 917 1,421 1,112 7.0% 98.1% -1.0%
Crystal House II High-rise 402 938 1,276 1,058 3.7% 98.4% -0.7%
Crystal Square High-rise 378 1,121 1,423 1,255 4.7% 99.3% 0.0%
Crystal Place High-rise 180 894 753 1,394 4.3% 97.9% -1.2%
Gateway Place High-rise 162 826 857 1,764 3.6% 93.0% -4.4%
Water Park Towers High-rise 360 881 1,652 1,530 1.7% 95.9% -0.5%
Crystal Plaza High-rise 540 1,129 2,160 1,333 4.2% 98.9% 0.3%
Crystal Towers High-rise 912 1,107 3,366 1,230 5.2% 98.9% 0.0%
------ ----- ------- ------ ---- ----- ----
3,708 998 $14,098 $1,267 4.4% 98.0% -0.4%
Rosslyn/Ballston
----------------
Courthouse Plaza High-rise 396 772 1,686 1,419 5.5% 100.0% 3.0%
Lincoln Towers High-rise 714 879 3,063 1,430 10.6% 97.7% 3.1%
------ ----- ------- ------ ---- ----- ----
1,110 841 $ 4,749 $1,426 8.7% 98.9% 3.0%
Tysons/Dulles
-------------
Charter Oak Garden 262 1,097 814 1,036 6.8% 96.6% -1.7%
Oaks of Tysons Garden 218 968 707 1,082 -0.4% 96.1% -3.1%
Potomac View Garden 192 965 487 845 4.5% 99.0% 0.7%
Bedford Village Garden 752 1,070 2,277 1,009 8.4% 97.7% 1.0%
Patriot Village Garden 1,065 1,162 3,124 978 3.8% 97.7% -0.6%
Westerly at Worldgate Garden 320 921 1,163 1,211 8.5% 97.6% 1.4%
------ ----- ------- ------ ---- ----- ----
2,809 1,075 $ 8,572 $1,017 5.5% 97.5% -0.2%
Other
-----
Arlington Overlook Mid-rise 711 877 1,884 884 9.2% 97.5% 0.0%
Berkeley Mid-rise 138 891 322 779 4.5% 96.3% -1.9%
Boulevard of Old Town Garden 159 603 433 908 4.1% 96.6% -1.6%
Columbia Crossing Garden 247 976 894 1,207 4.4% 98.4% 0.4%
Columbian Stratford Mid-rise 227 942 567 833 6.6% 99.8% 0.8%
Concord Village Garden 531 1,025 1,410 885 5.1% 96.8% -1.2%
Newport Village Garden 937 1,115 2,738 974 4.9% 98.5% 1.0%
Orleans Village Garden 851 1,061 2,300 901 5.6% 97.2% 0.8%
Skyline Towers High-rise 940 1,221 3,009 1,067 5.6% 97.2% 1.1%
Windsor Towers Mid-rise 280 1,025 737 878 6.5% 99.2% 0.2%
------ ----- ------- ------ ---- ----- ----
5,021 1,040 $14,294 $ 949 5.8% 97.7% 0.4%
Boston/Chicago
2000 Commonwealth High-rise 188 878 1,027 1,822 8.4% 96.6% 0.8%
One East Delaware High-rise 306 704 1,873 2,040 5.2% 98.7% -0.2%
------ ----- ------- ------ ---- ----- ----
494 770 $ 2,900 $1,957 6.3% 97.8% 0.2%
Other
Car Barn Garden 196 1,311 563 957 4.3% 99.3% 1.4%
Fort Chaplin Garden 549 983 1,178 715 3.6% 98.2% -0.7%
Suburban Tower High-rise 172 677 451 874 3.2% 97.9% -1.2%
------ ----- ------- ------ ---- ----- ----
917 996 $ 2,192 $ 797 3.7% 98.4% -0.2%
------ ----- ------- ------ ---- ----- ----
16,902 968 $56,284 $1,110 5.9% 97.9% 0.1%
------ ----- ------- ------ ---- ----- ----
</TABLE>
17
<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 Q3-99 Q3-99 Q3-98 Q3-99 Q3-98
- --------------------------- ----------- --------- -------- ----------- -------- ---------- ---------- ---------
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACQUISITION PORTFOLIO
1998
----
Tunlaw Gardens (NW Washington,
D.C.) Garden 167 850 $ 433 $ 865 9.1% 97.1% -1.2%
Tunlaw Park (NW Washington, D.C.) Mid-rise 120 856 430 1,195 4.6% 96.8% -2.7%
Parc Vista (Crystal City, VA.) High-rise 299 770 1,360 1,516 8.7% 97.9% -1.8%
McClurg Court (Chicago, IL.) High-rise 1,075 688 4,442 1,377 2.1% 96.2% 0.7%
Cronin's Landing (Boston, MA) Mid-rise 281 1,129 1,751 2,078 NA 98.7% NA
1999
----
Buchanan House (Crystal City,
VA.) High-rise 442 1,173 2,297 NA NA NA NA
Parkwest (Chicago, IL.) Garden 139 580 480 NA NA NA NA
Terrace (Chicago, IL.) Garden 427 839 1,020 NA NA NA NA
The Consulate (Washington, D.C.) High-rise 269 827 804 NA NA NA NA
Countryside (Chicago, IL.) Garden 720 864 1,902 NA NA NA NA
Somerset (Chicago, IL.) Garden 1,158 575 2,400 NA NA NA NA
------ ----- -------
5,097 785 $17,319
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
Alban Towers
(Washington, D.C.) Mid-rise 226 NA NA NA NA NA
------
1,741
ALL RESIDENTIAL PROPERTIES 23,740 NA NA NA NA NA
======
</TABLE>
18
<PAGE>
RENTAL PROPERTIES
Revenues, expenses and income from the multifamily and retail properties for
the three and nine months ended September 30, 1999 and 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1999 1998/(2)/ 1999 1998/(2)/
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Multifamily Properties - Core/(1)/
Revenues $ 56,284 $ 53,135 $164,564 $154,738
Expenses (22,527) (21,780) (63,004) (61,432)
-------- -------- -------- --------
Income before depreciation $ 33,757 $ 31,355 $101,560 $ 93,306
======== ======== ======== ========
Multifamily Properties - Acquisitions
and Dispositions
Revenues $ 17,404 $ 10,054 $ 40,211 $ 20,871
Expenses (7,567) (4,937) (17,967) (10,611)
-------- -------- -------- --------
Income before depreciation $ 9,837 $ 5,117 $ 22,244 $ 10,260
======== ======== ======== ========
Multifamily Properties - Development
Revenues $ 3,049 $ 387 $ 6,421 $ 474
Expenses (1,761) (261) (3,422) (665)
-------- -------- -------- --------
Income before depreciation $ 1,288 $ 126 $ 2,999 $ (191)
======== ======== ======== ========
Retail Properties
Revenues $ 2,457 $ 2,443 $ 7,553 $ 7,306
Expenses (854) (762) (2,474) (2,397)
-------- -------- -------- --------
Income before depreciation $ 1,603 $ 1,681 $ 5,079 $ 4,909
======== ======== ======== ========
Total Rental Properties
Revenues $ 79,194 $ 66,019 $218,749 $183,389
Expenses (32,709) (27,740) (86,867) (75,105)
Depreciation (8,363) (7,970) (24,304) (21,445)
-------- -------- -------- --------
Income from Rental Properties $ 38,122 $ 30,309 $107,578 $ 86,839
======== ======== ======== ========
</TABLE>
/(1)/ Represents properties owned as of December 31, 1997.
/(2)/ Prior year amounts have been reclassified to conform with current year
Presentation.
19
<PAGE>
PROPERTY SERVICE BUSINESSES
Revenues, expenses and income from the Property Service Businesses for the
three and nine months ended September 30, 1999 and 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total Property Service Businesses
Revenues $37,462 $31,920 $96,157 $75,830
Expenses (34,690) (28,661) (91,298) (69,185)
Depreciation (645) (566) (1,604) (1,061)
------- ------- ------- -------
Income from Property Service Businesses $ 2,127 $ 2,693 $ 3,255 $ 5,584
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1999 to Three Months Ended
September 30, 1998.
Summary. Net income of the Operating Partnership increased $14.8 million, or
108.0%, from $13.7 million for the three months ended September 30, 1998 to
$28.5 million for the three months ended September 30, 1999. Funds from
Operations ("FFO") of the Operating Partnership increased $4.3 million, or
16.6%, from $25.8 million to $30.1 million during the same period. Net income of
the Company increased from $5.4 million, or $0.32 per diluted common share, for
the three months ended September 30, 1998 to $14.7 million, or $0.72 per diluted
common share, for the three months ended September 30, 1999. FFO of the Company
increased 20.7%, from $15.4 million to $18.6 million during the same period. The
increases in FFO and net income are primarily attributable to revenue growth of
5.9% on the core portfolio and contributions from acquired and developed
properties. Net income was also increased by the $5.2 million gains on sales of
property and the retail management business.
Rental Properties. Revenue from all rental properties increased $13.2
million, or 20.0%, from $66.0 million for the three months ended September 30,
1998 to $79.2 million for the three months ended September 30, 1999. Operating
expenses from all rental operations increased $5.0 million, or 17.9% from $27.7
million during the third quarter of 1998 to $32.7 million during the current
quarter.
Core Portfolio. Revenue from the core portfolio increased $3.1 million, or
5.9%, over the prior year period resulting in average monthly revenue per
apartment unit of $1,110. This was primarily due to continued strong demand in
all submarkets. Management successfully increased rents during the quarter while
essentially maintaining occupancy levels. Average economic occupancy for the
core portfolio was 97.9% for the three months ended September 30, 1999 compared
to 97.8% for the comparable prior year. Expenses for the core portfolio
increased $0.7 million, or 3.4%, due primarily to higher utility expenses
related to above average temperatures during the summer.
Acquisition Portfolio. The eleven acquisition properties (defined as
properties acquired subsequent to December 31, 1997) and three disposition
properties contributed approximately 56%, or
20
<PAGE>
$7.4 million, of the total rental revenue increase and approximately $2.6
million of the total rental expense increase. Five of the acquisition properties
(comprising 1,942 apartment units) were acquired during 1998 and six (comprising
3,155 units) were acquired during the first and third quarters of 1999.
Development Portfolio. Courthouse Place delivered the balance of its units
during the second quarter for a total of 564 units delivered as of September 30,
1999. The project provided net operating income of $1.5 million for the quarter.
One Superior Place delivered initial units in July 1999 and had a total of
297 units delivered as of September 30, 1999. Estimated completion and
stabilization is expected in 2000. The project provided a net operating loss of
$0.2 million for the period.
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 $0.6 million in
the third 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.
In August 1999, the Company acquired a 95% non-voting interest in a
mechanical contracting company located in Maryland and an environmental
engineering firm with offices in Maryland and New York. These acquisitions
complement the current lines of business of Consolidated Engineering Services,
Inc. ("CES"), one of the Company's Property Service Businesses. The Company
invested $11.5 million which consisted of 161,765 Units valued at $5.4 million
and cash of $6.1 million.
In August 1999, CES expanded its facilities management services by acquiring
a similar business from Charles E. Smith Commercial Realty L.P. ("CESCR") for
$1.4 million. This transaction was completed concurrently with the sale to CESCR
of the Company's retail property management business, which primarily deals with
non-Company owned assets, for $1.0 million. The Company recognized a gain on
sale of $1.0 million.
Other. Net interest expense increased $2.9 million during the quarter, or
23.8%, 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 Nine Months Ended September 30, 1999 to Nine Months Ended
September 30, 1998.
Summary. Net income of the Operating Partnership increased $24.4 million, or
53.9%, from $45.3 million for the nine months ended September 30, 1998 to $69.7
million for the nine months ended September 30, 1999. Funds from Operations
("FFO") of the Operating Partnership increased $13.4 million, or 18.8%, from
$70.8 million to $84.2 million during the same period. Net income of the Company
increased from $18.4 million, or $1.15 per diluted common share, for the nine
months ended September 30, 1998 to $35.6 million, or $1.81 per diluted common
share, for the nine months ended September 30, 1999. FFO of the Company
increased 27.2%, from $41.2 million to $52.3 million during the same period.
21
<PAGE>
Rental Properties. Revenue from all rental properties increased $35.3
million, or 19.3%, from $183.4 million for the nine months ended September 30,
1998 to $218.7 million for the nine months ended September 30, 1999. Operating
expenses from all rental operations increased $11.8 million, or 15.7% from $75.1
million during the first three quarters of 1998 to $86.9 million during the
current period.
Core Portfolio. Revenue from the core portfolio increased $9.8 million, or
6.4%, over the prior year period resulting in average monthly revenue per
apartment unit of $1,082. 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 97.4% for the nine months ended
September 30, 1999 compared to 96.3% for the comparable prior year. Expenses for
the core portfolio increased $1.6 million, or 2.6%, due primarily to expected
increases in real estate taxes, and higher wages due to additional staffing at
the properties.
Acquisition Portfolio. The eleven acquisition properties (defined as
properties acquired subsequent to December 31, 1997) and three disposition
properties contributed approximately 55%, or $19.3 million, of the total rental
revenue increase and approximately $7.4 million of the total rental expense
increase.
Development Portfolio. As of September 30, 1999, Courthouse Place had
delivered all of its 564 units. The project provided net operating income of
$2.6 million for the first nine months of 1999.
One Superior Place delivered initial units in July 1999 and had a total of
297 units delivered as of September 30, 1999. Estimated completion and
stabilization is expected in 2000. The project provided a net operating loss
of $0.2 million for the period.
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 $2.3 million
during the nine months ended September 30, 1999 compared to the prior year
period is primarily due to decreases of $1.9 million and $1.2 million,
respectively, for Financing Services and Smith Corporate Living offset by a $0.8
million increase in Engineering and Technical Services income. The former is due
to the expiration in 1998 of the Financing Services agreement with CESCR. The
latter is primarily due to softness in the suburban Chicago market.
Joint Ventures. The Company entered into three joint ventures during 1999.
Through September 30, 1999, the Company's share of income from the joint
ventures totaled $0.4 million.
Other. Corporate general and administrative expenses increased 5.9% compared
to the prior year period due primarily to costs related to the Company's
acquisition and development efforts. Net interest expense increased $7.2 million
during the period, or 21.1%, primarily due to additional debt related to
acquisitions and development partially offset by lower interest rates on the
line of credit and refinanced debt.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Summary. Net cash flow provided by operating activities increased $26.3
million from $84.3 million for the nine months ended September 30, 1998 to
$110.6 million for the nine months ended September 30, 1999. The increase
primarily relates to an increase of $24.4 million in net income of the Operating
Partnership.
Net cash flow of $207.6 million was used by investment activities during the
nine months ended September 30, 1999 compared to $239.1 million during the
comparable prior year period due primarily to acquisition and development
activity. Partially offsetting cash outflows was the $75.7 million in cash
proceeds from property sales.
Net cash flows provided by financing activities was $97.1 million for the
nine months ended September 30, 1999, primarily comprised of $121.4 million of
net cash proceeds from the sale of preferred stock and units, offset by a $60.3
million cash outflow for dividends and distributions. Net cash flows provided by
financing activities of $167.9 million in the comparable prior year period
primarily consisted of $75.0 million of inflow from the sale of preferred stock,
$45.7 million of inflow from the sale of common stock, and $108.1 million of net
borrowings, less $3.0 million of prepayment penalties and $53.8 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.
23
<PAGE>
Funds from Operations for the three and nine months ended September 30, 1999
and 1998 are computed as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income of the Operating Partnership $ 28,472 $ 13,708 $ 69,727 $ 45,297
Preferred Dividends (1,820) (1,011) (3,808) (2,637)
Depreciation of Real Property 8,363 7,970 24,304 21,445
Depreciation from unconsolidated
Joint Ventures 205 -- 328 --
Amortization of Goodwill 106 228 322 228
Gain on Sales (5,214) -- (7,065) (3,120)
Loss on Unused Treasury Lock -- 4,923 -- 4,923
Extraordinary Item -- -- 359 4,702
-------- -------- -------- --------
Funds from Operations of the Operating
Partnership 30,112 25,818 84,167 70,838
Minority Interest (11,466) (10,375) (31,823) (29,677)
-------- -------- -------- --------
Attributable to Shareholders $ 18,646 $ 15,443 $ 52,344 $ 41,161
======== ======== ======== ========
</TABLE>
Property Acquisitions
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
24
<PAGE>
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 November 1999, the Company acquired a 1,339-unit multifamily property in
Miami Beach, Florida ("Forte Towers") for a capitalized cost of $ 85 million,
consisting of 694,586 shares of common stock valued at $23.6 million, assumed
debt of $ 34.3 million, and proceeds from the sale of 641,026 Series G Preferred
Shares.
Development
As of September 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>
University Center 630 N/A Q2, 2000 Q1, 2001 Q2, 2001 $ 62
(Tysons/Dulles)
One Superior Place 809 297 July, 1999 Q1, 2000 Q3, 2000 118
(Chicago, IL.)
Alban Towers 226 N/A Q1, 2001 Q2, 2001 Q4, 2001 53
(Washington,
D.C.)
Park Connecticut 142 N/A Q1, 2000 Q1, 2000 Q2, 2000 27
(Washington,
D.C.) ----- --- -----
1,807 297 $ 260
===== === =====
</TABLE>
In August 1999, the Company entered into an agreement with an affiliate of
Starwood Capital Group to jointly purchase and redevelop Alban Towers, a
historic landmark property in Washington, D.C. Estimated cost of the 226-unit
project is $53.0 million with completion expected in mid-2001.
On September 30, 1999, the Company acquired a parcel of land for development
in southeast Florida for $8.1 million.
25
<PAGE>
Commitments
As of September 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 Q1, 2000 Q2, 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. As of September
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 guarantees were released on
September 30, 1999. The Company recognized $4.2 million of the $5.2 million gain
and will defer the balance until completion of construction.
26
<PAGE>
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 $62 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 property
management and marketing services. The Company will provide development services
and 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 each draw.
In August 1999, the Company obtained a variable rate, secured construction
loan of $32.5 million to finance the redevelopment of Alban Towers. The loan
bears interest at LIBOR plus 150 basis points (6.875% at September 30, 1999) and
matures in February 2002. The loan balance at September 30, 1999 was $1.3
million.
27
<PAGE>
As of September 30, 1999, the Company had mortgage indebtedness and other
borrowings, which carried a weighted average interest rate of 7.03%, as follows:
<TABLE>
<CAPTION>
Dollars in % of
Thousands Total
---------- ------
<S> <C> <C>
Fixed Rate Debt:
Mortgages $784,081 87.5%
Variable Rate Debt:
$100M Line of Credit 25,000 2.8%
$185M Line of Credit 13,000 1.4%
Construction Loans 73,095 8.2%
Other 488 0.1%
-------- -----
$895,664 100.0%
======== =====
</TABLE>
As of September 30, 1999, the Company had $342.7 million of unused borrowing
capacity on lines of credit and construction loans. Amounts outstanding under
lines of credit averaged $84.6 million for the nine months ended September 30,
1999 compared to $165.1 million for the nine months ended September 30, 1998.
As of September 30, 1999, the Company's Debt to Total Market Capitalization
Ratio was 38.8% (based on 19.8 million common shares, 2.6 million convertible
preferred shares, 13.8 million partnership units outstanding at a common stock
price of $34.188, $50 million of perpetual preferred stock, $80 million of
Series E and Series H convertible preferred shares, and $45 million of Series H
convertible preferred partnership units) versus 40.3% as of December 31, 1998
and 40.4% as of September 30, 1998.
The Company's Interest Coverage Ratio for the nine months ended September 30,
1999 was 3.39 to 1 compared to 3.06 for the comparable prior year period.
28
<PAGE>
Capital Expenditures
For the nine months ended September 30, 1999, total capital improvements
were $14.7 million, of which $11.2 million were for the core portfolio ($660 per
unit). Approximately 59% 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 (Carpet, Appliances) $ 2,359 $140
Water Saving Devices 380 22
Renovations (Kitchen and Bath) 2,369 140
Redevelopment 1,043 62
Other 416 25
------- ----
Total NOI Generating
Improvements 6,567 389
Non-NOI Generating
Improvements 4,591 271
------- ----
Total Capital Expenditures -
Core Portfolio $11,158 $660
======= ====
</TABLE>
29
<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 Phase II. 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 $2.0 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.
30
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
The Company amended the Articles of Incorporation to designate and
establish the rights and privileges of the Series E Cumulative
Convertible Redeemable Preferred Stock ("Series E Preferred Shares"),
Series F Cumulative Convertible Redeemable Preferred Stock ("Series F
Preferred Shares"), Series G Cumulative Convertible Redeemable
Preferred Stock ("Series G Preferred Shares"), and Series H Cumulative
Convertible Redeemable Preferred Stock ("Series H Preferred Shares").
Rights and privileges of preferred shareholders include voting,
dividend and liquidation preferences over the common shareholders.
On July 13, 1999, the Company issued 684,931 shares of Series E
Preferred Shares, $0.01 par value (liquidation preference of $36.50 per
share) for a total of $24.1 million, net of offering costs of $0.9
million. On October 1, 1999, the Company issued 666,667 shares of
Series F Preferred Shares, $0.01 par value (liquidation preference of
$37.50 per share) for a total of $24.4 million, net of offering costs
of $0.6 million. On November 5, 1999, the Company issued 641,026 shares
of Series G Preferred Shares, $0.01 par value (liquidation preference
of $39.00 per share) for a total of $24.6 million, net of offering
costs of $0.4 million. The dividend yield to be paid on the Series E
Preferred Shares, Series F Preferred Shares and Series G 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. Conversion to common stock is on a
one-for-one basis with call protection varying by series between three
and six years. The Company believes that such offerings and sales were
exempt from registration under the Securities Act of 1933, as amended
(the "Securities Act") by virtue of Section 4(2) of the Securities Act
and the provisions of Rule 506 of Regulation D.
On September 13, 1999, the Company issued 2,200,000 shares of Series H
Preferred Shares, $0.01 par value (liquidation preference of $25.00 per
share) for $53.5 million, net of offering costs of $1.5 million.
Dividends on the Series H Preferred Shares are payable quarterly at the
greater of 8.125% of the liquidation preference or the rate declared on
the shares of common stock of the Company into which a Series H
Preferred Share is convertible. The holders of the Series H Preferred
Shares have the right, at any time, to convert such shares to Common
Shares at the initial conversion price of $38.50 (equivalent to a
conversion rate of approximately 0.65 Common Shares for each Series H
Preferred Share). Simultaneously with the above, the Operating
Partnership issued 1.8 million units of Series H Cumulative Convertible
Redeemable Preferred Units ("Series H Preferred Units") for $43.7
million, net of offering costs of $1.3 million. The Series H Preferred
Units have terms similar to the Series H Preferred Shares. The Company
believes that such offering and sale was exempt from registration under
the Securities Act of 1933, as
31
<PAGE>
amended (the "Securities Act") by virtue of Section 4(2) of the
Securities Act and the provisions of Rule 506 of Regulation D.
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
(a) Exhibits:
99.1 Articles Supplementary for Series H Cumulative Convertible
Redeemable Preferred Stock
99.2 Twenty-fourth Amendment to First Amended and Restatement of
Agreement of Limited Partnership of the Operating Partnership
99.3 Twenty-fifth Amendment to First Amended and Restatement of
Agreement of Limited Partnership of the Operating Partnership
99.4 Twenty-sixth Amendment to First Amended and Restatement of
Agreement of Limited Partnership of the Operating Partnership
99.5 Twenty-seventh Amendment to First Amended and Restatement of
Agreement of Limited Partnership of the Operating Partnership
99.6 Third Amendment to First Amended and Restated Agreement of
1994 Employee Stock and Unit Option Plan of Charles E. Smith
Residential Realty, Inc.
99.7 First Amendment to First Amended and Restated 1994 Employee
Restricted Stock and Restricted Unit Plan
99.8 Certificate of Amendment of Amended and Restated By-laws of
Charles E. Smith Residential Realty, Inc.
(b) Reports on Form 8-K:
32
<PAGE>
A Form 8-K dated September 8, 1999 was filed on September 22, 1999 to
report the Company's announcement of its agreement to acquire Forte
Towers, a 1,339 unit, five building high-rise in South Beach,
Florida.
A Form 8-K/A dated July 2, 1999 was filed on September 16, 1999 to
report historical and pro forma financial information for Somerset,
Countryside, and The Consulate apartment properties which were
acquired by the Company on July 2, 1999.
33
<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, INC.
November 12, 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.
34
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
2345 Crystal Drive, Arlington, Virginia 22202
November 12, 1999
BY ELECTRONIC DELIVERY
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: CHARLES E. SMITH RESIDENTIAL REALTY, INC.
Submission of Quarterly Report on Form 10-Q
1934 Act File Number: 1-13174
Dear Ladies and Gentlemen:
As counsel to Charles E. Smith Residential Realty, Inc. (the "Company"), I am
transmitting herewith for filing in electronic format pursuant to Regulation S-T
under the Securities and Exchange Act of 1934 the Company's Quarterly Report for
the quarter ended September 30, 1999 on Form 10-Q (the "Report"). A manually
executed signature page has been executed and will be retained by the Company
for five years.
Under separate cover, I am also sending by overnight delivery one copy of the
Report to the New York Stock Exchange. Questions or comments with respect to
this filing should be directed to the undersigned at 703-769-1347 or Steven
Gulley, Chief Accounting Officer of the Company, at 703-769-5558.
Very truly yours,
/s/ Robert J. Owen, Jr.
Robert J. Owen, Jr.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,744
<PP&E> 1,615,064
<DEPRECIATION> (249,788)
<TOTAL-ASSETS> 1,489,183
<CURRENT-LIABILITIES> 48,344
<BONDS> 895,664
0
201,500
<COMMON> 175
<OTHER-SE> 201,655
<TOTAL-LIABILITY-AND-EQUITY> 1,489,183
<SALES> 0
<TOTAL-REVENUES> 218,749
<CGS> 0
<TOTAL-COSTS> 111,171
<OTHER-EXPENSES> 6,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,435
<INCOME-PRETAX> 70,086
<INCOME-TAX> 0
<INCOME-CONTINUING> 70,086
<DISCONTINUED> 0
<EXTRAORDINARY> 359
<CHANGES> 0
<NET-INCOME> 35,643
<EPS-BASIC> 1.86
<EPS-DILUTED> 1.81
</TABLE>
<PAGE>
EXHIBIT 99.1
Series H 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 H Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
====================
Dated as of September 10, 1999
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
====================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series H 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 2-602(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
at a meeting held on July 20, 1999 designating and classifying up to 4,040,404
unissued and undesignated shares of preferred stock as Series H Cumulative
Convertible Redeemable Preferred Stock (or such lesser number of shares as are
actually issued).
SECOND: The following is a description of the Series H 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 H Cumulative Convertible Redeemable
Preferred Stock and the number of shares which shall constitute such series
shall not be more than 2,200,000 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 H 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 H Preferred
Shares.
"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.
<PAGE>
"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 H Preferred Shares are convertible, as such Conversion
Price may be adjusted pursuant to Section 6. The initial conversion price
shall be $38.50 (equivalent to a conversion rate of approximately 0.65
Common Shares for each Series H 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 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 H Preferred Shares shall be redeemed pursuant to
Section 5, which shall end on and include the Call Date with respect to the
Series H Preferred Shares being redeemed).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"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
<PAGE>
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, the Series D
-------------------
Junior Participating Preferred Stock and any other class or series of
shares of capital stock of the Corporation now or hereafter issued and
outstanding over which the Series H 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 H Preferred
----------
Shares are issued.
"Junior Shares" shall mean the Common Shares, the Series D Junior
-------------
Participating Preferred Stock and any other class or series of capital
stock of the Corporation now or hereafter issued and outstanding over which
the Series H 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 H Preferred Shares" shall mean the shares of Series H
-------------------------
Cumulative Convertible Redeemable Preferred Stock.
4
<PAGE>
"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 H 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 H 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 designee as the transfer agent, registrar and dividend
disbursing agent for the Series H 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 H 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) 8.125% of the Liquidation Preference per annum (equivalent to $2.03125
per Series H Preferred Share) or (ii) the ordinary cash dividends
(determined on each Dividend Payment Date) on the Common Shares, or portion
thereof, into which a Series H 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 H
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
5
<PAGE>
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 H Preferred Shares with respect to such
Dividend Period, the Corporation shall pay an additional dividend to the
holders of the Series H 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 H
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 H 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 H Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due with respect to Series
H 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 H 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 H Preferred
Shares shall be computed on the basis of a 360-day year of twelve 30-day
months. Holders of Series H 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 H 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 H Preferred
Shares which may be in arrears.
(c) So long as any Series H 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 H
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 H 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 H Preferred Shares and
accumulated and unpaid on such Parity Shares.
(d) So long as any Series H 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
6
<PAGE>
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 H 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 H Preferred Shares and all past
dividend periods with respect to such Parity Shares, (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 H Preferred Shares and the current dividend
period with respect to such Parity Shares and (iii) any obligations of the
Corporation in respect of the Series H Preferred Shares called for
redemption by the Corporation pursuant to Section 5 have been satisfied in
full.
(e) No distributions on Series H 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 H Preferred Shares shall be entitled to receive Twenty Five
Dollars ($25.00) (the "Liquidation Preference") per Series H Preferred
----------------------
Share plus an amount equal to all dividends (whether or not earned or
declared) accumulated, 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 H 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 H Preferred Shares and any such other Parity
Shares ratably in accordance with the respective amounts that would be
payable on such Series H 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.
7
<PAGE>
(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 H 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 H 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 H Preferred Shares shall not be entitled to share
therein.
Section 5. Redemption at the Option of the Corporation.
-------------------------------------------
(a) The Series H Preferred Shares shall not be redeemable by the
Corporation prior to the fifth anniversary of the Issue Date. The Series H
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 H Preferred Share (plus
all accumulated, accrued and unpaid dividends as provided below).
(b) Upon any redemption of Series H 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 H 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 H Preferred Shares called for redemption.
(c) If full cumulative dividends on the Series H 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 H
Preferred Shares may not be redeemed under this Section 5 in part and the
Corporation may not purchase or acquire Series H Preferred Shares,
otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Series H Preferred Shares.
(d) Notice of the redemption of any Series H Preferred Shares under
this Section 5 shall be sent by facsimile and by overnight courier at the
facsimile number and address provided by the holder to the Corporation to
each holder of record of Series H 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 60 days prior to the Call Date. Neither the failure
to send any notice required by this paragraph (d), nor any defect therein
or in the sending 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 sent in the manner
herein provided shall be conclusively presumed to have been duly given on
the date sent whether or not the holder receives the notice. Each such sent
notice shall state, as appropriate: (1) the Call Date; (2) the number of
Series H 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
8
<PAGE>
from such holder; (3) the redemption price; (4) the place or places at
which certificates for such shares are to be surrendered; (5) the then-
current Conversion Price; and (6) that dividends on the shares to be
redeemed shall cease to accrue on such Call Date except as otherwise
provided herein. Notice having been mailed as aforesaid, from and after the
Call Date (unless the 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 H 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 H Preferred Shares of the Corporation shall cease (except the rights
to convert and to receive the cash payable upon such redemption, without
interest thereon, upon surrender and endorsement of their certificates if
so required and to receive any dividends payable thereon). The
Corporation's obligation to provide 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 $250,000,000,
necessary for such redemption, in trust, with irrevocable instructions that
such cash be applied to the redemption of the Series H Preferred Shares so
called for redemption. No interest shall accrue for the benefit of the
holders of Series H 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 H Preferred Shares are to be
redeemed, shares to be redeemed shall be selected by the Corporation from
outstanding Series H Preferred Shares not previously called for redemption
pro rata in proportion to the aggregate number of Series H Preferred Shares
held by each holder (as nearly as may be). If fewer than all the Series H
Preferred Shares represented by any certificate are redeemed, then new
certificates representing the unredeemed shares shall be issued without
cost to the holder thereof.
Section 6. Conversion. Holders of Series H 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 H 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; 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.
9
<PAGE>
(b) In order to exercise the conversion right, the holder of each
Series H 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 H
Preferred Shares. Unless the shares issuable on conversion are to be issued
in the same name as the name in which such Series H 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 H 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 H
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 H 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 H 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 H
Preferred Shares on such date, and the converting holder need not include
payment of the amount of such dividend upon surrender of Series H 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 H 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 H 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
10
<PAGE>
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 H Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise
be deliverable upon the conversion of a Series H 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 H Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after the Issue Date (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 H 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 H 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 the Issue Date
rights, options or warrants to all holders of Common Shares entitling
them (for a period expiring within 45 days after the record date
mentioned below) to subscribe for or purchase Common Shares at a price
per share less than 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)
11
<PAGE>
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 H Preferred Shares
or any other class or series of preferred stock of the Corporation
after the Issue Date) or rights, options or warrants to subscribe for
or purchase any of its securities (excluding those rights, options and
warrants issued to all holders of Common Shares entitling them for a
period expiring within 45 days after the record date referred to in
subparagraph (ii) above to subscribe for or purchase Common Shares,
which rights and warrants are referred to in and treated under
subparagraph (ii) above) (any of the foregoing being hereinafter in
this subparagraph (iii) collectively called the "Securities" and
----------
individually a "Security"), then in each such case the Conversion
--------
Price shall be adjusted so that it shall equal the price determined by
multiplying (x) the Conversion Price in effect immediately prior to
the close of business on the date fixed for the determination of
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,
12
<PAGE>
but also is distributed with each Common Share delivered to a Person
converting a Series H 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 H 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 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
13
<PAGE>
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 H 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 H
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 H Preferred
Shares that will contain provisions enabling the holders of the Series H
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.
14
<PAGE>
(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 H Preferred Shares
or any other class or series of preferred shares of capital stock of
the Corporation after the Issue Date); 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 H 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 adjustment and shall mail such notice of such
adjustment of the Conversion Price to
15
<PAGE>
the holder of each Series H 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 H 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 H Preferred Shares, the
Conversion Price for the Series H 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 H Preferred Shares, the full number of Common
Shares deliverable upon the conversion of all outstanding Series H
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 H 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 H 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 H 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 H 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.
16
<PAGE>
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 H 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 H
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 H 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 H 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 H 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 H Preferred Shares;
(b) on a parity with the Series H 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 H Preferred Shares, if the holders of such class or
series and the Series H 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 H 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 H 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.
17
<PAGE>
Section 9. Voting. If and whenever six quarterly dividends (whether or
------
not consecutive) payable on the Series H 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 H
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 H Preferred Shares and the Voting Preferred Shares
called as hereinafter provided. Whenever all arrears in dividends on the Series
H 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 H 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 H 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 H Preferred Shares and the
Voting Preferred Shares, the Secretary of the Corporation may, and upon the
written request of any holder of Series H Preferred Shares (addressed to the
Secretary at the principal office of the Corporation) shall, call a special
meeting of the holders of the Series H 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 H 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 H 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 H
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 H 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-
2/3% of the votes entitled to be cast by the holders of the Series H 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 H
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 H Preferred Shares
or any
18
<PAGE>
Parity Shares shall not be deemed to materially adversely affect the
voting powers, rights or preferences of the holders of Series H Preferred
Shares; or
(b) A share exchange that affects the Series H 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 H 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 H Preferred Share (except for changes that do not
materially and adversely affect the holders of the Series H 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 H
Preferred Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation or in the payment of
dividends; or
(d) Any increase in the authorized number of Series H Preferred
Shares or decrease in the authorized number of Series H Preferred Shares
below the number of shares then issued and outstanding;
provided, however, that no such vote of the holders of Series H 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 H 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 H
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 H
Preferred Shares as a single class on any matter, then the Series H Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $25.00 of stated liquidation preference. Except as otherwise required
by applicable law or as set forth herein, the Series H 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 H 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.
19
<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.
September 10, 1999.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By: /s/ Ernest A. Gerardi, Jr.
Name: Ernest A. Gerardi, Jr.
Its: President
I, Robert D. Zimet, Secretary, hereby acknowledge on behalf of Charles E. Smith
Residential Realty, Inc. that the foregoing Articles Supplementary are the
corporate act of said corporation under penalties of perjury.
Attest:
/s/ Robert D. Zimet
Robert D. Zimet
Secretary
<PAGE>
EXHIBIT 99.2
TWENTY-FOURTH AMENDMENT TO
FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
THIS TWENTY-FOURTH AMENDMENT TO THE FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF CHARLES E. SMITH RESIDENTIAL REALTY L.P.
(this "Twenty-Fourth Amendment"), dated as of August 12, 1999, is entered into
by Charles E. Smith Residential Realty, Inc., 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.
W I T N E S S E T H
-------------------
WHEREAS, Charles E. Smith Residential Realty, Inc. is the general
partner of the Partnership;
WHEREAS, on the date hereof, pursuant to that certain Stock and Debt
Contribution and Purchase Agreement (the "Purchase Agreement") among (i) the
Partnership, (ii) Consolidated Engineering Services Partnership, a Delaware
general partnership, (iii) The Kirlin Family Partnership, a Maryland general
partnership ("KFP"), (iv) John J. Kirlin ("JJK"), (v) Mary Ann Kirlin ("MAK")
(vi) Kirlin Enterprises, Inc., a Maryland corporation ("KEI") (KEI and together
with KFP, JJK and MAK, the "Owners"), (vii) Timothy J. Kirlin, (viii) Thomas J.
Kirlin, (ix) Mary Ann K. Huntington, (x) John P. Kirlin II, (xi) Combustioneer
Corporation, a Maryland corporation ("Combustioneer"), and (xii) AAS
Environmental, Inc., a Delaware corporation ("AAS"), the Owners contributed to
the Partnership all of the shares of nonvoting common stock of Combustioneer and
all of the shares of nonvoting common stock of AAS in exchange for, among other
things, an aggregate amount of 161,765 Class B Units of limited partnership
interest in the Partnership ("Units");
WHEREAS, the Owners have requested the Partnership to issue the Units;
WHEREAS, the General Partner desires to amend the Partnership
Agreement (i) to reflect the admission of the Owners as Additional Limited
Partners as set forth on Exhibit A, and (ii) to amend Exhibit A to the
Partnership Agreement to incorporate such changes, as set forth in Exhibit A
hereto, which is incorporated herein by this reference; and
WHEREAS, pursuant to Section 4.2 of the Partnership Agreement, the
General Partner has the power, in its sole and absolute discretion, to consent
to the admission of Additional Limited Partners, and pursuant to Section 12.3
of the Partnership Agreement, the General Partner has the power, in its sole and
absolute discretion, to amend Exhibit A to the Partnership Agreement to reflect
the name, address and Percentage Interest of any Additional Limited Partner and
the number of Partnership Units of such Additional Limited Partner.
<PAGE>
NOW, THEREFORE, in consideration of the premises and for good and
valuable consideration, the General Partner hereby amends the Partnership
Agreement to admit the Owners as Additional Limited Partners of the Partnership
on the terms and conditions set forth in the Partnership Agreement, and amends
Exhibit A to the Partnership Agreement to incorporate the changes reflected on
Exhibit A hereto.
- ---------
All capitalized terms used herein and not otherwise defined shall have
the meanings assigned in the Partnership Agreement. Except as modified herein,
all covenants, terms and conditions of the Partnership Agreement shall remain in
full force and effect, which covenants, terms and conditions the General Partner
hereby ratifies and affirms.
IN WITNESS WHEREOF, the undersigned has executed this Twenty-Fourth
Amendment as of the 12th day of August, 1999.
CHARLES E. SMITH RESIDENTIAL
REALTY, INC., as General Partner of
Charles E. Smith Residential Realty L.P.
By: /s/ Ernest A. Gerardi, Jr.
Name: Ernest A. Gerardi, Jr.
Its: President
2
<PAGE>
EXHIBIT A
PARTNERS' CONTRIBUTIONS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Agreed Value of Capital Class B
Name and Address of Cash Contributed Total Cash Account after Partnership
Owner Contribution Property Contribution Distribution Distribution Units
-------------------- ------------ --------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Limited Partners:
- -----------------
The Kirlin Family
Partnership $0 $4,899,060 $4,899,060 $0 $4,899,060 144,090
John J. Kirlin and
Mary Ann Kirlin
(JTWROS) $0 $ 3,060 $ 3,060 $0 $ 3,060 90
John J. Kirlin $0 $ 22,338 $ 22,338 $0 $ 22,338 657
Kirlin Enterprises, Inc. $ 575,552 $ 575,552 $ 575,552 16,928
TOTAL $0 $5,500,010 $5,500,010 $0 $5,500,010 161,765
</TABLE>
<PAGE>
EXHIBIT 99.3
TWENTY-FIFTH AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
THIS TWENTY-FIFTH AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CHARLES E. SMITH RESIDENTIAL REALTY L.P. (this "Twenty-
Fifth Amendment"), dated as of September 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, (i) the General Partner and the Partnership have entered into a
Purchase Agreement with an investor, dated as of September 8, 1999, pursuant to
which the General Partner has agreed to issue to the investor shares of a newly
created series of capital stock, designated Series H Cumulative Convertible
Redeemable Preferred Stock (the "Series H Preferred Stock") and the Partnership
has agreed to issue to such investor and the General Partner a new class of
Units of limited partnership interest in the Partnership, to be entitled Series
H Cumulative Convertible Redeemable Preferred Units (the "Series H Preferred
Units") and (ii) the General Partner has entered into a Preferred Share Purchase
Agreement with an investor, dated as of September 10, 1999, pursuant to which
the General Partner has agreed to issue shares of Series H Preferred Stock to
such investor; and
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, 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 H Cumulative Convertible Redeemable Preferred
Units, and to set forth the designations, rights, powers, preferences and duties
of such Series H Preferred Units, which are substantially the same as those of
the Series H 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.H the following section:
<PAGE>
I. Series H 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 H Cumulative
Convertible Redeemable Preferred Units" (the "Series H Preferred Units").
Series H Preferred Units shall have the designations, preferences,
rights, powers and duties as set forth in Exhibit K 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 H Preferred
Units pursuant to this Twenty-Fifth 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 K the Exhibit K attached hereto.
--------- ---------
3. Certain Capitalized Terms. All capitalized terms used in this
-------------------------
Twenty-Fifth 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-Fifth
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 K
DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS AND LIMITATIONS AS TO
SERIES H PREFERRED UNITS
The Series H Preferred Units shall have the following designations,
preferences, rights, powers and duties:
(1) Certain Defined Terms. The following capitalized terms used in this
---------------------
Exhibit K shall have the respective meanings set forth below:
- ---------
"Board of Directors" shall mean the Board of Directors of the General
Partner or any committee authorized by such Board of Directors to perform any of
its responsibilities with respect to the Series H Preferred Stock.
"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.
"Conversion Price" shall mean the conversion price per Class A Unit for
which the Series H Preferred Units are convertible, as such Conversion Price may
be adjusted pursuant to Section 5. The initial conversion price shall be $38.50
(equivalent to a conversion rate of approximately 0.65 Class A Units for each
Series H Preferred Unit).
"Current Market Price" of Class A Units for any day shall equal the product
of (x) the Conversion Factor then in effect times (y) the last reported sales
price for a REIT Share, regular way on such day, or, if no sale takes place on
such day, the average of the reported closing bid and asked prices for REIT
Shares on such day, regular way, in either case as reported on the New York
Stock Exchange ("NYSE") or, if the REIT Shares are not listed or admitted for
trading on the NYSE, on the principal national securities exchange on which the
REIT Shares are 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 the REIT Shares are not quoted on such National Market System,
the average of the closing bid and asked prices for the REIT Shares on such day
in the over-the-counter market as reported by NASDAQ or, if bid and asked prices
for the REIT Shares 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 the REIT Shares selected for such purpose by
the Board of Directors of the General Partner.
"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 H Preferred Stock, which date shall not be later than the forty-fifth
calendar day after the end of the applicable Distribution Period.
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<PAGE>
"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 H
Preferred Units shall be redeemed pursuant to Section 4, which shall end on and
include the Redemption Date (as defined in Section 4(B)).
"Fair Market Value" shall mean the average of the daily Current Market
Prices of a Class A Unit on the five (5) consecutive Trading Days selected by
the General Partner commencing not more than 20 Trading Days before, and ending
not later than, the earlier of the day in question and the day before 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 REIT Shares for which Class A Units are
redeemable trade regular way, without the right to receive the corresponding
issuance or distribution, on the exchange or in the market, as the case may be,
used to determine that day's Current Market Price.
"Fully Junior Units" shall mean the Common Units, the Series D Junior
Participating Preferred Units and any other class or series of Partnership Units
now or hereafter issued and outstanding over which the Series H 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.
"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 Partnership interests or minority interests (as reflected in
the financial statements of the General Partner) plus depreciation/amortization
of assets unique to the real estate industry, all computed in a manner
consistent with the revised definition of Funds From Operations adopted by the
National Association of Real Estate Investment Trusts (NAREIT), in its White
Paper dated March 1995, as such definitions may be modified from time to time,
as determined by the General Partner in good faith.
"Issue Date" shall mean the date on which the first Series H Preferred
Units are issued.
"Junior Units" shall mean the Common Units, the Series D Junior
Participating Preferred Units and any other class or series of Partnership Units
now or hereafter issued and outstanding over which the Series H 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).
"Set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Partnership in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of
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<PAGE>
distribution by the Board of Directors, the allocation of funds to be so paid on
any series or class of Partnership Units; provided, however, that if any funds
for any class or series of Junior Units or any class or series of Partnership
Units ranking on a parity with the Series H Preferred Units as to the payment of
distributions are placed in a separate account of the Partnership or delivered
to a disbursing, paying or other similar agent, then "set apart for payment"
with respect to the Series H Preferred Units shall mean placing such funds in a
separate account or delivering such funds to a disbursing, paying or other
similar agent.
"Trading Day" shall mean any day on which the securities in question
(which, in the case of Class A Units, shall be deemed to be REIT Shares) 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.
(2) Distributions.
-------------
(A) The holders of the then outstanding Series H 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 H Preferred Unit equal to the greater of (i) $2.03125 per
Series H Preferred Unit or (ii) the ordinary cash distributions (determined on
each Distribution Date) paid on the number of Class A Units, or portion thereof,
into which a Series H Preferred Unit is convertible. The distributions referred
to in clause (ii) of the preceding sentence shall equal the number of Class A
Units, or portion thereof, into which a Series H 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 (ii) of the first sentence of this Section 2(A) is greater
than the distribution previously declared on the Series H Preferred Units with
respect to such Distribution Period, the Partnership shall pay an additional
distribution in respect of the Series H 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 (ii) of the first
sentence of this Section 2(A) and (z) the amount of distributions previously
declared on the Series H 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 holders of the Series H Preferred Units on
such date as may be fixed by the General Partner for payment of the
corresponding dividend on the Series H Preferred Stock. Any distribution made on
the Series H Preferred Units shall first be credited against the
K-3
<PAGE>
earliest accrued but unpaid distribution due with respect to Series H Preferred
Units which remains payable.
(B) The amount of distributions referred to in clause (i) of the
first sentence of Section 2(A) shall be equal to the annual distribution rate
payable for each full Distribution Period on the Series H Preferred Units
divided 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 H Preferred Units shall
be computed on the basis of a 360-day year of twelve 30-day months. No interest,
or sum of money in lieu of interest, shall be payable in respect of any
distribution payment or payments on the Series H Preferred Units that may be in
arrears.
(C) So long as any Series H 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 H 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 H 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 H Preferred Units and accumulated and unpaid on such Parity
Units.
(D) So long as any Series H 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 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 H 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 H Preferred Units and all past distribution
periods with respect to such Parity Units, (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 H Preferred Units and the current
distribution period with respect to such Parity Units and (iii) any obligations
of the General Partner in respect of the Series H Preferred Units called for
redemption by the General Partner pursuant to Section 4 have been satisfied in
full.
K-4
<PAGE>
(E) No distributions on the Series H 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.
(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 holders of the Series H Preferred Units shall
be entitled to receive Twenty Five Dollars ($25.00) (the "Series H Liquidation
Preference") per Series H Preferred Unit plus an amount equal to all
distributions (whether or not earned or declared) accumulated, accrued and
unpaid thereon to the date of final distribution to such holders; but the
holders of the Series H 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 (i) of the first sentence of Section
2(A) or (ii) the distribution determined pursuant to clause (ii) 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 holders of the Series H
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
holders of the Series H Preferred Units and the holders of such other Parity
Units ratably in accordance with the respective amounts that would be payable on
such Series H 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 H Preferred
Units upon any liquidation, dissolution or winding up of the Partnership, after
payment shall have been made in full to the holders of the Series H 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 holders of the Series H Preferred Units shall not be
entitled to share therein.
4. Redemption Right relating to Series H Preferred Units.
-----------------------------------------------------
(A) General Provisions.
------------------
K-5
<PAGE>
(i) Except as provided in Section 4(D), the Series H Preferred
Units shall not be redeemable by the Partnership prior to the fifth anniversary
of the Issue Date. At any time on or after the fifth anniversary of the Issue
Date, the General Partner may cause the Partnership to redeem the Series H
Preferred Units, in whole or in part, pro rata in proportion to the aggregate
number of Series H Preferred Units held by each holder (as nearly as may be),
for cash in an amount per Series H Preferred Unit equal to the Series H
Liquidation Preference plus accrued and unpaid distributions, in each case
subject to the conditions set forth below.
(ii) Upon any redemption of Series H Preferred Units, the
Partnership shall pay any accrued and unpaid distributions with respect to the
Series H 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 holders
of the Series H Preferred Units being redeemed shall be entitled to
distributions payable on the corresponding Distribution Date notwithstanding the
redemption of such Series H 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 H Preferred Units
called for redemption.
(iii) If full cumulative distributions on the Series H Preferred
Units and any other class or series of Parity Units of the Partnership have not
been declared and paid or declared and set apart for payment, the Series H
Preferred Units may not be redeemed under this Section 4 in part and the General
Partner may not purchase or acquire Series H Preferred Units, otherwise than
pursuant to a purchase or exchange offer made on the same terms to all holders
of Series H Preferred Units.
(B) Redemption of Series H Preferred Units held by the General Partner.
------------------------------------------------------------------
(i) The Series H Preferred Units held by the General Partner shall
be redeemed only if the General Partner shall concurrently therewith redeem an
equivalent number of shares of Series H Preferred Stock for cash. Such
redemption of Series H Preferred Units shall occur substantially concurrently
with the redemption by the General Partner of such Series H Preferred Stock
(such date of redemption, (the "Redemption Date").
(ii) In the event that the General Partner redeems shares of Series H
Preferred Stock for cash (including payments of cash in lieu of fractional REIT
Shares), the Partnership shall redeem a like number of Series H Preferred Units
in exchange for the amount of cash that the General Partner is required to pay
pursuant to the terms of the Series H Preferred Stock in connection with such
redemption.
(C) Redemption of Series H Preferred Units held by Persons other than the
---------------------------------------------------------------------
General Partner.
---------------
(i) The General Partner shall cause the Partnership to redeem the
Series H Preferred Units held by Persons other than the General Partner
concurrently with the redemption of Series H Preferred Units held by the General
Partner and
K-6
<PAGE>
substantially concurrently with the redemption by the General Partner of Series
H Preferred Stock on the Redemption Date.
(ii) Notice of the redemption of any Series H Preferred Units under
this Section 4(C) shall be sent by facsimile and by overnight courier at the
facsimile number and address provided by the holder to the General Partner to
such holder of record of Series H Preferred Units to be redeemed at the address
of each such holder as shown on the General Partner's records, not less than 30
nor more than 60 days prior to the Redemption Date. Neither the failure to send
any notice required by this paragraph (ii), nor any defect therein or in the
sending 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 sent in the manner herein provided shall be
conclusively presumed to have been duly given on the date sent whether or not
the holder receives the notice. Each such sent notice shall state, as
appropriate: (1) the Redemption Date; (2) the number of Series H Preferred
Units to be redeemed and, if fewer than all the units held by such holder are to
be redeemed, the number of Series H Preferred Units to be redeemed from such
holder; (3) the redemption price; (4) the then-current Conversion Price; and (5)
that distributions on the units to be redeemed shall cease to accrue on such
Redemption Date except as otherwise provided herein. Notice having been mailed
as aforesaid, from and after the Redemption Date (unless the General Partner
shall fail to make available an amount of cash necessary to effect such
redemption), (i) except as otherwise provided herein, distributions on the
Series H Preferred Units so called for redemption shall cease to accrue, (ii)
such Series H Preferred Units shall no longer be deemed to be held by such
holder, and (iii) all rights of the holders thereof as holders of Series H
Preferred Units of the Partnership shall cease (except the rights to convert and
to receive the cash payable upon such redemption, without interest thereon and
to receive any distributions payable thereon). The General Partner's obligation
to provide cash in accordance with the preceding sentence shall be deemed
fulfilled if, on or before the Redemption Date, the General Partner shall
deposit with a bank or trust company (which may be an affiliate of the General
Partner) 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 $250,000,000, necessary for such redemption, in trust, with
irrevocable instructions that such cash be applied to the redemption of the
Series H Preferred Units so called for redemption. No interest shall accrue for
the benefit of the holders of Series H Preferred Units to be redeemed on any
cash so set aside by the General Partner. Subject to applicable escheat laws,
any such cash unclaimed at the end of two years from the Redemption Date shall
revert to the general funds of the General Partner, after which reversion the
holders of such Series H Preferred Units so called for redemption shall look
only to the general funds of the General Partner for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of certificates for any Series H Preferred Units so redeemed, such Series
H Preferred Units shall be exchanged for any cash (without interest thereon) for
which such Series H Preferred Units have been redeemed.
(D) If fewer than all the outstanding Series H Preferred Units are to be
redeemed, Series H Preferred Units to be redeemed shall be selected by the
General Partner from outstanding Series H Preferred Units not previously called
for
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<PAGE>
redemption pro rata in proportion to the aggregate number of Series H Preferred
Units held by each holder (as nearly as may be), including the General Partner.
5. Conversion to Class A Units.
---------------------------
(A) Conversion by Persons other than the General Partner. Holders of
Series H Preferred Units (other than the General Partner) shall have the right
to convert all or a portion of such Series H Preferred Units into Class A Units
as follows:
(i) Subject to and upon compliance with the provisions of this
Section 5, a holder of Series H Preferred Units shall have the right, at any
time, at his or her option, to convert such Series H Preferred Units into the
number of Class A Units obtained by dividing the aggregate Liquidation
Preference of such Series H Preferred Units (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 (ii) of this Section 5(A));
provided, however, that the right to convert Series H Preferred Units called for
- -------- -------
redemption pursuant to Section 4 shall terminate at the close of business on the
fifth Business Day prior to the Redemption Date fixed for such redemption,
unless the General Partner shall default in making payment of the cash payable
upon such redemption under Section 4.
(ii) In order to exercise the conversion right, the holder of each
Series H Preferred Unit (other than the General Partner) to be converted shall
surrender the certificate representing such Series H Preferred Unit, accompanied
by written notice to the General Partner that the holder thereof elects to
convert such Series H Preferred Units. Unless the Class A Units issuable on
conversion are to be issued in the same name as the name in which such Series H
Preferred Unit is registered, each Series H Preferred Unit surrendered for
conversion shall be accompanied by instruments of transfer, in form satisfactory
to the General Partner, 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 General Partner demonstrating that
such taxes have been paid).
Holders of Series H Preferred Units at the close of business on a
distribution record date shall be entitled to receive the distribution payable
on such Series H Preferred Units on the corresponding Distribution Date
notwithstanding the conversion thereof following such distribution record date
and prior to such Distribution Date. However, Series H Preferred Units to be
converted during the period between the close of business on any distribution
record date and the opening of business on the corresponding Distribution Date
(except Series H Preferred Units converted after the issuance of notice of
redemption with respect to a Redemption Date during such period, such Series H
Preferred Units being entitled to such distribution on the Distribution Date)
must be accompanied by payment of an amount equal to the distribution payable on
such Series H Preferred Units on such Distribution Date. A holder of Series H
Preferred Units (other than the General Partner) on a distribution record date
who (or whose transferee) tenders the notice for conversion of any such Series H
Preferred Units into Class A Units on the corresponding Distribution Date will
receive the distribution payable by the General Partner on such Series H
Preferred Units on such date, and the converting holder need not include payment
of the amount of such distribution upon tender of such
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<PAGE>
notice for conversion of Series H Preferred Units. Except as provided above, the
General Partner shall make no payment or allowance for unpaid distributions,
whether or not in arrears, on converted shares or for distributions on the Class
A Units issued upon such conversion.
As promptly as practicable after the surrender of certificates
representing the Series H Preferred Units, the General Partner 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 Class A Units issuable upon
the conversion of such Series H Preferred Units in accordance with provisions of
this Section 5(A), and any fractional interest in respect of a Class A Unit
arising upon such conversion shall be settled as provided in paragraph (iii) of
this Section 5(A).
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
H Preferred Units shall have been received by the General Partner (and if
applicable, payment of an amount equal to the distribution payable on such
Series H Preferred Units shall have been received by the General Partner as
described above), and the person or persons in whose name or names any
certificate or certificates for Class A Units shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
Class A Units 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
transfer books of the Partnership 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
transfer books are open, but such conversion shall be at the Conversion Price in
effect on the date on which such notice of conversion is received by the General
Partner.
(iii) No fractional Class A Units or scrip representing fractions of
Class A Units shall be issued upon conversion of the Series H Preferred Units.
Instead of any fractional interest in a Class A Unit that would otherwise be
issuable upon the conversion of a Series H Preferred Unit, the General Partner
shall pay to the holder of such Class A Units an amount in cash based upon the
Current Market Price of the Class A Units on the Trading Day immediately
preceding the date of conversion. If more than one Series H Preferred Unit
shall be surrendered for conversion at one time by the same holder, the number
of full Class A Units issuable upon conversion thereof shall be computed on the
basis of the aggregate number of Series H Preferred Units so converted.
(iv) The Conversion Price shall be adjusted from time to time as
follows:
(a) If the Partnership shall after the Issue Date (1) make a
distribution on its Partnership Units in Class A Units, (B) subdivide its
outstanding Class A Units into a greater number of Partnership Units, (C)
combine its outstanding Class A Units into a smaller number of Partnership Units
or (D) issue any Partnership Units by reclassification of its Class A Units, the
Conversion Price in effect at the opening of business on the day following the
date fixed for the determination of Class A Unitholders entitled to receive such
distribution or at the opening of business on
K-9
<PAGE>
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 H Preferred Units (other than the General Partner)
thereafter surrendered for conversion shall be entitled to receive the number of
Class A Units 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 H
Preferred Units had been converted immediately prior to the record date in the
case of a distribution or the effective date in the case of a subdivision,
combination or reclassification. An adjustment made pursuant to this
subparagraph (a) shall become effective immediately after the opening of
business on the Business Day next following the record date (except as provided
in paragraph (viii) below) in the case of a distribution and shall become
effective immediately after the opening of business on the Business Day next
following the effective date in the case of a subdivision, combination or
reclassification.
(b) If the Partnership shall issue after the Issue Date rights,
options or warrants to all holders of Class A Units entitling them (for a period
expiring within 45 days after the record date mentioned below) to subscribe for
or purchase Class A Units at a price per share less than 94% (100% if a stand-by
underwriter is used and charges the Partnership a commission) of the Fair Market
Value per Class A Unit on the record date for the determination of Class A
Unitholders entitled to receive such rights, options or warrants, then the
Conversion Price in effect at the opening of business on the Business Day next
following such record date shall be adjusted to equal the price determined by
multiplying (1) 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 (2) a fraction, the numerator of which shall be the sum of (x)
the number of Class A Units outstanding on the close of business on the date
fixed for such determination and (y) the number of Partnership Units that the
aggregate proceeds to the Partnership from the exercise of such rights, options
or warrants for Class A Units 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 Class A Units outstanding on the close of
business on the date fixed for such determination and (y) the number of
additional Class A Units offered for subscription or purchase pursuant to such
rights, options or warrants. Such adjustment shall become effective immediately
after the opening of business on the day next following such record date (except
as provided in paragraph (viii) below). In determining whether any rights,
options or warrants entitle the holders of Class A Units to subscribe for or
purchase Class A Units 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 Partnership upon issuance and upon exercise of
such rights, options or warrants, the value of such consideration, if other than
cash, to be determined by the Partnership.
(c) If the Partnership shall distribute to all holders of its Class A
Units any securities of the Partnership (other than Class A Units) or evidence
of its indebtedness or assets (excluding cumulative cash distributions paid with
respect to the Class A Units after December 31, 1998 which are not in excess of
the following: the sum of (1) the Partnership's cumulative undistributed Funds
from Operations at December 31, 1998, plus (2) the cumulative amount of Funds
from Operations, as determined by the Partnership, after December 31, 1998,
minus (3) the cumulative
K-10
<PAGE>
amount of distributions accrued or paid in respect of the Series H Preferred
Units or any other class or series of Preferred Units after the Issue Date) or
rights, options or warrants to subscribe for or purchase any of its securities
(excluding those rights, options and warrants issued to all holders of Class A
Units entitling them for a period expiring within 45 days after the record date
referred to in subparagraph (b) above to subscribe for or purchase Class A
Units, which rights and warrants are referred to in and treated under
subparagraph (b) above) (any of the foregoing being hereinafter in this
subparagraph (c) 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 (i) the Conversion Price
in effect immediately prior to the close of business on the date fixed for the
determination of Class A Unitholders entitled to receive such distribution by
(ii) a fraction, the numerator of which shall be the Fair Market Value per Class
A Unit on the record date mentioned below less the then fair market value (as
determined by the Partnership 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 Class A Unit, and the
denominator of which shall be the Fair Market Value per Class A Unit on the
record date mentioned below. Such adjustment shall become effective immediately
at the opening of business on the Business Day next following (except as
provided in paragraph (viii) below) the record date for the determination of
Class A Unitholders entitled to receive such distribution. For the purposes of
this subparagraph (c), the distribution of a Security, which is distributed not
only to the holders of the Class A Units on the date fixed for the determination
of Class A Unitholders entitled to such distribution of such Security, but also
is distributed with each Class A Unit delivered to a Person converting a Series
H Preferred Unit after such determination date, shall not require an adjustment
of the Conversion Price pursuant to this subparagraph (c); provided that on the
--------
date, if any, on which a person converting a Series H Preferred Unit would no
longer be entitled to receive such Security with a Class A Unit (other than as a
result of the termination of all such Securities), a distribution of such
Securities shall be deemed to have occurred and the Conversion Price shall be
adjusted as provided in this subparagraph (c) (and such day shall be deemed to
be "the date fixed for the determination of the Class A Unitholders entitled to
receive such distribution" and "the record date" within the meaning of the two
preceding sentences).
(d) In case a tender or exchange offer (which term shall not include
open market repurchases by the Partnership) made by the Partnership or any
subsidiary of the Partnership for all or any portion of the Class A Units shall
expire and such tender or exchange offer shall involve the payment by the
Partnership or such subsidiary of consideration per Class A Unit having a fair
market value (as determined in good faith by the Partnership, whose
determination shall be conclusive and described in a resolution of the Board of
Directors on behalf of the Partnership), 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 Class A Unit on the Trading Day
next succeeding the Expiration Time, the Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph, by a fraction of which the
numerator shall be the number of Class A Units outstanding (including any
tendered or exchanged shares) at the Expiration Time, multiplied by the Current
Market Price
K-11
<PAGE>
per Class A Unit on the Trading Day next succeeding the Expiration Time, and the
denominator shall be the sum of (1) the fair market value (determined as
aforesaid) of the aggregate consideration payable to Class A Unitholders based
upon the acceptance (up to any maximum specified in the terms of the tender or
exchange offer) of all units validly tendered or exchanged and not withdrawn as
of the Expiration Time (the units deemed so accepted, up to any maximum, being
referred to as the "Purchased_Units") and (2) the product of the number of
Common Units outstanding (less any Purchased Units) at the Expiration Time and
the Current Market Price per Class A Unit on the Trading Day next succeeding the
Expiration Time, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time.
(e) 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 (e) 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 5(A) (other than this subparagraph (e)) not later than such time
as may be required in order to preserve the tax-free nature of a distribution to
the holders of Class A Units. Notwithstanding any other provisions of this
Section 5(A), the Partnership shall not be required to make any adjustment of
the Conversion Price for the issuance of any Class A Units pursuant to any plan
providing for the reinvestment of distributions or interest payable on
securities of the Partnership and the investment of additional optional amounts
in Class A Units under such plan. All calculations under this Section 5(A)
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 (e) to the contrary notwithstanding,
the Partnership shall be entitled, to the extent permitted by law, to make such
reductions in the Conversion Price, in addition to those required by this
paragraph (e), as it in its discretion shall determine to be advisable in order
that any distributions in Partnership Units, subdivision of Partnership Units,
reclassification or combination of Partnership Units, distribution of rights or
warrants to purchase Partnership Units or securities, or distribution of other
assets (other than cash distributions) hereafter made by the Partnership to its
Partnership Unitholders shall not be taxable.
(v) If the Partnership 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 Class A Units, sale of all or
substantially all of the Partnership's assets or recapitalization of the Class A
Units and excluding any transaction as to which subparagraph (iv)(a) of this
Section 5(A) 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 Partnership's Class A Units are converted into the right to receive units,
securities or other property (including cash or any combination thereof), each
Series H Preferred Unit (other than those owned by the General Partner) which is
not redeemed or converted into the right to receive Partnership Units,
securities or other property prior to such Transaction shall thereafter be
convertible into the kind and amount of Partnership Units, securities and other
property (including cash or any combination thereof) receivable upon the
consummation of
K-12
<PAGE>
such Transaction by a holder of that number of Class A Units into which one
Series H Preferred Unit was convertible immediately prior to such Transaction,
assuming such holder of Class A Units (1) is not a Person with which Partnership
consolidated or into which the Partnership merged or which merged into the
Partnership or to which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person and (2) failed
to exercise his rights of election, if any, as to the kind or amount of
Partnership Units, securities and other property (including cash) receivable
upon such Transaction (provided that if the kind or amount of Partnership Units,
securities and other property (including cash) receivable upon such Transaction
is not the same for each Class A Unit held immediately prior to such Transaction
by other than a Constituent Person or an affiliate thereof and in respect of
which such rights of election shall not have been exercised ("Non-Electing
Unit"), then for the purpose of this paragraph (v) the kind and amount of
Partnership Units, securities and other property (including cash) receivable
upon such Transaction by each Non-Electing Unit shall be deemed to be the kind
and amount so receivable per Partnership Unit by a plurality of the Non-Electing
Units). The Partnership shall not be a party to any Transaction unless the terms
of such Transaction are consistent with the provisions of this paragraph (v),
and it shall not consent or agree to the occurrence of any Transaction until the
Partnership has entered into an agreement with the successor or purchasing
entity, as the case may be, for the benefit of the holders of the Series H
Preferred Units that will contain provisions enabling the holders of the Series
H Preferred Units that remain outstanding after such Transaction to convert into
the consideration received by holders of Class A Units at the Conversion Price
in effect immediately prior to such Transaction. The provisions of this
paragraph (v) shall similarly apply to successive Transactions.
(vi) If:
(1) the Partnership shall declare a distribution (or any other
distribution) on its Class A Units (other than cash distributions paid with
respect to the Class A Units after December 31, 1998 not in excess of the sum of
the Partnership's cumulative undistributed Funds from Operations at December 31,
1998, plus the cumulative amount of Funds from Operations, as determined by the
Partnership, after December 31, 1998, minus the cumulative amount of
distributions accrued or paid in respect of the Series H Preferred Units or any
other class or series of Preferred Units after the Issue Date); or
(2) the Partnership shall authorize the granting to all holders of
Class A Units of rights, options or warrants to subscribe for or purchase any
Partnership Units of any class or any other rights, options or warrants; or
(3) there shall be any reclassification of the Class A Units (other
than an event to which subparagraph (iv)(a) of this Section 5(A) applies) or any
consolidation or merger to which the Partnership is a party and for which
approval of any Partnership Unitholders of the Partnership is required, or a
self tender offer by the Partnership for all or substantially all of its
outstanding Class A Units or the sale or transfer of all or substantially all of
the assets of the Partnership as an entirety; or
(4) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Partnership;
K-13
<PAGE>
then the General Partner shall cause to be mailed to the holders of Series H
Preferred Units at their addresses as shown on the records of the General
Partner, as promptly as possible, but at least 10 days prior to the applicable
date hereinafter specified, a notice stating (A) the date on which a record is
to be taken for the purpose of such distribution or granting of rights, options
or warrants, or, if a record is not to be taken, the date as of which the
holders of Class A Units of record to be entitled to such distribution or
rights, options or warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up is expected to become effective, and the date as of
which it is expected that holders of Class A Units of record shall be entitled
to exchange their Class A Units for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up. Failure to give or receive such notice
or any defect therein shall not affect the legality or validity of the
proceedings described in this Section 5(A).
(vii) Whenever the Conversion Price is adjusted as herein provided,
the Partnership shall promptly file in its records an officer's certificate
setting forth the Conversion Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment which certificate shall
be conclusive evidence of the correctness of such adjustment absent manifest
error. Promptly after delivery of such certificate, the Partnership 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 H Preferred Units at such holder's last address as shown on the
records of the General Partner.
(viii) In any case in which paragraph (iv) of this Section 5(A)
provides that an adjustment shall become effective on the day next following the
record date for an event, the Partnership may defer until the occurrence of such
event (1) issuing to the holder of any Series H Preferred Unit converted after
such record date and before the occurrence of such event the additional Class A
Units issuable upon such conversion by reason of the adjustment required by such
event over and above the Class A Units issuable upon such conversion before
giving effect to such adjustment and (2) paying to such holder any amount of
cash in lieu of any fraction pursuant to paragraph (iii) of this Section 5(A).
(ix) There shall be no adjustment of the Conversion Price in case of
the issuance of any Partnership Units in a reorganization, acquisition or other
similar transaction except as specifically set forth in this Section 5(A). If
any action or transaction would require adjustment of the Conversion Price
pursuant to more than one paragraph of this Section 5(A), only one adjustment
shall be made and such adjustment shall be the amount of adjustment that has the
highest absolute value.
(x) If the Partnership shall take any action affecting the Class A
Units, other than action described in this Section 5(A), that in the opinion of
the Partnership would materially and adversely affect the conversion rights of
the holders of the Series H Preferred Units, the Conversion Price for the Series
H Preferred Units may be adjusted, to the extent permitted by law, in such
manner, if any, and at such
K-14
<PAGE>
time, as the Partnership, in its sole discretion, may determine to be equitable
in the circumstances.
(xi) The Partnership covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Class A Units, for the purpose of effecting conversion
of the Series H Preferred Units, the full number of Class A Units deliverable
upon the conversion of all outstanding Series H Preferred Units not theretofore
converted. For purposes of this paragraph (xi), the number of Class A Units
that shall be deliverable upon the conversion of all outstanding Series H
Preferred Units shall be computed as if at the time of computation all such
outstanding Series H Preferred Units were held by a single holder.
The Partnership covenants that any Class A Units issued upon
conversion of the Series H Preferred Units shall be validly issued and fully
paid. Before taking any action that would cause an adjustment reducing the
Conversion Price below the then-par value of the Class A Units deliverable upon
conversion of the Series H Preferred Units, the Partnership will take any action
that, in the opinion of its counsel, may be necessary in order that the
Partnership may validly and legally issue fully paid Class A Units at such
adjusted Conversion Price.
The Partnership shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the issuance of
any securities that the Partnership shall be obligated to deliver upon
conversion of the Series H Preferred Units. In addition to any legend required
the Partnership Agreement, 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 Partnership
may in good faith deem appropriate.
(xii) The Partnership will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
Class A Units or other securities or property on conversion of the Series H
Preferred Units pursuant hereto; provided, however, that the Partnership shall
-------- -------
not be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of Class A Units or other securities or
property in a name other than that of the holder of the Series H Preferred Units
to be converted, and no such issue or delivery shall be made unless and until
the person requesting such issue or delivery has paid to the Partnership the
amount of any such tax or established, to the reasonable satisfaction of the
Partnership, that such tax has been paid.
(B) Conversion by the General Partner.
---------------------------------
(i) In the event that a holder of Series H Preferred Stock
exercises its right to convert such Series H Preferred Stock into REIT Shares,
then, concurrently therewith, an equivalent number of Series H 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 H Preferred Shares
divided by (y) the Conversion Factor. Any such conversion will be effective at
the same time as the conversion of Series H Preferred Stock into REIT Shares is
effective.
K-15
<PAGE>
(ii) The General Partner, as a holder of Series H 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 H 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 H 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 H Preferred Units;
(B) on a parity with the Series H 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 H Preferred Units, if the
holders of such class or series of Partnership Units and the Series H 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");
(C) junior to the Series H 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 H 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.
------
(A) Voting of Holders of Series H Preferred Units. So long as any
---------------------------------------------
Series H Preferred Units are outstanding, in addition to any other vote or
consent of Series H Preferred Unitholders required by law or by the Partnership
Agreement, the affirmative vote of at least 66-2/3% of the votes entitled to be
cast by the holders of the Series H Preferred Units 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:
K-16
<PAGE>
(i) Any amendment, alteration or repeal of any of the provisions of
the Partnership Agreement that materially and adversely affects the voting
powers, rights or preferences of the holders of the Series H Preferred Units;
provided, however, that the amendment of the provisions of the Partnership
- -------- -------
Agreement so as to authorize or create or to increase the authorized amount of,
any Fully Junior Units, Junior Units that are not senior in any respect to the
Series H Preferred Units or any Parity Units shall not be deemed to materially
adversely affect the voting powers, rights or preferences of the holders of
Series H Preferred Units; or
(ii) A consolidation with or merger of the Partnership into another
entity, or a consolidation with or merger of another entity into the
Partnership, unless in each such case each Series H Preferred Unit (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 units of
the surviving entity having preferences, conversion or other rights, voting
powers, restrictions, limitations as to distributions, qualifications and terms
or conditions of redemption thereof identical to that of a Series H Preferred
Unit (except for changes that do not materially and adversely affect the holders
of the Series H Preferred Units (other than the General Partner)); or
(iii) The authorization, reclassification or creation of, or the
increase in the authorized amount of, any units of any class or any security
convertible into units of any class ranking prior to the Series H Preferred
Units in the distribution of assets on any liquidation, dissolution or winding
up of the Partnership or in the payment of distributions; or
(iv) Any increase in the authorized number of Series H Preferred
Units or decrease in the authorized number of Series H Preferred Units below the
number of units then issued and outstanding;
provided, however, that no such vote of the holders of Series H Preferred Units
- -------- -------
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 units or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series H Preferred Units at the time outstanding to the
extent such redemption is authorized by Section 4 of this Designation.
For purposes of the foregoing provisions of this Section 7, each Series H
Preferred Unit shall have one (1) vote per Series H Preferred Unit. Except as
otherwise required by applicable law or as set forth herein, the Series H
Preferred Units shall not have any relative, participating, optional or other
special voting rights and powers other than as set forth herein, and the consent
of the holders thereof shall not be required for the taking of any Partnership
action.
8. Repurchase of Series H Preferred Units. In the event that the General
--------------------------------------
Partner is required to repurchase any shares of Series H Preferred Stock, the
Partnership shall repurchase an equivalent number of Series H Preferred Units
for consideration equal to the consideration payable by the General Partner upon
repurchase of such shares of Series H Preferred Stock.
K-17
<PAGE>
9. General. The rights of the General Partner, in its capacity as a
-------
holder of Series H 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 Partnership Agreement. In addition, nothing contained in this
Exhibit K shall be deemed to limit or otherwise restrict any rights or authority
- ---------
of the General Partner under the Partnership Agreement, other than in its
capacity as a holder of Series H Preferred Units.
* * * *
K-18
<PAGE>
EXHIBIT 99.4
TWENTY-SIXTH AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
THIS TWENTY-SIXTH AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CHARLES E. SMITH RESIDENTIAL REALTY L.P. (this "Twenty-
Sixth Amendment"), dated as of October 1, 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 F Cumulative Convertible Redeemable Preferred Stock
(the "Series F 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 F Cumulative Convertible Redeemable Preferred Units
(the "Series F Preferred Units"), and to set forth the designations, rights,
powers, preferences and duties of such Series F Preferred Units, which are
substantially the same as those of the Series F 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.I the following section:
J. Series F 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 F Cumulative
Convertible Redeemable Preferred Units" (the "Series F Preferred Units").
Series F Preferred Units shall have the designations, preferences,
rights, powers and duties as set forth in Exhibit L hereto.
---------
<PAGE>
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 F Preferred
Units pursuant to this Twenty-Sixth 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 L the Exhibit L attached hereto.
--------- ---------
3. Certain Capitalized Terms. All capitalized terms used in this
-------------------------
Twenty-Sixth 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-Sixth
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 L
DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS AND LIMITATIONS AS TO
SERIES F PREFERRED UNITS
The Series F 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 F 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 F 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 F 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 F 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 F 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.
-------------
L-1
<PAGE>
(A) The General Partner, in its capacity as the holder of the then
outstanding Series F 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 F Preferred
Unit equal to the greater of (a)(i) $2.90625 per annum from the Issue Date
up to and including the first anniversary of the Issue Date, (ii) $3.09375
per annum from the day after the period described in (i) up to and
including the second anniversary of the Issue Date and (iii) $3.1875 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 F 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
F 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 F Preferred Units with
respect to such Distribution Period, the Partnership shall pay an
additional distribution in respect of the Series F 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 F 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 F Preferred Stock. Any distribution made on the Series F
Preferred Units shall first be credited against the earliest accrued but
unpaid distribution due with respect to Series F 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 F 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 F Preferred Units shall be computed on
L-2
<PAGE>
the basis of a 360-day year of twelve 30-day months. No interest, or sum of
money in lieu of interest, shall be payable in respect of any distribution
payment or payments on the Series F Preferred Units that may be in arrears.
(C) So long as any Series F 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
F 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 F 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 F Preferred Units and accumulated and unpaid on such Parity Units.
(D) So long as any Series F 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 F 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 F 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 F Preferred Units and the
current distribution period with respect to such Parity Units.
(E) No distributions on the Series F 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.
L-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 F Preferred Units, shall be entitled to receive
Thirty-Seven Dollars and Fifty Cents ($37.50) (the "Series F Liquidation
Preference") per Series F 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 F 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 F 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 F Preferred Units, and the holders of such other Parity Units
ratably in accordance with the respective amounts that would be payable on
such Series F 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 F
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 F 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 F Preferred Units, shall not be entitled to share therein.
4. Redemption Right.
----------------
L-4
<PAGE>
(A) Except as provided in Section 4(B), the Series F Preferred
Units shall not be redeemable prior to the third anniversary of the Issue
Date. On and after the third anniversary of the Issue Date, the General
Partner may cause the Partnership to redeem the Series F 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 F
Preferred Unit equal to the Series F Liquidation Preference plus accrued
and unpaid distributions (the "Redemption Price"), in each case subject to
the conditions set forth below.
(i) The Series F Preferred Units shall be redeemed only if the
General Partner shall concurrently therewith redeem an
equivalent number of shares of Series F Preferred Stock for
REIT Shares or cash, as the case may be. Such redemption of
Series F Preferred Units shall occur substantially concurrently
with the redemption by the General Partner of such Series F
Preferred Shares (such date of redemption the "Redemption
Date").
(ii) In the event that the General Partner redeems shares of Series
F Preferred Stock in exchange for REIT Shares, an equivalent
number of Series F 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 F Preferred Stock divided by (y) the Conversion Factor.
(iii) In the event that the General Partner redeems shares of Series
F Preferred Stock for cash (including payments of cash in lieu
of fractional REIT Shares), the Partnership shall redeem a like
number of Series F Preferred Units in exchange for the amount
of cash that the General Partner is required to pay pursuant to
the terms of the Series F Preferred Stock in connection with
such redemption.
(iv) Upon any redemption of Series F Preferred Units, the
Partnership shall pay any accrued and unpaid distributions with
respect to the Series F 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 F
Preferred Units being redeemed, shall be entitled to
distributions payable on the corresponding Distribution Date
notwithstanding the redemption of such Series F 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 F Preferred
Units called for redemption.
L-5
<PAGE>
(v) Any Class A Unit issued upon redemption of the Series F
Preferred Units shall be validly issued, fully paid and non-
assessable.
(B) In the event that the General Partner is required to
redeem any shares of Series F Preferred Stock pursuant to the terms
thereof, the Partnership shall redeem an equivalent number of Series F
Preferred Units for consideration equal to the consideration payable by the
General Partner upon redemption of such shares of Series F Preferred Stock.
5. Conversion to Class A Units.
---------------------------
(A) In the event that a holder of Series F Preferred Stock
exercises its right to convert such Series F Preferred Stock into REIT
Shares, then, concurrently therewith, an equivalent number of Series F
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 F Preferred Shares divided by (y) the Conversion Factor. Any such
conversion will be effective at the same time as the conversion of Series F
Preferred Stock into REIT Shares is effective.
(B) The General Partner, in its capacity as the holder of
Series F 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 F 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 F 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 F Preferred Units;
(B) on a parity with the Series F 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 F Preferred Units, if the holders of such class or series of
Partnership Units and the Series F Preferred Units shall be entitled to the
receipt of distributions and of amounts distributable upon liquidation,
dissolution or
L-6
<PAGE>
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");
(C) junior to the Series F 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 F 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 F 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 F 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 F 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 L 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 F Preferred Units.
* * * *
L-7
<PAGE>
Exhibit 99.5
TWENTY-SEVENTH AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
THIS TWENTY-SEVENTH AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CHARLES E. SMITH RESIDENTIAL REALTY L.P. (this
"Twenty-Seventh Amendment"), dated as of November 5 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 G Cumulative Convertible Redeemable
Preferred Stock (the "Series G 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 G Cumulative Convertible Redeemable Preferred Units
(the "Series G Preferred Units"), and to set forth the designations, rights,
powers, preferences and duties of such Series G Preferred Units, which are
substantially the same as those of the Series G 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.J the following section:
K. Series G 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 G Cumulative
Convertible Redeemable Preferred Units" (the "Series G Preferred
<PAGE>
Units"). Series G Preferred Units shall have the designations,
preferences, rights, powers and duties as set forth in Exhibit M
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 G Preferred
Units pursuant to this Twenty-Seventh 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 M the Exhibit M attached hereto.
--------- ---------
3. Certain Capitalized Terms. All capitalized terms used in this
-------------------------
Twenty-Seventh 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-Seventh
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 M
DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS AND LIMITATIONS AS TO
SERIES G PREFERRED UNITS
The Series G 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 G 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 G 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 G 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 G 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 G 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.
-------------
M-1
<PAGE>
(A) The General Partner, in its capacity as the holder of the then
outstanding Series G 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 G Preferred
Unit equal to the greater of (a)(i) $3.0225 per annum from the Issue Date
up to and including the first anniversary of the Issue Date, (ii) $3.2175
per annum from the day after the period described in (i) up to and
including the second anniversary of the Issue Date and (iii) $3.315 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 G 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
G 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 G Preferred Units with
respect to such Distribution Period, the Partnership shall pay an
additional distribution in respect of the Series G 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 G 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 G Preferred Stock. Any distribution made on the Series G
Preferred Units shall first be credited against the earliest accrued but
unpaid distribution due with respect to Series G 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 G 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 G Preferred Units shall be computed on
M-2
<PAGE>
the basis of a 360-day year of twelve 30-day months. No interest, or sum
of money in lieu of interest, shall be payable in respect of any
distribution payment or payments on the Series G Preferred Units that may
be in arrears.
(C) So long as any Series G 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
G 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 G 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 G Preferred Units and accumulated and unpaid on such Parity Units.
(D) So long as any Series G 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 G 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 G 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 G Preferred Units and the
current distribution period with respect to such Parity Units.
(E) No distributions on the Series G 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.
M-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 G Preferred Units, shall be entitled to receive
Thirty-Nine Dollars ($39.00) (the "Series G Liquidation Preference") per
Series G 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 G 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 G 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 G Preferred
Units, and the holders of such other Parity Units ratably in accordance
with the respective amounts that would be payable on such Series G
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 G
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 G 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 G Preferred Units, shall not be entitled to share therein.
4. Redemption Right.
----------------
M-4
<PAGE>
(A) Except as provided in Section 4(B), the Series G Preferred
Units shall not be redeemable prior to the third anniversary of the Issue
Date. On and after the third anniversary of the Issue Date, the General
Partner may cause the Partnership to redeem the Series G 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 G
Preferred Unit equal to the Series G Liquidation Preference plus accrued
and unpaid distributions (the "Redemption Price"), in each case subject to
the conditions set forth below.
(i) The Series G Preferred Units shall be redeemed only if the
General Partner shall concurrently therewith redeem an
equivalent number of shares of Series G Preferred Stock for REIT
Shares or cash, as the case may be. Such redemption of Series G
Preferred Units shall occur substantially concurrently with the
redemption by the General Partner of such Series G Preferred
Shares (such date of redemption the "Redemption Date").
(ii) In the event that the General Partner redeems shares of Series G
Preferred Stock in exchange for REIT Shares, an equivalent
number of Series G 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 G Preferred Stock divided by (y) the Conversion Factor.
(iii) In the event that the General Partner redeems shares of Series G
Preferred Stock for cash (including payments of cash in lieu of
fractional REIT Shares), the Partnership shall redeem a like
number of Series G Preferred Units in exchange for the amount of
cash that the General Partner is required to pay pursuant to the
terms of the Series G Preferred Stock in connection with such
redemption.
(iv) Upon any redemption of Series G Preferred Units, the Partnership
shall pay any accrued and unpaid distributions with respect to
the Series G 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 G Preferred
Units being redeemed, shall be entitled to distributions payable
on the corresponding Distribution Date notwithstanding the
redemption of such Series G 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 G Preferred Units called
for redemption.
M-5
<PAGE>
(v) Any Class A Unit issued upon redemption of the Series G
Preferred Units shall be validly issued, fully paid and non-
assessable.
(B) In the event that the General Partner is required to redeem
any shares of Series G Preferred Stock pursuant to the terms thereof, the
Partnership shall redeem an equivalent number of Series G Preferred Units
for consideration equal to the consideration payable by the General Partner
upon redemption of such shares of Series G Preferred Stock.
5. Conversion to Class A Units.
---------------------------
(A) In the event that a holder of Series G Preferred Stock
exercises its right to convert such Series G Preferred Stock into REIT
Shares, then, concurrently therewith, an equivalent number of Series G
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 G Preferred Shares divided by (y) the Conversion Factor. Any such
conversion will be effective at the same time as the conversion of Series G
Preferred Stock into REIT Shares is effective.
(B) The General Partner, in its capacity as the holder of Series
G 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 G 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 G 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 G Preferred Units;
(B) on a parity with the Series G 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 G Preferred Units, if the holders of such class or series of
Partnership Units and the Series G Preferred Units shall be entitled to the
receipt of distributions and of amounts distributable upon liquidation,
dissolution or
M-6
<PAGE>
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");
(C) junior to the Series G 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 G 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 G 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 G 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 G 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 M 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 G Preferred Units.
* * * *
M-7
<PAGE>
EXHIBIT 99.6
THIRD AMENDMENT TO
FIRST AMENDED AND RESTATED 1994 EMPLOYEE
STOCK AND UNIT OPTION PLAN OF
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
THIS THIRD AMENDMENT TO FIRST AMENDED AND RESTATED 1994 EMPLOYEE STOCK AND
UNIT OPTION PLAN, dated as of September ___, 1999, is entered into by and among
Charles E. Smith Residential Realty, Inc., a Maryland corporation, for itself
and as general partner of Charles E. Smith Residential Realty L.P. (together the
"Company").
WHEREAS, the 1994 Employee Stock and Unit Option Plan (the "Plan") was
approved by the Board of Directors of Charles E. Smith Residential Realty, Inc.,
for itself and as a general partner of the Charles E. Smith Residential Realty
L.P., by unanimous written consents dated May 25, 1994, June 13, 1994, June 22,
1994, and June 23, 1994, and at a meeting held on July 26, 1994, by the
shareholders of Charles E. Smith Residential Realty, Inc., by unanimous written
consents dated June 17, 1994, June 22, 1994, and June 23, 1994, and by the
partners of Charles E. Smith Residential Realty L.P. by unanimous written
consents dated June 17, 1994, and June 23, 1994, and the Plan, together with the
1994 Employee Restricted Stock and Restricted Unit Plan and Directors Stock
Option Plan, was incorporated in a filing on Form S-8 with the Securities and
Exchange Commission (the "SEC"), which became effective on August 8, 1994;
WHEREAS, the Board of Directors of the Company duly adopted and approved
(i) the First Amended and Restated 1994 Employee Stock and Unit Option Plan on
November 8, 1994, which was incorporated in a filing on Form 10-K for the year
ended December 31, 1994 and filed with the SEC on March 31, 1995, (ii) the First
Amendment thereto dated as of May 7, 1998, which was incorporated in a filing on
Form S-8 and filed with the SEC on November 17, 1998, and (iii) the Second
Amendment thereto dated as of March 1, 1999;
WHEREAS, the Company and its stockholders did adopt the Plan for the
benefit of their employees and the employees of Smith Realty Company (formerly
Smith Property Management, Inc.), Consolidated Engineering Services, Inc., and
Smith Management Construction, Inc.;
WHEREAS, the Board of Directors believes that it would be in the best
interests of the Company to amend Sections 2.13, 3.1, 3.2, 13 and 15.2 of the
Plan to revise the method by which the value of each share of Stock (as defined
in the Plan) subject to the Plan is determined, to facilitate the administration
of the Plan and to provide certain transfer rights with respect to Options (as
defined in the Plan); and
WHEREAS, the Board of Directors of the Company did, by unanimous written
consent dated as of September ___, 1999 and attached hereto as Exhibit A,
---------
approve such amendments.
1
<PAGE>
NOW, THEREFORE, in consideration of the premises herein set forth and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby amend the Plan, as follows:
1. Section 2.13 of the Plan is hereby amended so that the first sentence
of Section 2.13 shall read as follows:
"2.13 'Fair Market Value' means the value of each share of Stock
subject to the Plan determined as follows: if on the Grant Date or other
determination date the shares of Stock are listed on an established
national or regional stock exchange, are admitted to quotation on the
National Association of Securities Dealers Automated Quotation System, or
are publicly traded on an established securities market, the Fair Market
Value of the shares of Stock shall be the closing price of the shares of
Stock on such exchange or in such market (the highest such closing price
if there is more than one exchange or market) on the Grant Date (or, if
the Grant Date is not a trading day, the trading day immediately
preceding the Grant Date) or such other determination date (or if there
is no such reported closing price, the Fair Market Value shall be the
mean between the highest bid and lowest asked prices or between the high
and low sales prices on the Grant Date or such preceding trading day) or,
if no sale of the shares of Stock is reported for the Grant Date or such
preceding trading day, on the next preceding day on which any sale shall
have been reported."
2. Section 3.1 of the Plan is hereby amended by deleting the second
sentence of Section 3.1 in its entirety, so that such Section 3.1 now reads as
follows:
"3.1 Company Plan. The Company Plan shall be administered by the
------------
Company Committee. The Company Committee shall have such powers and
authorities related to the administration of the Company Plan as are
consistent with the Company's articles of incorporation and by-laws and
with applicable law. The Company Committee shall have the full power and
authority (subject to any restrictions imposed by the Board of Directors
of the Company, the Company's articles of incorporation or by-laws or
applicable law) to take all actions and to make all determinations
required or provided for under the Company Plan, any Incentive Award
granted by the Company Committee under the Company Plan and any Agreement
entered into in connection therewith and shall have the full power and
authority to take all such other actions and determinations not
inconsistent with the specific terms and provisions of the Company Plan
that the Company Committee deems to be necessary or appropriate to the
administration of the Company Plan, any Incentive Award granted by the
Company Committee under the Company Plan and any Agreement entered into
in connection therewith. The interpretation and construction by the
Company Committee of any provision of the Company Plan, any Incentive
Award granted by the Company Committee under the Company Plan and any
Agreement entered into in connection therewith shall be final and
conclusive with respect to the Optionee."
2
<PAGE>
3. Section 3.2 of the Plan is hereby amended by deleting the second
sentence of Section 3.2 in its entirety, so that such Section 3.2 now reads as
follows:
"3.2 Operating Partnership Plan. The Operating Partnership Plan
--------------------------
shall be administered by the Company Committee. The Company Committee
shall have the full power and authority (subject to any restrictions
imposed on such Committee by Section 3.1 hereof) to take all actions and
to make all determinations required or provided for under the Operating
Partnership Plan, any Incentive Award granted by the Company Committee
under the Operating Partnership Plan and any Agreement entered into in
connection therewith and shall have the full power and authority to take
all such other actions and determinations not inconsistent with the
specific terms and provisions of the Operating Partnership Plan that the
Company Committee deems to be necessary or appropriate to the
administration of the Operating Partnership Plan, any Incentive Award
granted by the Company Committee under the Operating Partnership Plan and
any Agreement entered into in connection therewith. The interpretation
and construction by the Company Committee of any provision of the
Operating Partnership Plan, any Incentive Award granted by the Company
Committee under the Operating Partnership Plan and any Agreement entered
into in connection therewith shall be final and conclusive with respect
to the Optionee."
4. Section 13 of the Plan is deleted in its entirety and a new
Section 13 is inserted so that Section 13 shall read as follows:
"13. TRANSFERABILITY OF OPTIONS
13.1 Transferability of Options. Except as provided in Section
--------------------------
13.2, during the lifetime of an Optionee, only the Optionee (or, in
the event of legal incapacity or incompetency, the Grantee's guardian
or legal representative) may exercise an Option. Except as provided in
Section 13.2, no Option shall be assignable or transferable by the
Grantee to whom it is granted, other than by will or the laws of
descent and distribution.
13.2 Family Transfers. If authorized in the applicable Option
----------------
Agreement, an Optionee may transfer, not for value, all or part of an
Option which is not an Incentive Option to any Family Member. For the
purpose of this Section 13.2, a "not for value" transfer is a transfer
which is (i) a gift, (ii) a transfer under a domestic relations order
in settlement of marital property rights, or (iii) a transfer to an
entity in which more than fifty percent of the voting interests are
owned by Family Members (or the Optionee) in exchange for an interest
in that entity. Following a transfer under this Section 13.2, any such
Option shall be exercisable by the transferee to the extent that the
Option would have been exercisable by the Optionee, and the Option
shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer. Subsequent transfers of
transferred Options are prohibited except to Family Members of the
original Optionee in accordance with this Section 13.2 or by will or
the laws of descent and distribution. The event of termination of
employment of Section 12.3 hereof shall continue to be applied with
respect to the original
3
<PAGE>
Optionee, following which the Option shall be exercisable by the
transferee only to the extent permitted under, and for the periods
specified in, Sections 12.3, 12.4, or 12.5.
For purposes of this Section 13.2, 'Family Member' shall mean a
person who is a spouse, child, stepchild, grandchild, parent,
stepparent, grandparent, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-
in-law, including adoptive relationships, of the Optionee, any person
sharing the Optionee's household (other than a tenant or employee), a
trust in which these persons have more than fifty percent of the
beneficial interest, a foundation in which these persons (or the
Optionee) control the management of assets, and any other entity in
which these persons (or the Optionee) own more than fifty percent of
the voting interests."
5. Section 15.2 of the Plan is hereby amended by amending Section 15.2
to read as follows:
"15.2 Rule 16b-3. To the extent any action by the Plan
----------
administrators does not comply with the requirements of Rule 16b-3, it
shall be deemed inoperative, to the extent permitted by law and deemed
advisable by the Plan administrators, and shall not affect the
validity of the Plan. In the event Rule 16b-3 is revised or replaced,
the Board of Directors of the Company may exercise discretion to
modify this Plan in any respect necessary to satisfy the requirements
of the revised exemption or its replacement."
6. All capitalized terms used in this Third Amendment and not otherwise
defined shall have the meanings assigned to them in the Plan. Except as modified
herein, all terms and conditions of the Plan shall remain in full force and
effect, which terms and conditions the parties hereto ratify and affirm.
[Page Break Intentionally Inserted]
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this THIRD AMENDMENT TO
FIRST AMENDED AND RESTATED 1994 EMPLOYEE STOCK AND UNIT OPTION PLAN as of the
date first above written.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.,
for itself and as general partner of Charles E. Smith
Residential Realty L.P.
BY: _______________________________
Ernest A. Gerardi, Jr., President
This Third Amendment to the Plan was duly adopted and approved by the Board of
Directors of the Company by unanimous written consent dated as of September ___,
1999.
_________________________________
Robert D. Zimet
Secretary of the Company
5
<PAGE>
EXHIBIT 99.7
FIRST AMENDMENT TO
FIRST AMENDED AND RESTATED 1994 EMPLOYEE
RESTRICTED STOCK AND RESTRICTED UNIT PLAN OF
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED 1994 EMPLOYEE RESTRICTED
STOCK AND RESTRICTED UNIT PLAN, dated as of September ___, 1999, is entered into
by and among Charles E. Smith Residential Realty, Inc., a Maryland corporation,
for itself and as general partner of Charles E. Smith Residential Realty L.P.
(together the "Company").
WHEREAS, the 1994 Employee Restricted Stock and Restricted Unit Plan (the
"Plan") was duly adopted by the Board of Directors of Charles E. Smith
Residential Realty, Inc., on June 13, 1994, by the stockholders of Charles E.
Smith Residential Realty, Inc., on June 17, 1994, by the Board of Directors of
Charles E. Smith Residential Realty, Inc., acting in its capacity as the general
partner of Charles E. Smith Residential Realty L.P. on June 13, 1994, by the
partners of Charles E. Smith Residential Realty L.P. on June 17, 1994, and by
the Boards of Directors of the Operating Subsidiaries on June 23, 1994, and the
Plan, together with the 1994 Employee Stock and Unit Option Plan and Directors
Stock Option Plan, was incorporated in a filing on Form S-8 with the Securities
and Exchange Commission (the "SEC"), which became effective on August 8, 1994;
WHEREAS, the Company did adopt the Plan for the benefit of their employees
and the employees of Smith Realty Company (formerly Smith Property Management,
Inc.), Consolidated Engineering Services, Inc., and Smith Management
Construction, Inc.;
WHEREAS, the Board of Directors believes that it would be in the best
interests of the Company to amend Sections 2.11, 3.1, 3.2 and 10.2 of the Plan
to revise the method by which the value of each share of Stock (as defined in
the Plan) subject to the Plan is determined and to facilitate the administration
of the Plan; and
WHEREAS, the Board of Directors of the Company did, by unanimous written
consent dated as of September ___, 1999 and attached hereto as Exhibit A,
---------
approve such amendments.
NOW, THEREFORE, in consideration of the premises herein set forth and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby amend the Plan, as follows:
1. Section 2.11 of the Plan is hereby amended so that the first sentence
of Section 2.11 shall read as follows:
"2.11 'Fair Market Value' means the value of each share of Stock
subject to the Plan determined as follows: if on the Grant Date or other
determination date the shares of Stock are listed on an established
national or regional stock exchange, are admitted to quotation on the
National
<PAGE>
Association of Securities Dealers Automated Quotation System, or are
publicly traded on an established securities market, the Fair Market
Value of the shares of Stock shall be the closing price of the shares of
Stock on such exchange or in such market (the highest such closing price
if there is more than one exchange or market) on the Grant Date (or, if
the Grant Date is not a trading day, the trading day immediately
preceding the Grant Date) or such other determination date (or if there
is no such reported closing price, the Fair Market Value shall be the
mean between the highest bid and lowest asked prices or between the high
and low sales prices on the Grant Date or such preceding trading day) or,
if no sale of the shares of Stock is reported for the Grant Date or such
preceding trading day, on the next preceding day on which any sale shall
have been reported."
2. Section 3.1 of the Plan is hereby amended by deleting the second
sentence of Section 3.1 in its entirety, so that such Section 3.1 now reads as
follows:
"3.1 Company Plan. The Company Plan shall be administered by the
------------
Company Committee. The Company Committee shall have such powers and
authorities related to the administration of the Company Plan as are
consistent with the Company's articles of incorporation and by-laws and
with applicable law. The Company Committee shall have the full power and
authority (subject to any restrictions imposed by the Board of Directors
of the Company, the Company's articles of incorporation or by-laws or
applicable law) to take all actions and to make all determinations
required or provided for under the Company Plan, any Incentive Award
granted by the Company Committee under the Company Plan and any Agreement
entered into in connection therewith and shall have the full power and
authority to take all such other actions and determinations not
inconsistent with the specific terms and provisions of the Company Plan
that the Company Committee deems to be necessary or appropriate to the
administration of the Company Plan, any Incentive Award granted by the
Company Committee under the Company Plan and any Agreement entered into
in connection therewith. The interpretation and construction by the
Company Committee of any provision of the Company Plan, any Incentive
Award granted by the Company Committee under the Company Plan and any
Agreement entered into in connection therewith shall be final and
conclusive with respect to the Holder."
3. Section 3.2 of the Plan is hereby amended by deleting the second
sentence of Section 3.2 in its entirety, so that such Section 3.2 now reads as
follows:
"3.2 Operating Partnership Plan. The Operating Partnership Plan shall
--------------------------
be administered by the Company Committee. The Company Committee shall
have the full power and authority (subject to any restrictions imposed on
such Committee by Section 3.1 hereof) to take all actions and to make all
determinations required or provided for under the Operating Partnership
Plan, any Incentive Award granted by the Company Committee under the
Operating Partnership Plan and any Agreement entered into in connection
therewith and shall have the full power and authority to take all such
other
2
<PAGE>
actions and determinations not inconsistent with the specific terms and
provisions of the Operating Partnership Plan that the Company Committee
deems to be necessary or appropriate to the administration of the
Operating Partnership Plan, any Incentive Award granted by the Company
Committee under the Operating Partnership Plan and any Agreement entered
into in connection therewith. The interpretation and construction by the
Company Committee of any provision of the Operating Partnership Plan, any
Incentive Award granted by the Company Committee under the Operating
Partnership Plan and any Agreement entered into in connection therewith
shall be final and conclusive with respect to the Holder."
4. Section 10.2 of the Plan is hereby amended by amending Section 15.2 to
read as follows:
"10.2 Rule 16b-3. To the extent any action by the Plan administrators
----------
administrators does not comply with the requirements of Rule 16b-3, it
shall be deemed inoperative, to the extent permitted by law and deemed
advisable by the Plan administrators, and shall not affect the validity
of the Plan. In the event Rule 16b-3 is revised or replaced, the Board of
Directors of the Company may exercise discretion to modify this Plan in
any respect necessary to satisfy the requirements of the revised
exemption or its replacement."
5. All capitalized terms used in this First Amendment and not otherwise
defined shall have the meanings assigned to them in the Plan. Except as modified
herein, all terms and conditions of the Plan shall remain in full force and
effect, which terms and conditions the parties hereto ratify and affirm.
[Page Break Intentionally Inserted]
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT TO
FIRST AMENDED AND RESTATED 1994 EMPLOYEE RESTRICTED STOCK AND RESTRICTED UNIT
PLAN as of the date first above written.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.,
for itself and as general partner of Charles E. Smith
Residential Realty L.P.
BY: _________________________________
Ernest A. Gerardi, Jr., President
This First Amendment to the Plan was duly adopted and approved by the Board of
Directors of the Company by unanimous written consent dated as of September ___,
1999.
_________________________________
Robert D. Zimet
Secretary of the Company
4
<PAGE>
EXHIBIT 99.8
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED BY-LAWS
OF
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
-----------------------------------------
I, Robert D. Zimet, Secretary of Charles E. Smith Residential Realty,
Inc. (the "Corporation"), do hereby certify that:
1. The Board of Directors of the Corporation, by a unanimous written
consent dated as of September ___, 1999 and in lieu of a meeting of the Board of
Directors, deemed it advisable and in the best interests of the Corporation and
its stockholders to amend the first sentence of Section 3.01 of the Amended and
Restated By-Laws of the Corporation (the "By-Laws");
2. The following resolution was duly adopted by the Board of
Directors pursuant to such unanimous written consent:
NOW, THEREFORE, BE IT RESOLVED, that pursuant to Section 7.07 of the By-
Laws, Section 3.01 of the By-Laws be, and hereby is, amended by amending the
first sentence to Section 3.01 to read as follows:
"SECTION 3.01. Committees. The Board of Directors
----------
may appoint from among its members an Executive Committee
and other committees composed of one or more directors and
delegate to these committees any of the powers of the Board
of Directors, except the power to declare dividends or other
distributions on stock, elect directors, issue stock other
than as provided in the next sentence, recommend to the
stockholders any action which requires stockholder approval,
amend the By-Laws, or approve any merger or share exchange
which does not require stockholder approval."
3. The foregoing resolution amending the By-Laws was duly adopted in
accordance with the provisions of the By-Laws and Section 2-408(c) of the
Maryland General Corporation Law.
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Amendment on this _____ day of September, 1999.
------------------------------
Robert D. Zimet
Secretary of Charles E. Smith
Residential Realty, Inc.
[SEAL]
2
