<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1999
or
|_| Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the period from to
Commission File Number: 1934 Act File Number: 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 August 2, 1999, there were 19,645,706 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 June 30, 1999 and December 31, 1998,
Filed as a Part of This Report
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Shareholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
PART II: OTHER INFORMATION 29
SIGNATURES 31
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Rental property, net $ 1,015,265 $ 926,749
Rental property under construction 169,647 167,214
Cash 5,005 --
Escrow funds 6,979 23,819
Investment in and advances to Property Service Businesses 34,061 28,633
Investment in joint ventures 18,799 --
Deferred charges, net 17,742 18,081
Security deposits 2,162 2,408
Other assets 15,254 18,495
----------- -----------
$ 1,284,914 $ 1,185,399
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans and notes payable:
Mortgage loans $ 710,503 $ 622,386
Construction loans 101,003 63,193
Lines of credit 52,000 105,000
----------- -----------
Total mortgage loans and notes payable 863,506 790,579
Accounts payable and accrued expenses 25,797 22,830
Deferred gain 5,091 --
Security deposits 2,162 2,408
----------- -----------
Total liabilities 896,556 815,817
----------- -----------
Commitments and contingencies
Minority Interest 110,356 104,605
Shareholders' equity
Preferred stock - $0.01 par value; 2,640,325 71,500 71,500
shares authorized; Series A Cumulative
Convertible Redeemable Preferred Stock,
liquidation preference of $27.08;
2,640,325 shares issued and outstanding at
June 30, 1999 and December 31, 1998,
respectively
Preferred stock - $ 0.01 par value; 1,216,666 -- 20,367
shares authorized; Series B Cumulative
Convertible Redeemable Preferred Stock,
liquidation preference of $28.50; 714,628
shares issued and outstanding at December
31, 1998
Preferred stock - $0.01 par value; 500 shares 50,000 50,000
authorized; Series C Cumulative Redeemable
Preferred Stock, liquidation preference of
$100,000; 500 shares issued and
outstanding
Common stock - $0.01 par value; 80,000,000 195 182
shares authorized; 19,571,644 and
18,212,600 shares issued and outstanding
at June 30, 1999 and December 31, 1998,
respectively
Additional paid-in capital - includes 165,807 132,669
contributed deficit of $244,208
Retained deficit (9,500) (9,741)
----------- -----------
Total shareholders' equity 278,002 264,977
----------- -----------
$ 1,284,914 $ 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 Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Rental Properties:
Revenues $ 70,522 $ 61,721 $ 139,555 $ 117,371
Expenses
Operating costs (21,276) (20,504) (43,430) (39,125)
Real estate taxes (5,324) (4,584) (10,728) (8,241)
Depreciation and amortization (7,713) (7,088) (15,941) (13,475)
--------- --------- --------- ---------
Total expenses (34,313) (32,176) (70,099) (60,841)
Equity in income of joint ventures 125 -- 151 --
Equity in income of Property Service Businesses 1,126 2,227 1,128 2,891
Corporate general and administrative expenses (2,420) (2,203) (4,629) (4,228)
Interest income 142 306 276 467
Interest expense (13,471) (11,601) (26,619) (22,489)
--------- --------- --------- ---------
Income before gain on sale and extraordinary item 21,711 18,274 39,763 33,171
(Loss) Gain on sale of property (7) -- 1,851 3,120
--------- --------- --------- ---------
Income before extraordinary item 21,704 18,274 41,614 36,291
Extraordinary item - loss on extinguishment of debt -- -- (359) (4,702)
--------- --------- --------- ---------
Net income of the Operating Partnership 21,704 18,274 41,255 31,589
Minority Interest (8,095) (7,672) (15,537) (13,543)
--------- --------- --------- ---------
Net income 13,609 10,602 25,718 18,046
Less: Income attributable to preferred shares (2,401) (3,580) (4,755) (5,070)
--------- --------- --------- ---------
Net income attributable to common shares $ 11,208 $ 7,022 $ 20,963 $ 12,976
========= ========= ========= =========
Earnings per common share - basic
Income before extraordinary item $ 0.58 $ 0.46 $ 1.12 $ 1.00
Extraordinary item -- -- (0.01) (0.16)
--------- --------- --------- ---------
Net income $ 0.58 $ 0.46 $ 1.11 $ 0.84
========= ========= ========= =========
Earnings per common share - diluted
Income before extraordinary item $ 0.58 $ 0.45 $ 1.12 $ 1.00
Extraordinary item -- -- (0.01) (0.16)
--------- --------- --------- ---------
Net income $ 0.58 $ 0.45 $ 1.11 $ 0.84
========= ========= ========= =========
</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 Additional
Stock Preferred Preferred Preferred Common Paid-in
Outstanding Stock Stock Stock Stock Capital
- ------------ ------------------------------------------------ --------- --------- --------- --------- ---------
<C> <S> <C> <C> <C> <C> <C>
14,942,429 Balance, December 31, 1997 $ 45,000 $ 34,675 $ -- $ 150 $ 84,861
Operating Partnership equity exchanged
for acquisitions -- -- -- -- 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)
Proceeds from issuance of Common Stock,
1,400,000 net of offering costs of $221 -- -- -- 14 45,440
Conversion of Preferred Stock to Common
502,038 Stock -- (14,308) -- 5 14,303
Conversion of Operating Partnership units
1,342,133 to common stock -- -- -- 13 (13)
Repurchase and cancellation of Operating
Partnership units -- -- -- -- (594)
Amortization of unit grants -- -- -- -- 521
5,000 Exercise of options -- -- -- -- 2,999
21,000 Stock grants awarded -- -- -- -- --
Net income -- -- -- -- --
Dividends -- -- -- -- --
Adjustment for Minority Interest -- -- -- -- (24,794)
- ---------- --------- --------- --------- --------- ---------
18,212,600 Balance, December 31, 1998 71,500 20,367 50,000 182 132,669
Operating Partnership equity exchanged
for acquisitions -- -- -- -- 15,084
Conversion of Preferred Stock to Common
714,628 Stock -- (20,367) -- 7 20,360
Conversion of Operating Partnership units
577,034 to common stock -- -- -- 6 (6)
Amortization of unit grants -- -- -- -- 292
36,000 Exercise of options -- -- -- -- 1,697
31,382 Stock grants awarded -- -- -- -- --
Net income -- -- -- -- --
Dividends -- -- -- -- --
Adjustment for Minority Interest -- -- -- -- (4,289)
- ---------- --------- --------- --------- --------- ---------
19,571,644 Balance, June 30, 1999 (unaudited) $ 71,500 $ -- $ 50,000 $ 195 $ 165,807
========== ========= ========= ========= ========= =========
<CAPTION>
Common Retained
Stock Earnings
Outstanding (Deficit) Total
- ------------ ------------------------------------------------ --------- ---------
<C> <S> <C> <C>
14,942,429 Balance, December 31, 1997 $ (6,372) $ 158,314
Operating Partnership equity exchanged
for acquisitions -- 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)
Proceeds from issuance of Common Stock,
1,400,000 net of offering costs of $221 -- 45,454
Conversion of Preferred Stock to Common
502,038 Stock -- --
Conversion of Operating Partnership units
1,342,133 to common stock -- --
Repurchase and cancellation of Operating
Partnership units -- (594)
Amortization of unit grants -- 521
5,000 Exercise of options -- 2,999
21,000 Stock grants awarded -- --
Net income 41,129 41,129
Dividends (44,498) (44,498)
Adjustment for Minority Interest -- (24,794)
- ---------- --------- ---------
18,212,600 Balance, December 31, 1998 (9,741) 264,977
Operating Partnership equity exchanged
for acquisitions -- 15,084
Conversion of Preferred Stock to Common
714,628 Stock -- --
Conversion of Operating Partnership units
577,034 to common stock -- --
Amortization of unit grants -- 292
36,000 Exercise of options -- 1,697
31,382 Stock grants awarded -- --
Net income 25,718 25,718
Dividends (25,477) (25,477)
Adjustment for Minority Interest -- (4,289)
- ---------- --------- ---------
19,571,644 Balance, June 30, 1999 (unaudited) $ (9,500) $ 278,002
========== ========= =========
</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)
For the Six Months
Ended June 30,
----------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES: $ 58,867 $ 64,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions and development of
rental property (120,789) (157,229)
Additions to rental property (8,368) (8,848)
Sales of rental property 75,666 --
Increase in investment in and
advances to Property Service Businesses (5,428) (17,784)
Increase in investment in Joint Ventures (3,857) --
Acquisition deposits and other 2,076 (2,002)
--------- ---------
Net cash used by investing activities (60,700) (185,863)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deferred charges 296 --
Net proceeds from sale of preferred stock -- 75,039
Mortgage loans, net 60,626 (46,995)
Lines of credit, net (53,000) 116,500
Construction loans, net 37,810 13,272
Prepayment penalties (1,038) (3,025)
Dividends and distributions - Common (34,040) (30,456)
Dividends and distributions - Preferred (5,512) (4,305)
Other, net 1,696 843
--------- ---------
Net cash provided by financing activities 6,838 120,873
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,005 --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- --
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,005 $ --
========= =========
SUPPLEMENTAL INFORMATION:
Capitalized interest $ 4,175 $ 2,638
Purchase of property in exchange
for Operating Partnership units 14,406 8,820
Purchase of property in exchange
for assumption of debt 28,169 --
Proceeds from sale of rental property
held in 1031 escrow 17,712 --
Purchase of property with 1031 escrow proceeds 17,712 --
Purchase of joint venture interest
in exchange for Operating Partnership units 679 --
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 June 30, 1999 and the results of
operations for the interim periods ended June 30, 1999 and 1998. Such interim
results are not necessarily indicative of the operating results for a full year.
The accompanying financial statements should be read in conjunction with the
audited financial statements and related footnotes appearing in the Company's
Annual Report on Form 10-K.
The 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 June 30, 1999, the Operating Partnership owned 50 operating
multifamily properties totaling 19,852 apartment units, had interests in two
operating multifamily properties totaling 961 apartment units, and owned two
retail shopping centers aggregating 436,000 square feet. The Operating
Partnership also had approximately 2,800 units under construction at seven
additional sites. The Operating Partnership also owns substantially all of the
economic interest in entities that provide multifamily and retail property
management and leasing, furnished corporate apartments, interior construction
and construction management services, and engineering and technical services
(collectively the "Property Service Businesses"). The Operating Partnership uses
the equity method of accounting for its 99% non-voting interest in the Property
Service Businesses.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. ACQUISITIONS AND DISPOSITIONS
In January 1999, the Company acquired a 442-unit multifamily property in
Crystal City, Virginia ("Buchanan House") for a capitalized cost of $66.0
million which includes assumed debt of $7.4 million, a fair value adjustment to
debt of $0.5 million, initial capital improvement costs of $5.0 million and $0.4
million in acquisition related costs. The balance was funded by proceeds from
the 1998 sale of Marbury Plaza and a draw on the Company's bank line of credit.
In January 1999, the Company acquired a 139-unit multifamily property in
Chicago, Illinois ("Parkwest") for a capitalized cost of approximately $13.6
million, consisting of 138,111 net Operating Partnership Units valued at $4.3
million, assumed debt of $6.0 million, a fair value adjustment to debt of $0.4
million, initial capital improvement costs of $0.8 million, and $2.1 million of
cash. The assumed loan has an effective interest rate of 6.5% with principal
amortized using a 25-year amortization schedule and a final payment due April 1,
2007.
7
<PAGE>
In January 1999, the Company acquired a 427-unit multifamily property in
Chicago, Illinois ("Terrace") for a capitalized cost of approximately $25.7
million, consisting of 291,551 net Operating Partnership Units valued at $9.1
million, assumed debt of $13.7 million, a fair value adjustment to debt of $0.2
million, initial capital improvement costs of $1.2 million, and $1.5 million of
cash.
In February 1999, the Company sold The Manor, a 435-unit multifamily
property located in suburban Maryland for $22.6 million. The Company recognized
a gain on the sale of $1.9 million.
In February 1999, the Company acquired a parcel of land for development in
Chicago, Illinois for $8.6 million.
In March 1999, the Company acquired the land beneath its Crystal Square
property and the 5.1% net profit interest in its Crystal Plaza property. The
purchase price of $10.0 million consisted of 32,258 Operating Partnership Units
valued at $1.0 million and the assumption of debt, which was repaid with $9.0
million cash drawn upon the line of credit. This transaction was completed
concurrently with the purchase by Charles E. Smith Commercial Realty L.P.
("CESCR") of commercial land and partnership interests. The transaction was
reviewed and approved by the Company's independent Directors.
During the second quarter of 1999, the Company paid $0.6 million in
settlement of its $1.8 million contingent purchase obligations related to the
1998 acquisition of the furnished corporate apartment business in Chicago.
3. MORTGAGE LOANS
In February 1999, the Company repaid the $7.4 million Buchanan mortgage
through a draw on its line of credit. The Company paid a prepayment penalty of
$0.9 million.
In March 1999, the Company obtained a $38.0 million mortgage on Buchanan
House with an effective fixed interest rate of 6.67%. The loan is interest only
through March 2009, at which time principal amortization begins using a 30-year
amortization schedule with a balloon payment due February 1, 2011.
In March 1999, the Company repaid the $13.7 million mortgage on Terrace.
The Company paid a prepayment penalty of $0.2 million. The Company obtained a
new, interest-only mortgage of $15.6 million at an effective interest rate of
6.64% with principal due April 1, 2007.
During the second quarter, the Company closed on a $269.5 million standby
credit facility with Fannie Mae which provides for non-recourse, long-term debt
for up to fifteen years. The initial draw on this facility was made during 1998
for $140 million at 6.75% for fifteen years. A second draw was made in May 1999
for $29.5 million at 6.845% for eight years. Terms and rates of subsequent draws
on this facility will be determined at the time of use.
4. 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.
8
<PAGE>
In May 1999, the remaining 589,261 shares of Series B Preferred Shares
were converted to common shares on a one-for-one basis.
5. PER SHARE DATA
Earnings per common share of the Company for the three and six months
ended June 30, 1999 and 1998 is computed based on weighted average common
shares/units outstanding during the period as follows (in millions):
Three months ended June 30,
-------------------------------
1999 1998
------------- -------------
Basic Diluted Basic Diluted
---- ---- ---- ----
Weighted Average Common Shares 19.2 19.5 15.4 15.6
Weighted Average Common Operating
Partnership Units(1) 13.2 13.2 14.1 14.1
Six months ended June 30,
-------------------------------
1999 1998
------------- -------------
Basic Diluted Basic Diluted
---- ---- ---- ----
Weighted Average Common Shares 18.8 19.0 15.4 15.6
Weighted Average Common Operating
Partnership Units(1) 13.3 13.3 14.1 14.1
(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 six months ended June 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. All convertible
preferred shares were also excluded from the calculation of diluted earnings per
share since the preferred dividends paid per share exceeded basic earnings per
share.
9
<PAGE>
A reconciliation of income (before extraordinary item) and shares used to
calculate basic and diluted earnings per share for the three months ended June
30, 1998 follows (dilutive securities had no effect on earnings for the six
months ended June 30, 1998 and for the three and six months ended June 30,
1999):
<TABLE>
<CAPTION>
Weighted Per Share
Income Average Shares Amount
------------- -------------- ---------
(In Thousands) (In Thousands)
<S> <C> <C> <C>
Income Before Extraordinary Item $ 18,274
Minority Interest (7,672)
Income Attributable to Preferred Shares (3,580)
--------
Earnings Per Share - Basic
Income Attributable to Common
Shareholders Before Extraordinary Item $ 7,022 15,403 $ 0.46
Effect of Dilutive Securities
Options(1) 38 177 (0.01)
-------- -------- --------
Earnings per share - Diluted $ 7,060 15,580 $ 0.45
======== ======== ========
</TABLE>
(1) Adjustment to numerator reflects change in the Minority Interest share of
income based on ownership calculation including common stock equivalents.
6. SEGMENT REPORTING
Property Segments
The Company's primary business is the ownership and operation of
multifamily residential real estate. As such, the residential rental properties
have been divided into three primary operating segments - the Core, the
Acquisition, and the Development portfolios. The Core Portfolio consists of all
multifamily properties which have been owned for longer than one full calendar
year. Therefore, the 1999 Core represents properties owned as of December 31,
1997. The Acquisition Portfolio consists of purchased properties which have not
yet been owned for one full calendar year. The Development Portfolio consists of
properties which the Company has constructed or is in the process of
constructing which have not yet had stabilized operating results for a full
calendar year. On the first of January each year, Acquisition and Development
properties that have been stabilized or held by the Company for one full
calendar year are transferred to the Core Portfolio.
The Company's fourth property segment is the Retail Portfolio which
consists of two freestanding retail properties.
The Company evaluates performance for the Property Segments based on Net
Operating Income ("NOI") calculated as the difference between Rental Revenue and
Operating Expenses (which excludes interest expense, general and administrative
costs and depreciation.)
10
<PAGE>
Property Service Business Segment
The Company also separately evaluates the financial information of its
equity investment in the Property Service Businesses. These businesses provide
professional services such as property management, furnished corporate apartment
rentals, engineering and technical consulting, and construction management to
both Company-owned properties and properties owned by third parties. Previously,
the Company reported the Property Service Businesses as three separate operating
segments. However, given the similarities in the nature of services, customers
and distribution methods as well as the overall profit contribution, the Company
considers the Property Service Businesses to be one segment. The Company
evaluates performance for the Property Service Business segment based on Funds
from Operations ("FFO"), which is defined using the revised definition adopted
by the National Association of Real Estate Investment Trusts ("NAREIT") as net
income (loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sale of
property, plus depreciation/amortization of assets unique to the real estate
industry. Depreciation/amortization of assets not unique to the industry, such
as amortization of deferred financing costs and non-real estate assets, is not
added back.
The accounting policies for all segments are the same as those described
in the summary of significant accounting policies in the Company's Annual Report
on Form 10-K.
Information concerning operations by segment for the three and six months
ended June 30, 1999 and 1998 was as follows (in thousands):
11
<PAGE>
Property Segments
<TABLE>
<CAPTION>
Three months Ended Six months ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Operating Income
Core Portfolio $ 34,900 $ 31,629 $ 67,803 $ 61,915
Acquisition Portfolio 6,233 3,636 12,407 5,179
Development Portfolio 1,025 (193) 1,711 (317)
Retail Portfolio 1,764 1,561 3,476 3,228
----------- ----------- ----------- -----------
Consolidated Total 43,922 36,633 85,397 70,005
Depreciation and Amortization (7,713) (7,088) (15,941) (13,475)
Equity in Income of Property Service
Businesses and Joint Ventures 1,251 2,227 1,279 2,891
Corporate General and Administrative Expenses (2,420) (2,203) (4,629) (4,228)
Net interest expense (13,329) (11,295) (26,343) (22,022)
----------- ----------- ----------- -----------
Income before Gain on Sale and
Extraordinary Item $ 21,711 $ 18,274 $ 39,763 $ 33,171
=========== =========== =========== ===========
Revenues
Core Portfolio $ 54,706 $ 51,743 $ 108,280 $ 101,603
Acquisition Portfolio 11,469 7,492 22,807 10,818
Development Portfolio 1,805 86 3,372 87
Retail Portfolio 2,542 2,400 5,096 4,863
----------- ----------- ----------- -----------
Consolidated Total $ 70,522 $ 61,721 $ 139,555 $ 117,371
=========== =========== =========== ===========
Real Estate Assets, gross
Core Portfolio $ 897,853 $ 906,582
Acquisition Portfolio 298,861 127,211
Development Portfolio 169,671 96,484
Retail Portfolio 60,083 59,933
----------- -----------
Sub-total 1,426,468 1,190,210
Accumulated Depreciation (241,556) (221,213)
----------- -----------
Consolidated Total, Net $ 1,184,912 $ 968,997
=========== ===========
</TABLE>
Property Service Business Segment
Three months Ended Six months ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -----
Funds from Operations $ 1,234 $ 2,227 $ 1,343 $ 2,891
Revenues 31,301 24,555 58,695 43,907
Depreciation 525 126 960 494
12
<PAGE>
7. JOINT VENTURES
In March 1999, the Company and J.P. Morgan Strategic Property Fund ("J.P.
Morgan") formed a joint venture which acquired the Renaissance, a 330-unit
multifamily property in Tysons Corner, Virginia for approximately $37 million.
The joint venture plans to invest an additional $2.0 million in initial capital
improvements and has placed debt of $19.0 million on the property. The debt
carries an interest rate of 6.48% and matures in February 2006. Ownership
interests in the joint venture are held 75% by J.P. Morgan and 25% by the
Company. The Company's initial equity contribution totaled $4.4 million
consisting of 21,903 Operating Partnership units valued at $0.7 million and cash
of $3.7 million. The transaction was reviewed and approved by the Company's
independent Directors since Messrs. Smith and Kogod held a general partnership
interest in the selling entity.
In May 1999, the Company and J.P. Morgan formed a joint venture
("Springfield Station JV") to own and operate the Company's recently developed
631-unit Springfield Station property. The Company sold a 52% interest in
Springfield Station JV to J.P. Morgan and received proceeds of approximately $50
million from the transaction. The joint venture placed $37 million in debt
financing on the property at 6.85% fixed interest which matures on June 1, 2001.
The Company provided a construction completion guarantee on the project as well
as a payment guarantee of $14.1 million of the debt. The construction completion
guarantee expires on October 1, 1999. The debt guarantee will expire on or
before the achievement of 92% occupancy for 45 consecutive days. The Company
will defer recognition of a $5.1 million gain on the sale until the guarantees
have expired.
In May 1999, the Company and J.P. Morgan also formed a development joint
venture ("University Center JV") to develop a new 630-unit multifamily property
in Loudoun County, Virginia at the western end of the Dulles Technology
corridor. Ownership interests are held 60% by J.P. Morgan and 40% by the
Company. The joint venture intends to place debt financing for 50% of the
project's estimated $60 million development cost. Construction commenced during
the third quarter of 1999 with final completion expected in 2001. The Company's
initial equity contribution consisted of land acquired in 1998 for $5.4 million,
less cash received of $3.0 million. A Company affiliate will provide
development, property management and marketing services to the venture for a
market rate fee. This affiliate will provide a construction completion guarantee
to the venture.
8. RELATED PARTY TRANSACTIONS
In May 1999, the Company finalized the settlement of financing services
provided to commercial office partnerships now owned and managed by CESCR, an
affiliate of Messrs. Smith and Kogod. This settlement was initiated by the
formation of CESCR in 1997, at which time the Company entered into an agreement
to provide financing services to CESCR only through December 31, 1998. On May 1,
1999, the Company received 79,905 Operating Partnership units valued at $2.5
million as final settlement from an affiliate of Messrs. Smith and Kogod and
immediately canceled the units.
13
<PAGE>
SUBSEQUENT EVENTS
In July 1999, the Company acquired a 720-unit apartment property located
in Palatine, Illinois ("Countryside"). The total capitalized cost of $44.8
million consists of 178,190 units of the Operating Partnership ("Units") valued
at approximately $6.0 million, new mortgage debt of $28.0 million, initial
capital improvement costs of $1.2 million, and cash of $9.6 million. The
mortgage debt obtained by the Company is a 7-year interest-only note with an
interest rate of 7.23%.
In July 1999, the Company also acquired a 1,158-unit apartment property
located in Glendale Heights, Illinois ("Somerset"). The total capitalized cost
of $57.6 million consists of 408,969 Units valued at approximately $13.9
million, assumed mortgage debt of $32.7 million, initial capital improvement
costs of $1.2 million, a fair value adjustment to debt of $0.5 million, and cash
of $9.3 million. The assumed debt matures in 2007, and has an effective rate of
8.31%.
In July 1999, the Company acquired a 269-unit apartment property located
in Washington, D.C. ("The Consulate"). The total capitalized cost of $32.7
million consists of assumed debt of $12.8 million, initial capital improvement
costs of $0.5 million, and $19.4 million of cash. The assumed debt matures in
2001 and has a rate of 7.375%.
In July 1999, the Company acquired the land beneath its Orleans Village
property. The purchase price of $0.4 million consisted of 7,797 Operating
Partnership Units valued at $0.2 million and cash of $0.2 million.
On July 2, 1999, the Company entered into an agreement with Security
Capital Preferred Growth, Inc. ("Security Capital") to sell 684,931 shares of
Series E Cumulative Convertible Redeemable Preferred Shares ("Series E Preferred
Shares"), $0.01 par value, at $36.50 per share for a total of $25.0 million. The
Series E Preferred Shares were issued on July 13, 1999. The Company also entered
into agreements with Security Capital to sell 666,667 shares of Series F
Cumulative Convertible Redeemable Preferred Shares ("Series F Preferred
Shares"), $0.01 par value, at $37.50 and 641,026 shares of Series G Cumulative
Convertible Redeemable Preferred Shares ("Series G Preferred Shares"), $0.01 par
value, at $39.00. The dividend yield to be paid on these preferred shares will
be 7.75% in year one, 8.25% in year two and 8.5% in year three and thereafter,
with a minimum equivalent to the dividend rate paid on the Company's common
shares.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion should be read in conjunction with the
accompanying financial statements and notes thereto. The results of operations
for the three and six months ended June 30, 1999 and 1998 presented in the
Consolidated Statements of Operations and discussed below represent the
operations of Charles E. Smith Residential Realty, 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 5.7% in the second quarter of 1999 as
compared with 1998.
A schedule of portfolio statistics follows:
15
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
- --------------------------------------------------------------------------------
Residential Portfolio Statistics
For the Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Gross Average
Average Operating Revenue % Change Economic Change
Property Apartment Sq. Ft. Income Per Unit from Occupancy From
Property Type/Property Name Type Units Per Unit Q2-99 Q2-99 Q2-98 Q2-99 Q2-98
- --------------------------- ---- ----- -------- ----- ----- ----- ----- -----
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORE RESIDENTIAL PORTFOLIO
NW Washington, D.C
1841 Columbia Road High-rise 115 634 $ 349 $ 1,011 7.3% 99.4% -.4%
2501 Porter Street High-rise 202 760 996 1,644 9.4% 99.7% .5%
Albemarle High-rise 235 1,097 907 1,287 7.5% 98.2% 1.3%
Calvert-Woodley High-rise 136 1,001 509 1,247 8.3% 99.1% -.5%
Cleveland House High-rise 216 894 779 1,202 6.4% 97.5% -2.1%
Connecticut Heights High-rise 519 536 1,500 963 8.8% 98.3% 2.7%
Corcoran House High-rise 138 464 356 859 3.5% 99.7% .5%
Statesman High-rise 281 593 745 884 12.8% 102.3% 4.2%
Van Ness South High-rise 625 956 2,201 1,174 7.4% 99.1% .8%
The Kenmore High-rise 376 725 914 810 7.1% 98.1% .0%
------ ----- ------- ------- ------ -------
2,843 771 $ 9,256 $ 1,086 8.1% 99.0%
Northern Virginia
Crystal City
------------
The Bennington High-rise 348 804 1,177 1,122 4.3% 97.0% .4%
Crystal House I High-rise 426 917 1,356 1,061 8.4% 97.2% 1.5%
Crystal House II High-rise 402 938 1,235 1,024 6.1% 97.5% 2.2%
Crystal Square High-rise 378 1,121 1,373 1,210 3.9% 98.4% -.1%
Crystal Place High-rise 180 894 731 1,353 3.5% 96.1% -2.2%
Gateway Place High-rise 162 826 856 1,762 -10.6% 91.0% -8.3%
Water Park Towers High-rise 360 881 1,624 1,504 3.8% 94.4% .7%
Crystal Plaza High-rise 540 1,129 2,109 1,302 5.0% 99.0% 1.0%
Crystal Towers High-rise 912 1,107 3,300 1,208 8.9% 98.8% 3.0%
------ ----- ------- ------- ------ -------
3,708 998 $13,761 $ 1,239 5.0% 97.3%
Rosslyn/Ballston
----------------
Courthouse Plaza High-rise 396 772 1,605 1,351 4.2% 96.4% -1.2%
Lincoln Towers High-rise 714 879 2,904 1,356 1.1% 93.7% -3.6%
------ ----- ------- ------- ------ -------
1,110 841 $ 4,509 $ 1,358 2.4% 94.6%
Tysons/Dulles
-------------
Charter Oak Garden 262 1,097 810 1,030 6.2% 98.2% .9%
Oaks of Tysons Garden 218 968 726 1,110 7.0% 96.9% 1.5%
Potomac View Garden 192 965 479 831 6.9% 96.6% -1.2%
Bedford Village Garden 752 1,070 2,221 984 9.4% 97.7% 4.4%
Patriot Village Garden 1,065 1,162 3,015 944 4.7% 96.3% .3%
Westerly at Worldgate Garden 320 921 1,167 1,216 7.2% 98.4% 3.3%
------ ----- ------- ------- ------ -------
2,809 1,075 $ 8,418 $ 1,001 6.9% 97.2%
Other
-----
Arlington Overlook Mid-rise 711 877 1,768 829 6.9% 94.8% -.8%
Berkeley Mid-rise 138 891 311 751 2.4% 95.3% -1.4%
Boulevard of Old Town Garden 159 603 424 889 -22.0% 97.8% -.6%
Columbia Crossing Garden 247 976 881 1,189 4.5% 98.3% 2.4%
Columbian Stratford Mid-rise 227 942 543 798 2.6% 99.0% -.5%
Concord Village Garden 531 1,025 1,358 852 5.9% 95.6% 1.2%
Newport Village Garden 937 1,115 2,658 946 6.8% 97.5% 1.9%
Orleans Village Garden 851 1,061 2,257 884 8.4% 97.4% 4.0%
Skyline Towers High-rise 940 1,221 2,907 1,031 5.9% 96.3% 1.5%
Windsor Towers Mid-rise 280 1,025 714 849 4.8% 99.1% .8%
------ ----- ------- ------- ------ -------
5,021 1,040 $13,821 $ 918 5.1% 96.8%
Boston/Chicago
2000 Commonwealth High-rise 188 878 1,020 1,808 13.2% 97.6% 2.9%
One East Delaware High-rise 306 704 1,807 1,969 7.2% 98.1% .1%
------ ----- ------- ------- ------ -------
494 770 $ 2,827 $ 1,908 9.3% 97.9%
Other
Car Barn Garden 196 1,311 558 $ 949 6.6% 98.9% 4.0%
Fort Chaplin Garden 549 983 1,113 676 2.3% 97.4% -.4%
Suburban Tower High-rise 172 677 443 857 6.7% 97.6% .9%
------ ----- ------- ------- ------ -------
917 996 2,114 768 4.3% 97.8%
------ ----- ------- ------- ------ -------
16,902 968 $54,706 $ 1,079 5.8% 97.3%
------ ----- ------- ------- ------ -------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Gross Average
Average Operating Revenue % Change Economic Change
Property Apartment Sq. Ft. Income Per Unit from Occupancy From
Property Type/Property Name Type Units Per Unit Q2-99 Q2-99 Q2-98 Q2-99 Q2-98
- --------------------------- ---- ----- -------- ----- ----- ----- ----- -----
(in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACQUISITION PORTFOLIO
1998
Tunlaw Gardens (NW
Washington, D.C.) Garden 167 850 411 $ 820 7.3% 96.4% -.4%
Tunlaw Park (NW
Washington, D.C.) Mid-rise 120 856 401 1,113 2.3% 95.3% -1.3%
Parc Vista (Crystal
City, VA.) High-rise 299 770 1,168 1,302 NA 96.9% NA
McClurg Court
(Chicago, IL.) High-rise 1,075 688 4,325 1,341 NA 95.6% NA
Cronin's Landing
(Boston, MA) Mid-rise 281 1,129 1,651 1,958 NA 96.0% NA
1999
Buchanan House (Crystal
City, VA.) High-rise 442 1,173 1,991 NA NA NA NA
Parkwest (Chicago, IL.) Garden 139 580 440 NA NA NA NA
Terrace (Chicago, IL.) Garden 427 839 993 NA NA NA NA
------ ----- -------
Subtotal/Average 2,950 844 $11,380
DEVELOPMENT PORTFOLIO
Courthouse Place (Rosslyn/
Ballston, VA.) High-rise 564 NA NA NA NA NA
One Superior Place
(Chicago, IL.) High-rise 809 NA NA NA NA NA
Park Connecticut (NW
Washington, D.C.) High-rise 142 NA NA NA NA NA
------
Subtotal/Average 1,515
ALL RESIDENTIAL PROPERTIES 21,367 NA NA NA NA NA
======
</TABLE>
17
<PAGE>
RENTAL PROPERTIES
Revenues, expenses and income from the multifamily and retail properties
for the three and six months ended June 30, 1999 and 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998(2) 1999 1998(2)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Multifamily Properties - Core(1)
Revenues $ 54,706 $ 51,743 $ 108,280 $ 101,603
Expenses (19,806) (20,114) (40,477) (39,688)
--------- --------- --------- ---------
Income before depreciation $ 34,900 $ 31,629 $ 67,803 $ 61,915
========= ========= ========= =========
Multifamily Properties - Acquisitions
and Dispositions
Revenues $ 11,469 $ 7,492 $ 22,807 $ 10,818
Expenses (5,236) (3,856) (10,400) (5,639)
--------- --------- --------- ---------
Income before depreciation $ 6,233 $ 3,636 $ 12,407 $ 5,179
========= ========= ========= =========
Multifamily Properties - Development
Revenues $ 1,805 $ 86 $ 3,372 $ 87
Expenses (780) (279) (1,661) (404)
--------- --------- --------- ---------
Income before depreciation $ 1,025 $ (193) $ 1,711 $ (317)
========= ========= ========= =========
Retail Properties
Revenues $ 2,542 $ 2,400 $ 5,096 $ 4,863
Expenses (778) (839) (1,620) (1,635)
--------- --------- --------- ---------
Income before depreciation $ 1,764 $ 1,561 $ 3,476 $ 3,228
========= ========= ========= =========
Total Rental Properties
Revenues $ 70,522 $ 61,721 $ 139,555 $ 117,371
Expenses (26,600) (25,088) (54,158) (47,366)
Depreciation (7,713) (7,088) (15,941) (13,475)
--------- --------- --------- ---------
Income from Rental Properties $ 36,209 $ 29,545 $ 69,456 $ 56,530
========= ========= ========= =========
</TABLE>
(1) Represents properties owned as of December 31, 1997.
(2) Prior year amounts have been reclassified to conform with current year
presentation.
18
<PAGE>
PROPERTY SERVICE BUSINESSES
Revenues, expenses and income from the Property Service Businesses for the
three and six months ended June 30, 1999 and 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Property Service Businesses
Revenues $ 31,301 $ 24,555 $ 58,695 $ 43,907
Expenses (29,650) (22,202) (56,607) (40,522)
Depreciation (525) (126) (960) (494)
-------- -------- -------- --------
Income from Property Service Businesses $ 1,126 $ 2,227 $ 1,128 $ 2,891
======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1999 to Three Months Ended June 30,
1998.
Summary. Net income of the Operating Partnership increased $3.4 million,
or 18.8%, from $18.3 million for the three months ended June 30, 1998 to $21.7
million for the three months ended June 30, 1999. Funds from Operations ("FFO")
of the Operating Partnership increased $4.2 million, or 17.6%, from $24.4
million to $28.6 million during the same period. Net income of the Company
increased from $7.0 million, or $0.45 per diluted common share, for the three
months ended June 30, 1998 to $11.2 million, or $0.58 per diluted common share,
for the three months ended June 30, 1999. FFO of the Company increased 26.7%,
from $14.2 million to $18.0 million during the same period. The increases in FFO
and net income are primarily attributable to revenue growth of 5.7% on the core
portfolio, an expense decrease of 1.5%, and contributions from acquired and
developed properties.
Rental Properties. Revenue from all rental properties increased $8.8
million, or 14.3%, from $61.7 million for the three months ended June 30, 1998
to $70.5 million for the three months ended June 30, 1999. Operating expenses
from all rental operations increased $1.5 million, or 6.0% from $25.1 million
during the second quarter of 1998 to $26.6 million during the current quarter.
Core Portfolio. Revenue from the core portfolio increased $3.0 million, or
5.7%, over the prior year period resulting in average monthly revenue per
apartment unit of $1,079. This was primarily due to continued strong demand in
all submarkets, particularly northwest Washington, D.C. Management successfully
increased rents during the quarter and improved occupancy levels. Average
economic occupancy for the core portfolio was 97.3% for the three months ended
June 30, 1999 compared to 96.4% for the comparable prior year. Expenses for the
core portfolio decreased $0.3 million, or 1.5%, due primarily to utility savings
of $0.6 million. The savings arose from lower than expected fuel costs and water
savings generated by the Company's program of replacing older plumbing fixtures.
Acquisition Portfolio. The eight acquisition properties (defined as
properties acquired subsequent to December 31, 1997) and three disposition
properties contributed approximately 45%, or $4.0 million,
19
<PAGE>
of the total rental revenue increase and approximately $1.4 million of the total
rental expense increase. Five of the acquisition properties (comprising 1,942
apartment units) were acquired during 1998 and three (comprising 1,008 units)
were acquired during the first quarter of 1999.
Development Portfolio. Courthouse Place delivered the balance of its units
during the quarter for a total of 564 units delivered as of June 30, 1999. The
project provided net operating income of $0.8 million for the quarter.
During the second quarter, the Company and J.P. Morgan formed a joint
venture ("Springfield Station JV") to own and operate the Company's recently
developed Springfield Station property.
Property Service Businesses. The Company uses the equity method of
accounting for its 99% non-voting interest in the Property Service Businesses.
The decrease in income from Property Service Businesses of $1.1 million in
the second quarter of 1999 compared to the prior year quarter is primarily due
to the 1998 expiration of the Financing Services Agreement with CESCR. The
Company finalized the settlement of Financing Services in May 1999 with CESCR.
During the second quarter of 1999, the Company paid $0.6 million in
settlement of its $1.8 million contingent purchase obligation related to the
1998 acquisition of the furnished corporate apartment business in Chicago.
Joint Ventures. The Company entered into two joint ventures during the
second quarter, one an operating property ("Springfield Station JV") and the
other a development property ("University Center"). The Company's share of
income from the joint ventures totaled $0.1 million for the quarter.
Other. Corporate general and administrative expenses increased 9.9%
compared to the prior year quarter due primarily to costs related to the
Company's acquisition and development efforts. Net interest expense increased
$2.0 million during the quarter, or 18.0%, primarily due to additional debt
related to acquisitions and development partially offset by lower interest rates
on the line of credit and refinanced debt.
Comparison of Six Months Ended June 30, 1999 to Six Months Ended June 30, 1998.
Summary. Net income of the Operating Partnership increased $9.7 million,
or 30.6%, from $31.6 million for the six months ended June 30, 1998 to $41.3
million for the six months ended June 30, 1999. Funds from Operations ("FFO") of
the Operating Partnership increased $9.1 million, or 20.1%, from $45.0 million
to $54.1 million during the same period. Net income of the Company increased
from $13.0 million, or $0.84 per diluted common share, for the six months ended
June 30, 1998 to $21.0 million, or $1.11 per diluted common share, for the six
months ended June 30, 1999. FFO of the Company increased 31.0%, from $25.7
million to $33.7 million during the same period.
Rental Properties. Revenue from all rental properties increased $22.2
million, or 18.9%, from $117.4 million for the six months ended June 30, 1998 to
$139.6 million for the six months ended June 30, 1999. Operating expenses from
all rental operations increased $6.8 million, or 14.3% from $47.4 million during
the first half of 1998 to $54.2 million during the current period.
20
<PAGE>
Core Portfolio. Revenue from the core portfolio increased $6.7 million, or
6.6%, over the prior year period resulting in average monthly revenue per
apartment unit of $1,068. This was primarily due to continued strong demand in
all submarkets, particularly northwest Washington, D.C. Management successfully
increased rents during the period and improved occupancy levels. Average
economic occupancy for the core portfolio was 97.2% for the six months ended
June 30, 1999 compared to 95.6% for the comparable prior year. Expenses for the
core portfolio increased $0.8 million, or 2.0%, due primarily to expected
increases in real estate taxes, and higher wages due to additional staffing at
the properties.
Acquisition Portfolio. The eight acquisition properties (defined as
properties acquired subsequent to December 31, 1997) and three disposition
properties contributed approximately 54%, or $12.0 million, of the total rental
revenue increase and approximately $4.8 million of the total rental expense
increase.
Development Portfolio. As of June 30, 1998, Courthouse Place had delivered
all of its 564 units. The project provided net operating income of $1.1 million
for the first six months of 1999.
Property Service Businesses. The Company uses the equity method of
accounting for its 99% non-voting interest in the Property Service Businesses.
The decrease in income from Property Service Businesses of $1.8 million in
the first half of 1999 compared to the prior year period is primarily due to
decreases of $1.3 million and $1.0 million, respectively, for Financing Services
and Smith Corporate Living. The former is due to the expiration in 1998 of the
Financing Services agreement with CESCR. The latter is primarily due to
seasonality of the corporate furnished apartment business which was acquired in
mid-1998.
Joint Ventures. The Company entered into three joint ventures during the
first half of 1999. The Company's share of income from the joint ventures
totaled $0.2 million for the period.
Other. Corporate general and administrative expenses increased 9.5%
compared to the prior year period due primarily to costs related to the
Company's acquisition and development efforts. Net interest expense increased
$4.3 million during the period, or 19.6%, primarily due to additional debt
related to acquisitions and development partially offset by lower interest rates
on the line of credit and refinanced debt.
LIQUIDITY AND CAPITAL RESOURCES
Summary. Net cash flow provided by operating activities decreased $6.1
million from $65.0 million for the six months ended June 30, 1998 to $58.9
million for the six months ended June 30, 1999. The increase in FFO of $9
million was offset by a $10 million increase in accounts payable and accrued
expenses in 1998 related to acquisitions and a $6.6 million decrease in other
assets.
21
<PAGE>
Net cash flow of $60.7 million was used by investment activities during
the six months ended June 30, 1999 compared to $185.9 million during the
comparable prior year period due primarily to the acquisition of three
properties and one joint venture interest in 1999 as well as further investments
during the quarter in the four projects under construction. Partially offsetting
such outflows was the $22.6 million in cash proceeds from the sale of The Manor
and approximately $50.1 million from the sale of a 52% interest in Springfield
Station.
Net cash flows provided by financing activities was $6.8 million for the
six months ended June 30, 1999, primarily comprised of $45.4 million of net cash
inflow from borrowings against the properties, the line of credit and
construction loans less $39.6 million of dividends/distributions. Net cash flows
provided by financing activities of $120.9 million in the comparable prior year
period primarily consisted of $75.0 million of inflow from the sale of preferred
stock and $82.8 million of net borrowings, less $3.0 million of prepayment
penalties and $34.8 million of dividends/distributions.
Funds from Operations. Funds from Operations is defined under the revised
definition adopted by the National Association of Real Estate Investment Trusts
("NAREIT") as net income (loss) (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring and
sale of property plus depreciation/amortization of assets unique to the real
estate industry. Depreciation/amortization of assets not unique to the industry,
such as amortization of deferred financing costs and non-real estate assets, is
not added back. FFO does not represent cash flow from operating activities in
accordance with generally accepted accounting principles (which, unlike Funds
from Operations, generally reflects all cash effects of transactions and other
events in the determination of net income) and should not be considered an
alternative to net income as an indication of the Company's performance or to
cash flow as a measure of liquidity or ability to make distributions. The
Company considers FFO a meaningful, additional measure of operating performance
because it primarily excludes the assumption that the value of real estate
assets diminishes predictably over time, and because industry analysts have
accepted it as a performance measure. Comparison of the Company's presentation
of FFO, using the NAREIT definition, to similarly titled measures for other
REITs may not necessarily be meaningful due to possible differences in the
application of the NAREIT definition used by such REITs.
Funds from Operations for the three and six months ended June 30, 1999 and
1998 are computed as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Net Income of the Operating Partnership $ 21,704 $ 18,274 $ 41,255 $ 31,589
Perpetual Preferred Dividends (999) (1,000) (1,988) (1,626)
Depreciation of Real Property 7,713 7,088 15,941 13,475
Depreciation from unconsolidated
Joint Ventures 114 -- 122 --
Amortization of Goodwill 108 -- 215 --
Loss (Gain) on Sale of Property 7 -- (1,851) (3,120)
Extraordinary Item -- -- 359 4,702
-------- -------- -------- --------
Funds from Operations of the Operating
Partnership 28,647 24,362 54,053 45,020
Minority Interest (10,689) (10,193) (20,357) (19,302)
-------- -------- -------- --------
Attributable to Shareholders $ 17,958 $ 14,169 $ 33,696 $ 25,718
======== ======== ======== ========
</TABLE>
Acquisitions
In January 1999, the Company acquired a 442-unit multifamily property in
Crystal City, Virginia ("Buchanan House") for a capitalized cost of $66.0
million which includes assumed debt of $7.4 million, a fair value adjustment to
debt of $0.5 million, initial capital improvement costs of $5.0 million and $0.4
million in acquisition related costs. Funding of $17.7 million was provided from
the 1998 sale of Marbury Plaza with the balance drawn on the Company's bank line
of credit.
In January 1999, the Company acquired a 139-unit multifamily property in
Chicago, Illinois ("Parkwest") for a capitalized cost of approximately $13.6
million, consisting of 138,111 net Operating Partnership Units valued at $4.3
million, assumed debt of $6.0 million, a fair value adjustment to debt of $0.4
million, initial capital improvement costs of $0.8 million, and $2.1 million of
cash. The assumed mortgage has an effective interest rate of 6.5% with principal
amortized using a 25-year amortization schedule and a final payment due April 1,
2007.
In January 1999, the Company acquired a 427-unit multifamily property in
Chicago, Illinois ("Terrace") for a capitalized cost of approximately $25.7
million, consisting of 291,551 net Operating Partnership Units valued at $9.1
million, assumed debt of $13.7 million, a fair value adjustment to debt of $0.2
million, initial capital improvement costs of $1.2 million, and $1.5 million of
cash.
Development
As of June 30, 1999, the Company had the following properties under
construction:
23
<PAGE>
<TABLE>
<CAPTION>
Number Units Initial Estimated Estimated Estimated
of Units Delivered Delivery Completion Stabilization Cost
-------- --------- -------- ---------- ------------- ----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Courthouse Place 564 564 December, '98 Q3, 1999 Q3, 1999 $ 69
(Rosslyn/Ballston)
One Superior Place 809 N/A July, 1999 Q2, 2000 Q4, 2000 118
(Chicago)
Park Connecticut 142 N/A Q1, 2000 Q2, 2000 Q3, 2000 27
(Washington, D.C.) ----- --- ------
1,515 564 $ 214
===== === =====
</TABLE>
In February 1999, the Company acquired for $8.6 million a parcel of land
for development in Chicago, Illinois.
Commitments
As of June 30, 1999, the Company had executed contracts to purchase
multifamily properties under construction as follows:
<TABLE>
<CAPTION>
Number Units Estimated Purchase Estimated
of Units Delivered Completion Date Purchase Price
-------- --------- ---------- ---- --------------
(in millions)
<S> <C> <C> <C> <C> <C>
Reston Landing 400 N/A Q4, 1999 Q3, 2000 $ 44
(Reston, VA.)
New River Village 240 N/A Q2, 2000 Q4, 2000 33
(Ft. Lauderdale, FL.)
Wilson Boulevard 220 N/A Q3, 2000 Q4, 2000 28
(Rosslyn/Ballston)
Ballston Place 383 N/A Q4, 2000 Q3, 2001 50
(Rosslyn/Ballston) ----- ------
1,243 $ 155
===== =====
</TABLE>
These contracts are contingent upon satisfactory completion of
construction and attainment of final certificates of occupancy by the owners. At
June 30, 1999, the Company had posted three letters-of-credit totaling $7.7
million in accordance with three of the contracts each to be drawn only in the
event the Company defaults on its contractual obligation to purchase the
completed asset.
Joint Ventures
In March 1999, the Company and J.P. Morgan formed a joint venture, which
acquired the Renaissance, a 330-unit multifamily property in Tysons Corner,
Virginia for approximately $37 million. The joint venture plans to invest an
additional $2.0 million in initial capital improvements and has placed debt of
$19.0 million on the property. The debt carries an interest rate of 6.48% and
matures in February 2006. Ownership interests in the joint venture are held 75%
by J.P. Morgan and 25% by the Company. The Company's initial equity contribution
totaled $4.4 million consisting of 21,903 Operating Partnership units valued at
$0.7 million and cash of $3.7 million.
In May 1999, the Company and J.P. Morgan formed a joint venture
("Springfield Station JV") to own and operate the Company's recently developed
631-unit Springfield Station property. The
24
<PAGE>
Company sold a 52% interest in Springfield Station JV to J.P. Morgan and
received proceeds of approximately $50 million from the transaction. The joint
venture placed $37 million in debt financing on the property at 6.85% fixed
interest, which matures on June 1, 2001. The Company provided a construction
completion guarantee on the project as well as a payment guarantee of $14.1
million of the debt. The construction completion guarantee expires on October 1,
1999. The debt guarantee will expire on or before the achievement of 92%
occupancy for 45 consecutive days. The Company will defer recognition of a $5.1
million gain on the sale until the guarantees have expired.
In May 1999, the Company and J.P. Morgan also formed a development joint
venture ("University Center JV") to develop a new 630-unit multifamily property
in Loudoun County, Virginia at the western end of the Dulles Technology
corridor. Ownership interests are held 60% by J.P. Morgan and 40% by the
Company. The joint venture intends to place debt financing for 50% of the
project's estimated $60 million development cost. Construction commenced during
the third quarter of 1999 with final completion expected in 2001. The Company's
initial equity contribution consisted of land acquired in 1998 for $5.4 million
less cash received of $3.0 million. A Company affiliate will provide
development, property management and marketing services to the venture for a
market rate fee. The affiliate will provide a construction completion guarantee
to the venture.
Debt
In February 1999, the Company repaid the $7.4 million mortgage on Buchanan
House through a draw on its line of credit and paid a prepayment penalty of $0.9
million.
In March 1999, the Company obtained a $38.0 million mortgage on Buchanan
House with an effective fixed interest rate of 6.67%. The loan is interest only
through March 2009, at which time principal amortization begins using a 30-year
amortization schedule with a balloon payment due February 1, 2011.
In March 1999, the Company repaid the mortgage on Terrace and obtained a
new, interest-only mortgage of $15.6 million at an effective rate of 6.64% with
principal due April 1, 2007. The Company paid a prepayment penalty of $0.2
million.
During the second quarter, the Company closed on a $269.5 million standby
credit facility with Fannie Mae which provides for non-recourse, long-term debt
for up to fifteen years. The initial draw on this facility was made during 1998
for $140 million at 6.75% for fifteen years. A second draw was made in May 1999
for $29.5 million at 6.845% for eight years. Terms and rates of subsequent draws
on this facility will be determined at the time of use.
As of June 30, 1999, the Company had mortgage indebtedness and other
borrowings, which carried a weighted average interest rate of 6.92%, as follows:
25
<PAGE>
Dollars in % of
Thousands Total
-------- -----
Fixed rate debt:
Mortgages $710,503 82.3%
Variable rate debt:
$100M line of credit 52,000 6.0%
$185M line of credit -- --
Construction Loans 101,003 11.7%
-------- -----
$863,506 100.0%
======== =====
As of June 30, 1999, the Company had $268.8 million of unused borrowing
capacity on lines of credit and construction loans. Amounts outstanding under
lines of credit averaged $99.9 million for the six months ended June 30, 1999
compared to $150.9 million for the six months ended June 30, 1998.
As of June 30, 1999, the Company's Debt to Total Market Capitalization
Ratio was 40.9% (based on 19.6 million common shares, 2.6 million convertible
preferred shares and 13.1 million partnership units outstanding at a common
stock price of $33.938 and $50 million of perpetual preferred stock) versus
40.3% as of December 31, 1998 and 38.3% as of June 30, 1998.
The Company's Interest Coverage Ratio for the six months ended June 30,
1999 was 3.28 to 1 compared to 3.16 for the comparable prior year period.
26
<PAGE>
Capital Expenditures
For the six months ended June 30, 1999, total capital improvements were
$8.4 million, of which $7.0 million were for the core portfolio ($417 per unit).
Approximately 54% of the capital expenditures on the core portfolio in 1999 are
considered by management to generate net operating income ("NOI") by increasing
revenue or decreasing expenses ("NOI generating"). The remaining capital
expenditures on the core portfolio indirectly influence the Company's ability to
generate NOI ("non-NOI generating"). A summary of core capital expenditures
follows:
Total $ Average $
Spent Per
(In Thousands) Core Unit
-------------- ---------
Expenditure Type
Installations $1,668 $ 99
Water Saving Devices 276 16
Renovations 1,036 61
Redevelopment 722 43
Other 113 7
------ ------
Total NOI Generating
Improvements 3,815 226
Non-NOI Generating
Improvements 3,228 191
------ ------
Total Capital Expenditures -
Core Portfolio $7,043 $ 417
====== ======
27
<PAGE>
Year 2000
In 1997, the Company began a comprehensive review of its year 2000
compliance issues utilizing an overlapping, three-phased approach. Phase I
involves assessments of building infrastructure and internal computer systems
including both hardware and software to identify possible compliance failures.
Phase II involves vendor compliance and actual testing of hardware and software
applications including significant electronic interfaces. Phase III involves
identifying remaining company-wide risks and development of contingency plans.
The Company has completed Phase I and expects to complete Phase II in the third
quarter of 1999. Phase III was initiated in March 1999 and is expected to run
through December 1999. Based on the review plan as well as the expected success
of remediation efforts currently underway, management believes the Company has
no material risks related to the ability of its hardware and software to
recognize the year 2000 and beyond as valid dates.
The Company's primary financial and operational software programs were
purchased from outside vendors who have already resolved year 2000 issues. The
Company has received letters from these vendors indicating that their software
is Year 2000 compliant. The Company replaced one computer system which was not
year 2000 compliant at an estimated cost of approximately $1.6 million. The new
system will be depreciated over its estimated useful life of five years.
As part of Phase II, the Company has taken steps to identify and contact
key vendors whose inability to provide service in the year 2000 could have a
material adverse effect on the Company's business operations. With the exception
of utility services, the Company believes that there are no other critical
suppliers whose inability to provide service would materially affect business
operations. This is due primarily to the physical nature of the Company's
product as well as the availability of multiple suppliers of property services.
The Company does not have a contingency plan to address the possibility that
utility services may not be available, however, management believes that this is
a very unlikely scenario. Readers are cautioned that these conclusions involve
numerous subjective assumptions and there can be no assurances that management
has adequately identified or addressed all possible contingencies.
Excluding the replacement system, the Company's Year 2000 compliance
efforts have been primarily conducted with internal staff. Accordingly, the
costs have been immaterial and are expensed as incurred.
28
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders
The regular Annual Meeting of the Registrant was held on May 18, 1999. At
this Annual Meeting, incumbent Director Robert P. Kogod was re-elected to
the Board of Directors for a term ending in 2002. New Directors R. Michael
McCullough and L. Ronald Scheman were elected for terms ending in 2002.
Directors Ernest A. Gerardi, Jr., Charles B. Gill, Mandell J. Ourisman,
Robert H. Smith and Mallory Walker continued their terms in office. The
shareholders also voted at this Annual Meeting to ratify the Board of
Directors' appointment of Arthur Andersen LLP as the independent auditors
of the Registrant for the fiscal year ending December 31, 1999. The votes
cast at this Annual Meeting were as follows:
Election of Robert P. Kogod FOR - 16,624,876 shares
WITHHELD - 69,719 shares
Election of R. Michael McCullough FOR - 16,684,751 shares
WITHHELD - 9,844 shares
Election of L. Ronald Scheman FOR - 16,685,194 shares
WITHHELD - 9,401 shares
Ratification of Appointment of FOR - 16,672,043 shares
Arthur Andersen AGAINST - 15,971 shares
ABSTAINING - 6,581 shares
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
29
<PAGE>
(a) Exhibits:
99.1 Articles Supplementary for Series E Cumulative Convertible
Redeemable Preferred Stock
99.2 Articles Supplementary for Series F Cumulative Convertible
Redeemable Preferred Stock
99.3 Articles Supplementary for Series G Cumulative Convertible
Redeemable Preferred Stock
99.4 Twenty-third Amendment to First Amended and Restatement of
Agreement of Limited Partnership of the Operating Partnership.
(b) Reports on Form 8-K:
A Form 8-K dated July 2, 1999 was filed on July 16, 1999 to report
the Company's acquisition of the Somerset, Countryside and The
Consulate Apartments.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
August 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.
31
<PAGE>
EXHIBIT 99.1
Series E Cumulative Convertible
Redeemable Preferred Stock
ARTICLES SUPPLEMENTARY
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
====================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series E Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
====================
Dated as of July 9, 1999
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
====================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series E Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
====================
Charles E. Smith Residential Realty, Inc., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland pursuant to section 8-203(b) of the Annotated Code of
Maryland that:
FIRST: Pursuant to authority granted by the Amended and Restated Articles
of Incorporation of the Corporation, the Board of Directors adopted a resolution
by Unanimous Written Consent dated July 1, 1999 designating and classifying
684,931 unissued and undesignated shares of preferred stock as Series E
Cumulative Convertible Redeemable Preferred Stock.
SECOND: The following is a description of the Series E Cumulative
Convertible Redeemable Preferred Stock, including the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption thereof:
Section 1. Number of Shares and Designation. This class of preferred stock
shall be designated as Series E Cumulative Convertible Redeemable Preferred
Stock and the number of shares which shall constitute such series shall not be
more than 684,931 shares, par value $0.01 per share, which number may be
decreased (but not below the number thereof then outstanding) from time to time
by the Board of Directors.
Section 2. Definitions. For purposes of the Series E Preferred Shares, the
following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series E Preferred
Shares.
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
required under Section 5(d) as the Call Date.
"Common Shares" shall mean the shares of Common Stock, par value
$0.01 per share, of the Corporation.
"Constituent Person" shall have the meaning set forth in Section
6(e).
"Conversion Price" shall mean the conversion price per Common Share
for which the Series E Preferred Shares are convertible, as such
Conversion Price may be adjusted pursuant to Section 6. The initial
conversion price shall be $36.50 (equivalent to a conversion rate of one
Common Share for each Series E Preferred Share).
"Current Market Price" of publicly traded shares of Common Stock or
any other class of shares of capital stock or other security of the
Corporation or any other issuer for any day shall mean the last reported
sales price, regular way on such day, or, if no sale takes place on such
day, the average of the reported closing bid and asked prices on such day,
regular way, in either case as reported on the New York Stock Exchange
("NYSE") or, if such security is not listed or admitted for trading on the
NYSE, on the principal national securities exchange on which such security
is listed or admitted for trading or, if not listed or admitted for
trading on any national securities exchange, on the Nasdaq Stock Market
("NASDAQ") or, if such security is not quoted on such National Market
System, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on such day shall not have been reported through NASDAQ,
the average of the bid and asked prices on such day as furnished by any
NYSE member firm regularly making a market in such security selected for
such purpose by the Board of Directors.
"Dividend Payment Date" shall mean (i) for any Dividend Period with
respect to which the Corporation pays a dividend on the Common Shares, the
date on which such dividend is paid, or (ii) for any Dividend Period with
respect to which the Corporation does not pay a dividend on the Common
Shares, a date to be set by the Board of Directors, which date shall not
be later than the forty-fifth calendar day after the end of the applicable
Dividend Period.
"Dividend Periods" shall mean quarterly dividend periods commencing
on January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the
2
<PAGE>
initial Dividend Period, which shall commence on the Issue Date and end on
and include the last calendar day of the calendar quarter containing the
Issue Date, and other than the Dividend Period during which any Series E
Preferred Shares shall be redeemed pursuant to Section 5, which shall end
on and include the Call Date with respect to the Series E Preferred Shares
being redeemed).
"Expiration Time" shall have the meaning set forth in Section
6(d)(iv).
"Fair Market Value" shall mean the average of the daily Current
Market Prices of a Common Share on the five (5) consecutive Trading Days
selected by the Corporation commencing not more than 20 Trading Days
before, and ending not later than, the earlier of the day in question and
the day before the "ex date" with respect to the issuance or distribution
requiring such computation. The term "ex date," when used with respect to
any issuance or distribution, means the first day on which the Common
Shares trade regular way, without the right to receive such issuance or
distribution, on the exchange or in the market, as the case may be, used
to determine that day's Current Market Price.
"Fully Junior Shares" shall mean the Common Shares and any other
class or series of shares of capital stock of the Corporation now or
hereafter issued and outstanding over which the Series E Preferred Shares
have preference or priority in both (i) the payment of dividends and (ii)
the distribution of assets on any liquidation, dissolution or winding up
of the Corporation.
"Funds from Operations" shall mean net income (loss) (computed in
accordance with generally accepted accounting principles) excluding gains
(or losses) from debt restructuring, and distributions in excess of
earnings allocated to other Operating Partnership interests or minority
interests (as reflected in the financial statements of the Corporation)
plus depreciation/amortization of assets unique to the real estate
industry, all computed in a manner consistent with the revised definition
of Funds From Operations adopted by the National Association of Real
Estate Investment Trusts (NAREIT), in its White Paper dated March 1995, as
such definitions may be modified from time to time, as determined by the
Corporation in good faith.
"Issue Date" shall mean the date on which the first Series E
Preferred Shares are issued.
"Junior Shares" shall mean the Common Shares and any other class or
series of capital stock of the Corporation now or hereafter issued and
outstanding over which the Series E Preferred Shares have preference or
priority in the payment of dividends or in the distribution of assets on
any liquidation, dissolution or winding up of the Corporation.
3
<PAGE>
"Non-Electing Share" shall have the meaning set forth in Section
6(e).
"Operating Partnership" shall mean the Charles E. Smith Residential
Realty L.P., a Delaware limited partnership.
"Parity Shares" shall have the meaning set forth in Section 8(b).
"Person" shall mean any individual, firm, partnership, corporation,
limited liability company or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Purchased Shares" shall have the meaning set forth in Section
6(d)(iv).
"Securities" and "Security" shall have the meanings set forth in
Section 6(d)(iii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series E Preferred Shares" shall mean the shares of Series E
Cumulative Convertible Redeemable Preferred Stock.
"Set apart for payment" shall be deemed to include, without any
action other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distribution by the Board
of Directors, the allocation of funds to be so paid on any series or class
of shares of capital stock of the Corporation; provided, however, that if
any funds for any class or series of Junior Shares or any class or series
of shares of capital stock ranking on a parity with the Series E Preferred
Shares as to the payment of dividends are placed in a separate account of
the Corporation or delivered to a disbursing, paying or other similar
agent, then "set apart for payment" with respect to the Series E Preferred
Shares shall mean placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in question
are traded on the NYSE, or if such securities are not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on the National Market
System of NASDAQ, or if such securities are not quoted on such National
Market System, in the securities market in which the securities are
traded.
"Transaction" shall have the meaning set forth in Section 6(e).
"Transfer Agent" shall mean First Union National Bank, or such other
agent or agents of the Corporation as may be designated by the Board of
Directors or their
4
<PAGE>
designee as the transfer agent, registrar and dividend disbursing agent
for the Series E Preferred Shares.
"Units" shall mean Partnership Units as that term is defined in the
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
"Voting Preferred Shares" shall have the meaning set forth in
Section 9.
"Weighted Average Trading Price" shall mean, for any Trading Day,
the number obtained by dividing (i) the sum of the products, for each sale
of Common Shares on such Trading Day, of (a) the sale price per Common
Share and (b) the number of Common Shares sold by (ii) the total number of
Common Shares sold on such Trading Day.
Section 3. Dividends.
(a) The holders of Series E Preferred Shares shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative preferential
dividends payable in cash in an amount per share equal to the greater of
(i) (A) 7.75% of the Liquidation Preference per annum (equivalent to
$2.82875 per Series E Preferred Share) from the Issue Date up to and
including the first anniversary of the Issue Date, (B) 8.25% of the
Liquidation Preference per annum (equivalent to $3.01125 per Series E
Preferred Share) from the first day after the period described in (A) up
to and including the second anniversary of the Issue Date and (C) 8.50% of
the Liquidation Preference per annum (equivalent to $3.1025 per Series E
Preferred Share) thereafter or (ii) the ordinary cash dividends
(determined on each Dividend Payment Date) on the Common Shares, or
portion thereof, into which a Series E Preferred Share is convertible. The
dividends referred to in clause (ii) of the preceding sentence shall equal
the number of Common Shares, or portion thereof, into which a Series E
Preferred Share is convertible, multiplied by the most current quarterly
dividend on a Common Share on or before the applicable Dividend Payment
Date. If the Corporation pays an ordinary cash dividend on the Common
Shares with respect to a Dividend Period after the date on which the
Dividend Payment Date is declared pursuant to clause (ii) of the
definition of Dividend Payment Date and the dividend calculated pursuant
to clause (ii) of this paragraph (a) with respect to such Dividend Period
is greater than the dividend previously declared on the Series E Preferred
Shares with respect to such Dividend Period, the Corporation shall pay an
additional dividend to the holders of the Series E Preferred Shares on the
date on which the dividend on the Common Shares is paid, in an amount
equal to the difference between (y) the dividend calculated pursuant to
clause (ii) of this paragraph (a) and (z) the amount of dividends
previously declared on the Series E Preferred Shares with respect to such
Dividend Period. The dividends shall begin to accrue and shall be fully
cumulative from the first day of the applicable
5
<PAGE>
Dividend Period, whether or not in any Dividend Period or Periods there
shall be funds of the Corporation legally available for the payment of
such dividends, and shall be payable quarterly, when, as and if declared
by the Board of Directors, in arrears on Dividend Payment Dates. Each such
dividend shall be payable in arrears to the holders of record of Series E
Preferred Shares as they appear in the records of the Corporation at the
close of business on such record dates, not less than 10 nor more than 50
days preceding such Dividend Payment Dates thereof, as shall be fixed by
the Board of Directors. Accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time and for such interim periods,
without reference to any regular Dividend Payment Date, to holders of
record on such date, not less than 10 nor more than 50 days preceding the
payment date thereof, as may be fixed by the Board of Directors. Any
dividend payment made on Series E Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due with respect to
Series E Preferred Shares which remains payable.
(b) The amount of dividends referred to in clause (i) of Section
3(a) payable for each full Dividend Period on the Series E Preferred
Shares shall be computed by dividing the annual dividend rate by four. The
initial Dividend Period will include a partial dividend for the period
from the Issue Date until the last calendar day of the calendar quarter
containing the Issue Date. The amount of dividends payable for such
period, or any other period shorter than a full Dividend Period, on the
Series E Preferred Shares shall be computed on the basis of a 360-day year
of twelve 30-day months. Holders of Series E Preferred Shares shall not be
entitled to any dividends, whether payable in cash, property or shares, in
excess of cumulative dividends, as herein provided, on the Series E
Preferred Shares. No interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on the Series E
Preferred Shares which may be in arrears.
(c) So long as any Series E Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence,
shall be declared or paid or set apart for payment on any class or series
of Parity Shares for any period unless full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the
Series E Preferred Shares for all Dividend Periods terminating on or prior
to the dividend payment date on such class or series of Parity Shares.
When dividends are not paid in full or a sum sufficient for such payment
is not set apart, as aforesaid, all dividends declared upon Series E
Preferred Shares and all dividends declared upon any other class or series
of Parity Shares shall be declared ratably in proportion to the respective
amounts of dividends accumulated and unpaid on the Series E Preferred
Shares and accumulated and unpaid on such Parity Shares.
(d) So long as any Series E Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of,
or options, warrants or
6
<PAGE>
rights to subscribe for or purchase shares of, Fully Junior Shares) shall
be declared or paid or set apart for payment or other distribution shall
be declared or made or set apart for payment upon Junior Shares, nor shall
any Junior Shares be redeemed, purchased or otherwise acquired (other than
a redemption, purchase or other acquisition of Common Shares made for
purposes of an employee incentive or benefit plan of the Corporation or
any subsidiary) for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any Junior Shares) by
the Corporation, directly or indirectly (except by conversion into or
exchange for Fully Junior Shares), unless in each case (i) the full
cumulative dividends on all outstanding Series E Preferred Shares and any
other Parity Shares of the Corporation shall have been or
contemporaneously are declared and paid or declared and set apart for
payment for all past Dividend Periods with respect to the Series E
Preferred Shares and all past dividend periods with respect to such Parity
Shares and (ii) sufficient funds shall have been or contemporaneously are
declared and paid or declared and set apart for the payment of the
dividend for the current Dividend Period with respect to the Series E
Preferred Shares and the current dividend period with respect to such
Parity Shares.
(e) No distributions on Series E Preferred Shares shall be declared
by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of
the Corporation, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or
provides that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such
declaration or payment shall be restricted or prohibited by law.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Junior Shares, the
holders of the Series E Preferred Shares shall be entitled to receive
Thirty Six Dollars and Fifty Cents ($36.50) (the "Liquidation Preference")
per Series E Preferred Share plus an amount equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon to the date
of final distribution to such holders; but such holders shall not be
entitled to any further payment; provided, that the dividend payable with
respect to the Dividend Period containing the date of final distribution
shall be equal to the greater of (i) the dividend provided in Section
3(a)(i) or (ii) the dividend determined pursuant to Section 3(a)(ii) for
the preceding Dividend Period. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of the Series E Preferred Shares
shall be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares of any class or series of Parity
Shares, then such assets, or the proceeds thereof, shall be
7
<PAGE>
distributed among the holders of Series E Preferred Shares and any such
other Parity Shares ratably in accordance with the respective amounts that
would be payable on such Series E Preferred Shares and any such other
Parity Shares if all amounts payable thereon were paid in full. For the
purposes of this Section 4, (i) a consolidation or merger of the
Corporation with one or more corporations, real estate investment trusts
or other entities, (ii) a sale, lease or conveyance of all or
substantially all of the Corporation's property or business or (iii) a
statutory share exchange shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series or
class or classes of shares of capital stock ranking on a parity with or
prior to the Series E Preferred Shares upon liquidation, dissolution or
winding up, upon any liquidation, dissolution or winding up of the
Corporation, after payment shall have been made in full to the holders of
the Series E Preferred Shares, as provided in this Section 4, any other
series or class or classes of Junior Shares shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the
holders of the Series E Preferred Shares shall not be entitled to share
therein.
Section 5. Redemption at the Option of the Corporation.
(a) The Series E Preferred Shares shall not be redeemable by the
Corporation prior to the third anniversary of the Issue Date. On and after
the third anniversary of the Issue Date, the Corporation, at its option,
may redeem the Series E Preferred Shares, in whole at any time or from
time to time in part as set forth herein, subject to the provisions
described below:
(i) Series E Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation, at any time on or after the
third anniversary of the Issue Date by issuing and delivering to
each holder for each Series E Preferred Share to be redeemed such
number of authorized but previously unissued Common Shares as equals
the Liquidation Preference (excluding any accumulated, accrued and
unpaid dividends which are to be paid in cash as provided below) per
Series E Preferred Share divided by the Conversion Price as in
effect as of the opening of business on the Call Date; provided,
however, that the Corporation may redeem Series E Preferred Shares
pursuant to this paragraph (a)(i) only if (A) the Weighted Average
Trading Price, for twenty (20) Trading Days, within the last thirty
(30) Trading Days immediately before the date of the notice given
pursuant to Section 5(d), equals or exceeds 108% of the Conversion
Price in effect on the date of the notice given pursuant to Section
5(d) and (B) at least 1,000,000 Common Shares were traded during
such 30 Trading Days.
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(ii) Series E Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation at any time on or after the
third anniversary of the Issue Date out of funds legally available
therefor at a redemption price payable in cash equal to the
Liquidation Preference per Series E Preferred Share (plus all
accumulated, accrued and unpaid dividends as provided below).
(b) Upon any redemption of Series E Preferred Shares pursuant to
this Section 5, the Corporation shall pay all accrued and unpaid
dividends, if any, thereon to the Call Date, without interest. If the Call
Date falls after a dividend payment record date and prior to the
corresponding Dividend Payment Date, then each holder of Series E
Preferred Shares at the close of business on such dividend payment record
date shall be entitled to the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding any redemption of such
shares before such Dividend Payment Date. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on Series E Preferred Shares called for
redemption.
(c) If full cumulative dividends on the Series E Preferred Shares
and any other class or series of Parity Shares of the Corporation have not
been declared and paid or declared and set apart for payment, the Series E
Preferred Shares may not be redeemed under this Section 5 in part and the
Corporation may not purchase or acquire Series E Preferred Shares,
otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Series E Preferred Shares.
(d) Notice of the redemption of any Series E Preferred Shares under
this Section 5 shall be mailed by first-class mail to each holder of
record of Series E Preferred Shares to be redeemed at the address of each
such holder as shown on the Corporation's records, not less than 30 nor
more than 90 days prior to the Call Date. Neither the failure to mail any
notice required by this paragraph (d), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to the other holders. Any notice which was mailed in the manner herein
provided shall be conclusively presumed to have been duly given on the
date mailed whether or not the holder receives the notice. Each such
mailed notice shall state, as appropriate: (1) the Call Date; (2) the
number of Series E Preferred Shares to be redeemed and, if fewer than all
the shares held by such holder are to be redeemed, the number of such
shares to be redeemed from such holder; (3) the redemption price if the
Series E Preferred Shares are redeemed for cash and the number of Common
Shares to be issued if the Series E Preferred Shares are redeemed for
Common Shares; (4) the place or places at which certificates for such
shares are to be surrendered; (5) the then-current Conversion Price; and
(6) that dividends on the shares to be redeemed shall cease to accrue on
such Call Date except as otherwise provided herein. Notice having been
mailed as aforesaid,
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from and after the Call Date (unless the Corporation shall fail to make
available an amount of cash necessary to effect such redemption), (i)
except as otherwise provided herein, dividends on the Series E Preferred
Shares so called for redemption shall cease to accrue, (ii) such shares
shall no longer be deemed to be outstanding, and (iii) all rights of the
holders thereof as holders of Series E Preferred Shares of the Corporation
shall cease (except the rights to convert and to receive the Common Shares
and/or cash payable upon such redemption, without interest thereon, upon
surrender and endorsement of their certificates if so required and to
receive any dividends payable thereon). The Corporation's obligation to
provide Common Shares and/or cash in accordance with the preceding
sentence shall be deemed fulfilled if, on or before the Call Date, the
Corporation shall deposit with a bank or trust company (which may be an
affiliate of the Corporation) that has an office in the Borough of
Manhattan, City of New York, and that has, or is an affiliate of a bank or
trust company that has, capital and surplus of at least $50,000,000,
necessary for such redemption, in trust, with irrevocable instructions
that such Common Shares and/or cash be applied to the redemption of the
Series E Preferred Shares so called for redemption. In the case of any
redemption pursuant to paragraph (a)(i) of this Section 5, at the close of
business on the Call Date, each holder of Series E Preferred Shares to be
redeemed (unless the Corporation defaults in the delivery of the Common
Shares or cash payable on such Call Date) shall be deemed to be the record
holder of the Common Shares into which such Series E Preferred Shares are
to be converted at redemption, regardless of whether such holder has
surrendered the certificates representing the Series E Preferred Shares to
be so redeemed. No interest shall accrue for the benefit of the holders of
Series E Preferred Shares to be redeemed on any cash so set aside by the
Corporation. Subject to applicable escheat laws, any such cash unclaimed
at the end of two years from the Call Date shall revert to the general
funds of the Corporation, after which reversion the holders of such shares
so called for redemption shall look only to the general funds of the
Corporation for the payment of such cash.
As promptly as practicable after the surrender in accordance with
such notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Corporation shall so require and
if the notice shall so state), such shares shall be exchanged for any cash
(without interest thereon) for which such shares have been redeemed. If
fewer than all the outstanding Series E Preferred Shares are to be
redeemed, shares to be redeemed shall be selected by the Corporation from
outstanding Series E Preferred Shares not previously called for redemption
pro rata (as nearly as may be), by lot or by any other method determined
by the Corporation in its sole discretion to be equitable. If fewer than
all the Series E Preferred Shares represented by any certificate are
redeemed, then new certificates representing the unredeemed shares shall
be issued without cost to the holder thereof.
(e) In the case of any redemption pursuant to paragraph (a)(i) of
this Section 5,
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(i) no fractional Common Shares or scrip representing
fractions of Common Shares shall be issued upon redemption of the
Series E Preferred Common Shares. Instead of any fractional interest
in Common Shares that would otherwise be deliverable upon redemption
of Series E Preferred Shares, the Corporation shall pay to the
holder of such share an amount in cash (rounded to the nearest cent)
based upon the Current Market Price of the Common Shares on the
Trading Day immediately preceding the Call Date. If more than one
share shall be surrendered for redemption at one time by the same
holder, the number of full Common Shares issuable upon redemption
thereof shall be computed on the basis of the aggregate number of
Series E Preferred Shares so surrendered.
(ii) the Corporation covenants that any Common Shares issued
upon redemption of Series E Preferred Shares shall be validly
issued, fully paid and non-assessable. The Corporation shall
endeavor to list the Common Shares required to be delivered upon any
such redemption of Series E Preferred Shares, prior to such
redemption, upon each national securities exchange, if any, upon
which the outstanding Common Shares are listed at the time of such
delivery.
Section 6. Conversion. Holders of Series E Preferred Shares shall have the
right to convert all or a portion of such shares into Common Shares, as follows:
(a) Subject to and upon compliance with the provisions of this
Section 6 and the provisions of Article VIII of the Corporation's Articles
of Incorporation, a holder of Series E Preferred Shares shall have the
right, at any time, at his or her option, to convert such shares into the
number of fully paid and non-assessable Common Shares obtained by dividing
the aggregate Liquidation Preference of such shares (exclusive of accrued
but unpaid dividends) by the Conversion Price (as in effect at the time
and on the date provided for in the last paragraph of paragraph (b) of
this Section 6) by surrendering such shares to be converted, such
surrender to be made in the manner provided in paragraph (b) of this
Section 6; provided, however, that the right to convert shares called for
redemption pursuant to Section 5 shall terminate at the close of business
on the fifth Business Day prior to the Call Date fixed for such
redemption, unless the Corporation shall default in making payment of the
cash payable upon such redemption under Section 5.
(b) In order to exercise the conversion right, the holder of each
Series E Preferred Share to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or
in blank, at the office of the Transfer Agent, accompanied by written
notice to the Corporation that the holder thereof elects to convert such
Series E Preferred Shares. Unless the shares issuable on conversion are to
be issued in the same name as the name in which such Series E Preferred
Share is registered, each share surrendered for conversion shall be
accompanied by instruments
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of transfer, in form satisfactory to the Corporation, duly executed by the
holder or such holder's duly authorized attorney and an amount sufficient
to pay any transfer or similar tax (or evidence reasonably satisfactory to
the Corporation demonstrating that such taxes have been paid).
Holders of Series E Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment
record date and prior to such Dividend Payment Date. However, Series E
Preferred Shares surrendered for conversion during the period between the
close of business on any dividend payment record date and the opening of
business on the corresponding Dividend Payment Date (except shares
converted after the issuance of notice of redemption with respect to a
Call Date during such period, such Series E Preferred Shares being
entitled to such dividend on the Dividend Payment Date) must be
accompanied by payment of an amount equal to the dividend payable on such
shares on such Dividend Payment Date. A holder of Series E Preferred
Shares on a dividend payment record date who (or whose transferee) tenders
any such shares for conversion into Common Shares on the corresponding
Dividend Payment Date will receive the dividend payable by the Corporation
on such Series E Preferred Shares on such date, and the converting holder
need not include payment of the amount of such dividend upon surrender of
Series E Preferred Shares for conversion. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for dividends on the
Common Shares issued upon such conversion.
As promptly as practicable after the surrender of certificates for
Series E Preferred Shares as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on his or her written
order, a certificate or certificates for the number of full Common Shares
issuable upon the conversion of such shares in accordance with provisions
of this Section 6, and any fractional interest in respect of a Common
Share arising upon such conversion shall be settled as provided in
paragraph (c) of this Section 6.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
Series E Preferred Shares shall have been surrendered and such notice
shall have been received by the Corporation as aforesaid (and if
applicable, payment of an amount equal to the dividend payable on such
shares shall have been received by the Corporation as described above),
and the person or persons in whose name or names any certificate or
certificates for Common Shares shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such conversion
shall be at the Conversion Price in effect at such time on such date
unless the share transfer books of the Corporation shall be
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<PAGE>
closed on that date, in which event such person or persons shall be deemed
to have become such holder or holders of record at the close of business
on the next succeeding day on which such share transfer books are open,
but such conversion shall be at the Conversion Price in effect on the date
on which such shares shall have been surrendered and such notice received
by the Corporation.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series E Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise
be deliverable upon the conversion of a Series E Preferred Share, the
Corporation shall pay to the holder of such share an amount in cash based
upon the Current Market Price of the Common Shares on the Trading Day
immediately preceding the date of conversion. If more than one share shall
be surrendered for conversion at one time by the same holder, the number
of full Common Shares issuable upon conversion thereof shall be computed
on the basis of the aggregate number of Series E Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after July 2, 1999 (A) pay a
dividend or make a distribution on its capital shares in Common
Shares, (B) subdivide its outstanding Common Shares into a greater
number of shares, (C) combine its outstanding Common Shares into a
smaller number of shares or (D) issue any shares of capital stock by
reclassification of its Common Shares, the Conversion Price in
effect at the opening of business on the day following the date
fixed for the determination of stockholders entitled to receive such
dividend or distribution or at the opening of business on the
Business Day next following the day on which such subdivision,
combination or reclassification becomes effective, as the case may
be, shall be adjusted so that the holder of any Series E Preferred
Share thereafter surrendered for conversion shall be entitled to
receive the number of Common Shares that such holder would have
owned or have been entitled to receive after the happening of any of
the events described above as if such Series E Preferred Shares had
been converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a
subdivision, combination or reclassification. An adjustment made
pursuant to this subparagraph (i) shall become effective immediately
after the opening of business on the Business Day next following the
record date (except as provided in paragraph (h) below) in the case
of a dividend or distribution and shall become effective immediately
after the opening of business on the Business Day next following the
effective date in the case of a subdivision, combination or
reclassification.
(ii) If the Corporation shall issue after July 2, 1999 rights,
options or warrants to all holders of Common Shares entitling them
(for a period expiring
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within 45 days after the record date mentioned below) to subscribe
for or purchase Common Shares at a price per share less than 94%
(100% if a stand-by underwriter is used and charges the Corporation
a commission) of the Fair Market Value per Common Share on the
record date for the determination of stockholders entitled to
receive such rights, options or warrants, then the Conversion Price
in effect at the opening of business on the Business Day next
following such record date shall be adjusted to equal the price
determined by multiplying (A) the Conversion Price in effect
immediately prior to the opening of business on the Business Day
next following the date fixed for such determination by (B) a
fraction, the numerator of which shall be the sum of (x) the number
of Common Shares outstanding on the close of business on the date
fixed for such determination and (y) the number of shares that the
aggregate proceeds to the Corporation from the exercise of such
rights, options or warrants for Common Shares would purchase at 94%
of such Fair Market Value (or 100% in the case of a stand-by
underwriting), and the denominator of which shall be the sum of (x)
the number of Common Shares outstanding on the close of business on
the date fixed for such determination and (y) the number of
additional Common Shares offered for subscription or purchase
pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately after the opening of business on the
day next following such record date (except as provided in paragraph
(h) below). In determining whether any rights, options or warrants
entitle the holders of Common Shares to subscribe for or purchase
Common Shares at less than 94% of such Fair Market Value (or 100% in
the case of a stand-by underwriting), there shall be taken into
account any consideration received by the Corporation upon issuance
and upon exercise of such rights, options or warrants, the value of
such consideration, if other than cash, to be determined by the
Board of Directors.
(iii) If the Corporation shall distribute to all holders of
its Common Shares any securities of the Corporation (other than
Common Shares) or evidence of its indebtedness or assets (excluding
cumulative cash dividends or distributions paid with respect to the
Common Shares after December 31, 1998 which are not in excess of the
following: the sum of (A) the Corporation's cumulative undistributed
Funds from Operations at December 31, 1998, plus (B) the cumulative
amount of Funds from Operations, as determined by the Board of
Directors, after December 31, 1998, minus (C) the cumulative amount
of dividends accrued or paid in respect of the Series E Preferred
Shares or any other class or series of preferred stock of the
Corporation after July 2, 1999) or rights, options or warrants to
subscribe for or purchase any of its securities (excluding those
rights, options and warrants issued to all holders of Common Shares
entitling them for a period expiring within 45 days after the record
date referred to in subparagraph (ii) above to subscribe for or
purchase Common Shares, which rights and warrants are referred to in
and treated under
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subparagraph (ii) above) (any of the foregoing being hereinafter in
this subparagraph (iii) collectively called the "Securities" and
individually a "Security"), then in each such case the Conversion
Price shall be adjusted so that it shall equal the price determined
by multiplying (x) the Conversion Price in effect immediately prior
to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by (y) a
fraction, the numerator of which shall be the Fair Market Value per
Common Share on the record date mentioned below less the then fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive), of the portion of the Securities
or assets or evidences of indebtedness so distributed or of such
rights, options or warrants applicable to one Common Share, and the
denominator of which shall be the Fair Market Value per Common Share
on the record date mentioned below. Such adjustment shall become
effective immediately at the opening of business on the Business Day
next following (except as provided in paragraph (h) below) the
record date for the determination of stockholders entitled to
receive such distribution. For the purposes of this subparagraph
(iii), the distribution of a Security, which is distributed not only
to the holders of the Common Shares on the date fixed for the
determination of stockholders entitled to such distribution of such
Security, but also is distributed with each Common Share delivered
to a Person converting a Series E Preferred Share after such
determination date, shall not require an adjustment of the
Conversion Price pursuant to this subparagraph (iii); provided that
on the date, if any, on which a person converting a Series E
Preferred Share would no longer be entitled to receive such Security
with a Common Share (other than as a result of the termination of
all such Securities), a distribution of such Securities shall be
deemed to have occurred and the Conversion Price shall be adjusted
as provided in this subparagraph (iii) (and such day shall be deemed
to be "the date fixed for the determination of the stockholders
entitled to receive such distribution" and "the record date" within
the meaning of the two preceding sentences).
(iv) In case a tender or exchange offer (which term shall not
include open market repurchases by the Corporation) made by the
Corporation or any subsidiary of the Corporation for all or any
portion of the Common Shares shall expire and such tender or
exchange offer shall involve the payment by the Corporation or such
subsidiary of consideration per Common Share having a fair market
value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of
the Board of Directors), at the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or exchange
offer, that exceeds the Current Market Price per Common Share on the
Trading Day next succeeding the Expiration Time, the Conversion
Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect
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immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this subparagraph, by a fraction of which
the numerator shall be the number of Common Shares outstanding
(including any tendered or exchanged shares) at the Expiration Time,
multiplied by the Current Market Price per Common Share on the
Trading Day next succeeding the Expiration Time, and the denominator
shall be the sum of (A) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders
based upon the acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares
deemed so accepted, up to any maximum, being referred to as the
"Purchased Shares") and (B) the product of the number of Common
Shares outstanding (less any Purchased Shares) at the Expiration
Time and the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day
following the Expiration Time.
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase or
decrease of at least 1% in such price; provided, however, that any
adjustments that by reason of this subparagraph (v) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment until made; and provided, further, that any
adjustment shall be required and made in accordance with the
provisions of this Section 6 (other than this subparagraph (v)) not
later than such time as may be required in order to preserve the
tax-free nature of a distribution to the holders of Common Shares.
Notwithstanding any other provisions of this Section 6, the
Corporation shall not be required to make any adjustment of the
Conversion Price for the issuance of any Common Shares pursuant to
any plan providing for the reinvestment of dividends or interest
payable on securities of the Corporation and the investment of
additional optional amounts in Common Shares under such plan. All
calculations under this Section 6 shall be made to the nearest cent
(with $.005 being rounded upward) or to the nearest one-tenth of a
share (with .05 of a share being rounded upward), as the case may
be. Anything in this paragraph (d) to the contrary notwithstanding,
the Corporation shall be entitled, to the extent permitted by law,
to make such reductions in the Conversion Price, in addition to
those required by this paragraph (d), as it in its discretion shall
determine to be advisable in order that any share dividends,
subdivision of shares, reclassification or combination of shares,
distribution of rights or warrants to purchase shares or securities,
or distribution of other assets (other than cash dividends)
hereafter made by the Corporation to its stockholders shall not be
taxable.
(e) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share
exchange, self tender offer for all or
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substantially all of its Common Shares, sale of all or substantially all
of the Corporation's assets or recapitalization of the Common Shares and
excluding any transaction as to which subparagraph (d)(i) of this Section
6 applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which all or substantially all
of the Corporation's Common Shares are converted into the right to receive
shares, securities or other property (including cash or any combination
thereof), each Series E Preferred Share which is not redeemed or converted
into the right to receive shares, securities or other property prior to
such Transaction shall thereafter be convertible into the kind and amount
of shares, securities and other property (including cash or any
combination thereof) receivable upon the consummation of such Transaction
by a holder of that number of Common Shares into which one Series E
Preferred Share was convertible immediately prior to such Transaction,
assuming such holder of Common Shares (i) is not a Person with which the
Corporation consolidated or into which the Corporation merged or which
merged into the Corporation or to which such sale or transfer was made, as
the case may be ("Constituent Person"), or an affiliate of a Constituent
Person and (ii) failed to exercise his rights of election, if any, as to
the kind or amount of shares, securities and other property (including
cash) receivable upon such Transaction (provided that if the kind or
amount of shares, securities and other property (including cash)
receivable upon such Transaction is not the same for each Common Share
held immediately prior to such Transaction by other than a Constituent
Person or an affiliate thereof and in respect of which such rights of
election shall not have been exercised ("Non-Electing Share"), then for
the purpose of this paragraph (e) the kind and amount of shares,
securities and other property (including cash) receivable upon such
Transaction by each Non-Electing Share shall be deemed to be the kind and
amount so receivable per share by a plurality of the Non-Electing Shares).
The Corporation shall not be a party to any Transaction unless the terms
of such Transaction are consistent with the provisions of this paragraph
(e), and it shall not consent or agree to the occurrence of any
Transaction until the Corporation has entered into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of the
holders of the Series E Preferred Shares that will contain provisions
enabling the holders of the Series E Preferred Shares that remain
outstanding after such Transaction to convert into the consideration
received by holders of Common Shares at the Conversion Price in effect
immediately prior to such Transaction. The provisions of this paragraph
(e) shall similarly apply to successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Shares (other than cash dividends or
distributions paid with respect to the Common Shares after December
31, 1998 not in excess of the sum of the Corporation's cumulative
undistributed Funds from Operations at December 31, 1998, plus the
cumulative amount of Funds from Operations,
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as determined by the Board of Directors, after December 31, 1998,
minus the cumulative amount of dividends accrued or paid in respect
of the Series E Preferred Shares or any other class or series of
preferred shares of capital stock of the Corporation after July 2,
1999); or
(ii) the Corporation shall authorize the granting to all
holders of Common Shares of rights, options or warrants to subscribe
for or purchase any shares of any class or any other rights, options
or warrants; or
(iii) there shall be any reclassification of the Common Shares
(other than an event to which subparagraph (d)(i) of this Section 6
applies) or any consolidation or merger to which the Corporation is
a party and for which approval of any stockholders of the
Corporation is required, or a statutory share exchange, or a self
tender offer by the Corporation for all or substantially all of its
outstanding Common Shares or the sale or transfer of all or
substantially all of the assets of the Corporation as an entirety;
or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent and
shall cause to be mailed to the holders of Series E Preferred Shares at
their addresses as shown on the records of the Corporation, as promptly as
possible, but at least 10 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken
for the purpose of such dividend, distribution or granting of rights,
options or warrants, or, if a record is not to be taken, the date as of
which the holders of Common Shares of record to be entitled to such
dividend, distribution or rights, options or warrants are to be determined
or (B) the date on which such reclassification, consolidation, merger,
statutory share exchange, sale, transfer, liquidation, dissolution or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Shares of record shall be entitled to
exchange their Common Shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, statutory
share exchange, sale, transfer, liquidation, dissolution or winding up.
Failure to give or receive such notice or any defect therein shall not
affect the legality or validity of the proceedings described in this
Section 6.
(g) Whenever the Conversion Price is adjusted as herein provided,
the Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment
which certificate shall be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment of
the Conversion Price setting forth the adjusted Conversion Price and the
effective date of such adjustment and shall mail such notice of such
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adjustment of the Conversion Price to the holder of each Series E
Preferred Share at such holder's last address as shown on the records of
the Corporation.
(h) In any case in which paragraph (d) of this Section 6 provides
that an adjustment shall become effective on the day next following the
record date for an event, the Corporation may defer until the occurrence
of such event (A) issuing to the holder of any Series E Preferred Share
converted after such record date and before the occurrence of such event
the additional Common Shares issuable upon such conversion by reason of
the adjustment required by such event over and above the Common Shares
issuable upon such conversion before giving effect to such adjustment and
(B) paying to such holder any amount of cash in lieu of any fraction
pursuant to paragraph (c) of this Section 6.
(i) There shall be no adjustment of the Conversion Price in case of
the issuance of any shares of capital stock of the Corporation in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 6. If any action or transaction
would require adjustment of the Conversion Price pursuant to more than one
paragraph of this Section 6, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
(j) If the Corporation shall take any action affecting the Common
Shares, other than action described in this Section 6, that in the opinion
of the Board of Directors would materially and adversely affect the
conversion rights of the holders of the Series E Preferred Shares, the
Conversion Price for the Series E Preferred Shares may be adjusted, to the
extent permitted by law, in such manner, if any, and at such time, as the
Board of Directors, in its sole discretion, may determine to be equitable
in the circumstances.
(k) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Shares, for the purpose of effecting
conversion of the Series E Preferred Shares, the full number of Common
Shares deliverable upon the conversion of all outstanding Series E
Preferred Shares not theretofore converted. For purposes of this paragraph
(k), the number of Common Shares that shall be deliverable upon the
conversion of all outstanding Series E Preferred Shares shall be computed
as if at the time of computation all such outstanding shares were held by
a single holder.
The Corporation covenants that any Common Shares issued upon
conversion of the Series E Preferred Shares shall be validly issued, fully
paid and non-assessable. Before taking any action that would cause an
adjustment reducing the Conversion Price below the then-par value of the
Common Shares deliverable upon conversion of the Series E Preferred
Shares, the Corporation will take any action that, in the opinion of
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<PAGE>
its counsel, may be necessary in order that the Corporation may validly
and legally issue fully paid and (subject to any customary qualification
based upon the nature of a real estate investment trust) non-assessable
Common Shares at such adjusted Conversion Price.
The Corporation shall endeavor to list the Common Shares required to
be delivered upon conversion of the Series E Preferred Shares, prior to
such delivery, upon each national securities exchange, if any, upon which
the outstanding Common Shares are listed at the time of such delivery.
The Corporation shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the issuance
of any securities that the Corporation shall be obligated to deliver upon
conversion of the Series E Preferred Shares. In addition to any legend
required by Article VIII of the Articles of Incorporation, the
certificates evidencing such securities shall bear such legends
restricting transfer thereof in the absence of registration under
applicable securities laws or an exemption therefrom as the Corporation
may in good faith deem appropriate.
(l) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of Common Shares or other securities or property on conversion of
the Series E Preferred Shares pursuant hereto; provided, however, that the
Corporation shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issue or delivery of Common Shares
or other securities or property in a name other than that of the holder of
the Series E Preferred Shares to be converted, and no such issue or
delivery shall be made unless and until the person requesting such issue
or delivery has paid to the Corporation the amount of any such tax or
established, to the reasonable satisfaction of the Corporation, that such
tax has been paid.
Section 7. Shares To Be Retired. All Series E Preferred Shares which shall
have been issued and reacquired in any manner by the Corporation shall be
restored to the status of authorized but unissued shares of capital stock of the
Corporation, without designation as to class or series.
Section 8. Ranking. Any class or series of shares of capital stock of the
Corporation shall be deemed to rank:
(a) prior to the Series E Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution
or winding up, if the holders of such class or series shall be entitled to
the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority
to the holders of Series E Preferred Shares;
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(b) on a parity with the Series E Preferred Shares, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof shall
be different from those of the Series E Preferred Shares, if the holders
of such class or series and the Series E Preferred Shares shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective
amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other ("Parity
Shares");
(c) junior to the Series E Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Junior Shares;
and
(d) junior to the Series E Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully Junior
Shares.
Section 9. Voting. If and whenever four quarterly dividends (whether or
not consecutive) payable on the Series E Preferred Shares or any series or class
of Parity Shares shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, the number of directors then constituting the
Board of Directors shall be increased by two and the holders of Series E
Preferred Shares, together with the holders of shares of every other series of
Parity Shares (any such other series, the "Voting Preferred Shares"), voting as
a single class regardless of series, shall be entitled to elect the two
additional directors to serve on the Board of Directors at any annual meeting of
stockholders or special meeting held in place thereof, or at a special meeting
of the holders of the Series E Preferred Shares and the Voting Preferred Shares
called as hereinafter provided. Whenever all arrears in dividends on the Series
E Preferred Shares and the Voting Preferred Shares then outstanding shall have
been paid and dividends thereon for the current quarterly dividend period shall
have been paid or declared and set apart for payment, then the right of the
holders of the Series E Preferred Shares and the Voting Preferred Shares to
elect such additional two directors shall cease (but subject always to the same
provision for the vesting of such voting rights in the case of any similar
future arrearage in quarterly dividends), and the terms of office of all persons
elected as directors by the holders of the Series E Preferred Shares and the
Voting Preferred Shares shall forthwith terminate and the number of the Board of
Directors shall be reduced accordingly. At any time after such voting power
shall have been so vested in the holders of Series E Preferred Shares and the
Voting Preferred Shares, the Secretary of the Corporation may, and upon the
written request of any holder of Series E Preferred Shares (addressed to the
Secretary at the principal office of the Corporation) shall, call a special
meeting of the holders of the Series E Preferred Shares and of the Voting
Preferred Shares for the election of the directors to be elected by them as
herein provided, such call to be made by notice similar to that provided in
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the Bylaws of the Corporation for a special meeting of the stockholders or as
required by law. If any such special meeting required to be called as above
provided shall not be called by the Secretary within 20 days after receipt of
any such request, then any holder of Series E Preferred Shares may call such
meeting, upon the notice above provided, and for that purpose shall have access
to the records of the Corporation. The directors elected at any such special
meeting shall hold office until the next annual meeting of the stockholders or
special meeting held in lieu thereof if such office shall not have previously
terminated as above provided. If any vacancy shall occur among the directors
elected by the holders of the Series E Preferred Shares and the Voting Preferred
Shares, a successor shall be elected by the Board of Directors, upon the
nomination of the then-remaining director elected by the holders of the Series E
Preferred Shares and the Voting Preferred Shares or the successor of such
remaining director, to serve until the next annual meeting of the stockholders
or special meeting held in place thereof if such office shall not have
previously terminated as provided above.
So long as any Series E Preferred Shares are outstanding, in addition to
any other vote or consent of stockholders required by law or by the
Corporation's Articles of Incorporation, the affirmative vote of at least 66K%
of the votes entitled to be cast by the holders of the Series E Preferred Shares
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating:
(a) Any amendment, alteration or repeal of any of the provisions of
the Corporation's Articles of Incorporation, the Corporation's By-Laws or
these Articles Supplementary that materially and adversely affects the
voting powers, rights or preferences of the holders of the Series E
Preferred Shares; provided, however, that the amendment of the provisions
of the Corporation's Articles of Incorporation so as to authorize or
create or to increase the authorized amount of, any Fully Junior Shares,
Junior Shares that are not senior in any respect to the Series E Preferred
Shares or any Parity Shares shall not be deemed to materially adversely
affect the voting powers, rights or preferences of the holders of Series E
Preferred Shares; or
(b) A share exchange that affects the Series E Preferred Shares, a
consolidation with or merger of the Corporation into another entity, or a
consolidation with or merger of another entity into the Corporation,
unless in each such case each Series E Preferred Share (i) shall remain
outstanding without a material and adverse change to its terms and rights
or (ii) shall be converted into or exchanged for convertible preferred
shares of the surviving entity having preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption thereof identical to
that of a Series E Preferred Share (except for changes that do not
materially and adversely affect the holders of the Series E Preferred
Shares); or
(c) The authorization, reclassification or creation of, or the
increase in the authorized amount of, any shares of any class or any
security convertible into shares of
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any class ranking prior to the Series E Preferred Shares in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation or in the payment of dividends;
provided, however, that no such vote of the holders of Series E Preferred Shares
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series E Preferred Shares at the time outstanding to the
extent such redemption is authorized by Section 5 of these Articles
Supplementary.
For purposes of the foregoing provisions of this Section 9, each Series E
Preferred Share shall have one (1) vote per share, except that when any other
series of Preferred Shares shall have the right to vote with the Series E
Preferred Shares as a single class on any matter, then the Series E Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $27.08 of stated liquidation preference. Except as otherwise required
by applicable law or as set forth herein, the Series E Preferred Shares shall
not have any relative, participating, optional or other special voting rights
and powers other than as set forth herein, and the consent of the holders
thereof shall not be required for the taking of any Corporation action.
Section 10. Record Holders. The Corporation and the Transfer Agent may
deem and treat the record holder of any Series E Preferred Shares as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
Transfer Agent shall be affected by any notice to the contrary.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be signed its name and on its behalf by its authorized officers
who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
this document are true in all material respects and this statement is made under
penalties of perjury.
July 9, 1999
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By: /s/ W.D. Minami
-------------------------------------
Its: Senior Vice President
Attest:
/s/ Robert D. Zimet
- -------------------------------
Secretary
<PAGE>
EXHIBIT 99.2
Series F Cumulative Convertible
Redeemable Preferred Stock
ARTICLES SUPPLEMENTARY
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
====================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series F Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
====================
Dated as of July 9, 1999
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
====================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series F Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
====================
Charles E. Smith Residential Realty, Inc., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland pursuant to section 8-203(b) of the Annotated Code of
Maryland that:
FIRST: Pursuant to authority granted by the Amended and Restated Articles
of Incorporation of the Corporation, the Board of Directors adopted a resolution
by Unanimous Written Consent dated July 1, 1999 designating and classifying
666,667 unissued and undesignated shares of preferred stock as Series F
Cumulative Convertible Redeemable Preferred Stock.
SECOND: The following is a description of the Series F Cumulative
Convertible Redeemable Preferred Stock, including the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption thereof:
Section 1. Number of Shares and Designation. This class of preferred stock
shall be designated as Series F Cumulative Convertible Redeemable Preferred
Stock and the number of shares which shall constitute such series shall not be
more than 666,667 shares, par value $0.01 per share, which number may be
decreased (but not below the number thereof then outstanding) from time to time
by the Board of Directors.
Section 2. Definitions. For purposes of the Series F Preferred Shares, the
following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series F Preferred
Shares.
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"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
required under Section 5(d) as the Call Date.
"Common Shares" shall mean the shares of Common Stock, par value
$0.01 per share, of the Corporation.
"Constituent Person" shall have the meaning set forth in Section
6(e).
"Conversion Price" shall mean the conversion price per Common Share
for which the Series F Preferred Shares are convertible, as such
Conversion Price may be adjusted pursuant to Section 6. The initial
conversion price shall be $37.50 (equivalent to a conversion rate of one
Common Share for each Series F Preferred Share).
"Current Market Price" of publicly traded shares of Common Stock or
any other class of shares of capital stock or other security of the
Corporation or any other issuer for any day shall mean the last reported
sales price, regular way on such day, or, if no sale takes place on such
day, the average of the reported closing bid and asked prices on such day,
regular way, in either case as reported on the New York Stock Exchange
("NYSE") or, if such security is not listed or admitted for trading on the
NYSE, on the principal national securities exchange on which such security
is listed or admitted for trading or, if not listed or admitted for
trading on any national securities exchange, on the Nasdaq Stock Market
("NASDAQ") or, if such security is not quoted on such National Market
System, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on such day shall not have been reported through NASDAQ,
the average of the bid and asked prices on such day as furnished by any
NYSE member firm regularly making a market in such security selected for
such purpose by the Board of Directors.
"Dividend Payment Date" shall mean (i) for any Dividend Period with
respect to which the Corporation pays a dividend on the Common Shares, the
date on which such dividend is paid, or (ii) for any Dividend Period with
respect to which the Corporation does not pay a dividend on the Common
Shares, a date to be set by the Board of Directors, which date shall not
be later than the forty-fifth calendar day after the end of the applicable
Dividend Period.
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"Dividend Periods" shall mean quarterly dividend periods commencing
on January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period, which shall commence on
the Issue Date and end on and include the last calendar day of the
calendar quarter containing the Issue Date, and other than the Dividend
Period during which any Series F Preferred Shares shall be redeemed
pursuant to Section 5, which shall end on and include the Call Date with
respect to the Series F Preferred Shares being redeemed).
"Expiration Time" shall have the meaning set forth in Section
6(d)(iv).
"Fair Market Value" shall mean the average of the daily Current
Market Prices of a Common Share on the five (5) consecutive Trading Days
selected by the Corporation commencing not more than 20 Trading Days
before, and ending not later than, the earlier of the day in question and
the day before the "ex date" with respect to the issuance or distribution
requiring such computation. The term "ex date," when used with respect to
any issuance or distribution, means the first day on which the Common
Shares trade regular way, without the right to receive such issuance or
distribution, on the exchange or in the market, as the case may be, used
to determine that day's Current Market Price.
"Fully Junior Shares" shall mean the Common Shares and any other
class or series of shares of capital stock of the Corporation now or
hereafter issued and outstanding over which the Series F Preferred Shares
have preference or priority in both (i) the payment of dividends and (ii)
the distribution of assets on any liquidation, dissolution or winding up
of the Corporation.
"Funds from Operations" shall mean net income (loss) (computed in
accordance with generally accepted accounting principles) excluding gains
(or losses) from debt restructuring, and distributions in excess of
earnings allocated to other Operating Partnership interests or minority
interests (as reflected in the financial statements of the Corporation)
plus depreciation/amortization of assets unique to the real estate
industry, all computed in a manner consistent with the revised definition
of Funds From Operations adopted by the National Association of Real
Estate Investment Trusts (NAREIT), in its White Paper dated March 1995, as
such definitions may be modified from time to time, as determined by the
Corporation in good faith.
"Issue Date" shall mean the date on which the first Series F
Preferred Shares are issued.
"Junior Shares" shall mean the Common Shares and any other class or
series of capital stock of the Corporation now or hereafter issued and
outstanding over which the
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Series F Preferred Shares have preference or priority in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Corporation.
"Non-Electing Share" shall have the meaning set forth in Section
6(e).
"Operating Partnership" shall mean the Charles E. Smith Residential
Realty L.P., a Delaware limited partnership.
"Parity Shares" shall have the meaning set forth in Section 8(b).
"Person" shall mean any individual, firm, partnership, corporation,
limited liability company or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Purchased Shares" shall have the meaning set forth in Section
6(d)(iv).
"Securities" and "Security" shall have the meanings set forth in
Section 6(d)(iii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series F Preferred Shares" shall mean the shares of Series F
Cumulative Convertible Redeemable Preferred Stock.
"Set apart for payment" shall be deemed to include, without any
action other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distribution by the Board
of Directors, the allocation of funds to be so paid on any series or class
of shares of capital stock of the Corporation; provided, however, that if
any funds for any class or series of Junior Shares or any class or series
of shares of capital stock ranking on a parity with the Series F Preferred
Shares as to the payment of dividends are placed in a separate account of
the Corporation or delivered to a disbursing, paying or other similar
agent, then "set apart for payment" with respect to the Series F Preferred
Shares shall mean placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in question
are traded on the NYSE, or if such securities are not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on the National Market
System of NASDAQ, or if such securities are not quoted on such National
Market System, in the securities market in which the securities are
traded.
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<PAGE>
"Transaction" shall have the meaning set forth in Section 6(e).
"Transfer Agent" shall mean First Union National Bank, or such other
agent or agents of the Corporation as may be designated by the Board of
Directors or their designee as the transfer agent, registrar and dividend
disbursing agent for the Series F Preferred Shares.
"Units" shall mean Partnership Units as that term is defined in the
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
"Voting Preferred Shares" shall have the meaning set forth in
Section 9.
"Weighted Average Trading Price" shall mean, for any Trading Day,
the number obtained by dividing (i) the sum of the products, for each sale
of Common Shares on such Trading Day, of (a) the sale price per Common
Share and (b) the number of Common Shares sold by (ii) the total number of
Common Shares sold on such Trading Day.
Section 3. Dividends.
(a) The holders of Series F Preferred Shares shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative preferential
dividends payable in cash in an amount per share equal to the greater of
(i) (A) 7.75% of the Liquidation Preference per annum (equivalent to
$2.90625 per Series F Preferred Share) from the Issue Date up to and
including the first anniversary of the Issue Date, (B) 8.25% of the
Liquidation Preference per annum (equivalent to $3.09375 per Series F
Preferred Share) from the first day after the period described in (A) up
to and including the second anniversary of the Issue Date and (C) 8.50% of
the Liquidation Preference per annum (equivalent to $3.1875 per Series F
Preferred Share) thereafter or (ii) the ordinary cash dividends
(determined on each Dividend Payment Date) on the Common Shares, or
portion thereof, into which a Series F Preferred Share is convertible. The
dividends referred to in clause (ii) of the preceding sentence shall equal
the number of Common Shares, or portion thereof, into which a Series F
Preferred Share is convertible, multiplied by the most current quarterly
dividend on a Common Share on or before the applicable Dividend Payment
Date. If the Corporation pays an ordinary cash dividend on the Common
Shares with respect to a Dividend Period after the date on which the
Dividend Payment Date is declared pursuant to clause (ii) of the
definition of Dividend Payment Date and the dividend calculated pursuant
to clause (ii) of this paragraph (a) with respect to such Dividend Period
is greater than the dividend previously declared on the Series F Preferred
Shares with respect to such Dividend
6
<PAGE>
Period, the Corporation shall pay an additional dividend to the holders of
the Series F Preferred Shares on the date on which the dividend on the
Common Shares is paid, in an amount equal to the difference between (y)
the dividend calculated pursuant to clause (ii) of this paragraph (a) and
(z) the amount of dividends previously declared on the Series F Preferred
Shares with respect to such Dividend Period. The dividends shall begin to
accrue and shall be fully cumulative from the first day of the applicable
Dividend Period, whether or not in any Dividend Period or Periods there
shall be funds of the Corporation legally available for the payment of
such dividends, and shall be payable quarterly, when, as and if declared
by the Board of Directors, in arrears on Dividend Payment Dates. Each such
dividend shall be payable in arrears to the holders of record of Series F
Preferred Shares as they appear in the records of the Corporation at the
close of business on such record dates, not less than 10 nor more than 50
days preceding such Dividend Payment Dates thereof, as shall be fixed by
the Board of Directors. Accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time and for such interim periods,
without reference to any regular Dividend Payment Date, to holders of
record on such date, not less than 10 nor more than 50 days preceding the
payment date thereof, as may be fixed by the Board of Directors. Any
dividend payment made on Series F Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due with respect to
Series F Preferred Shares which remains payable.
(b) The amount of dividends referred to in clause (i) of Section
3(a) payable for each full Dividend Period on the Series F Preferred
Shares shall be computed by dividing the annual dividend rate by four. The
initial Dividend Period will include a partial dividend for the period
from the Issue Date until the last calendar day of the calendar quarter
containing the Issue Date. The amount of dividends payable for such
period, or any other period shorter than a full Dividend Period, on the
Series F Preferred Shares shall be computed on the basis of a 360-day year
of twelve 30-day months. Holders of Series F Preferred Shares shall not be
entitled to any dividends, whether payable in cash, property or shares, in
excess of cumulative dividends, as herein provided, on the Series F
Preferred Shares. No interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on the Series F
Preferred Shares which may be in arrears.
(c) So long as any Series F Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence,
shall be declared or paid or set apart for payment on any class or series
of Parity Shares for any period unless full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the
Series F Preferred Shares for all Dividend Periods terminating on or prior
to the dividend payment date on such class or series of Parity Shares.
When dividends are not paid in full or a sum sufficient for such payment
is not set apart, as aforesaid, all
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<PAGE>
dividends declared upon Series F Preferred Shares and all dividends
declared upon any other class or series of Parity Shares shall be declared
ratably in proportion to the respective amounts of dividends accumulated
and unpaid on the Series F Preferred Shares and accumulated and unpaid on
such Parity Shares.
(d) So long as any Series F Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of,
or options, warrants or rights to subscribe for or purchase shares of,
Fully Junior Shares) shall be declared or paid or set apart for payment or
other distribution shall be declared or made or set apart for payment upon
Junior Shares, nor shall any Junior Shares be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition
of Common Shares made for purposes of an employee incentive or benefit
plan of the Corporation or any subsidiary) for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption
of any Junior Shares) by the Corporation, directly or indirectly (except
by conversion into or exchange for Fully Junior Shares), unless in each
case (i) the full cumulative dividends on all outstanding Series F
Preferred Shares and any other Parity Shares of the Corporation shall have
been or contemporaneously are declared and paid or declared and set apart
for payment for all past Dividend Periods with respect to the Series F
Preferred Shares and all past dividend periods with respect to such Parity
Shares and (ii) sufficient funds shall have been or contemporaneously are
declared and paid or declared and set apart for the payment of the
dividend for the current Dividend Period with respect to the Series F
Preferred Shares and the current dividend period with respect to such
Parity Shares.
(e) No distributions on Series F Preferred Shares shall be declared
by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of
the Corporation, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or
provides that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such
declaration or payment shall be restricted or prohibited by law.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Junior Shares, the
holders of the Series F Preferred Shares shall be entitled to receive
Thirty Seven Dollars and Fifty Cents ($37.50) (the "Liquidation
Preference") per Series F Preferred Share plus an amount equal to all
dividends (whether or not earned or declared) accrued and unpaid thereon
to the date of final distribution to such holders; but such holders shall
not be entitled to any further
8
<PAGE>
payment; provided, that the dividend payable with respect to the Dividend
Period containing the date of final distribution shall be equal to the
greater of (i) the dividend provided in Section 3(a)(i) or (ii) the
dividend determined pursuant to Section 3(a)(ii) for the preceding
Dividend Period. If, upon any liquidation, dissolution or winding up of
the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of the Series F Preferred Shares shall be
insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares of any class or series of Parity
Shares, then such assets, or the proceeds thereof, shall be distributed
among the holders of Series F Preferred Shares and any such other Parity
Shares ratably in accordance with the respective amounts that would be
payable on such Series F Preferred Shares and any such other Parity Shares
if all amounts payable thereon were paid in full. For the purposes of this
Section 4, (i) a consolidation or merger of the Corporation with one or
more corporations, real estate investment trusts or other entities, (ii) a
sale, lease or conveyance of all or substantially all of the Corporation's
property or business or (iii) a statutory share exchange shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series or
class or classes of shares of capital stock ranking on a parity with or
prior to the Series F Preferred Shares upon liquidation, dissolution or
winding up, upon any liquidation, dissolution or winding up of the
Corporation, after payment shall have been made in full to the holders of
the Series F Preferred Shares, as provided in this Section 4, any other
series or class or classes of Junior Shares shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the
holders of the Series F Preferred Shares shall not be entitled to share
therein.
Section 5. Redemption at the Option of the Corporation.
(a) The Series F Preferred Shares shall not be redeemable by the
Corporation prior to the fifth anniversary of the Issue Date. On and after
the fifth anniversary of the Issue Date, the Corporation, at its option,
may redeem the Series F Preferred Shares, in whole at any time or from
time to time in part as set forth herein, subject to the provisions
described below:
(i) Series F Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation, at any time on or after the
fifth anniversary of the Issue Date by issuing and delivering to
each holder for each Series F Preferred Share to be redeemed such
number of authorized but previously unissued Common Shares as equals
the Liquidation Preference (excluding any accumulated, accrued and
unpaid dividends which are to be paid in cash as
9
<PAGE>
provided below) per Series F Preferred Share divided by the
Conversion Price as in effect as of the opening of business on the
Call Date; provided, however, that the Corporation may redeem Series
F Preferred Shares pursuant to this paragraph (a)(i) only if (A) the
Weighted Average Trading Price, for twenty (20) Trading Days, within
the last thirty (30) Trading Days immediately before the date of the
notice given pursuant to Section 5(d), equals or exceeds 108% of the
Conversion Price in effect on the date of the notice given pursuant
to Section 5(d) and (B) at least 1,000,000 Common Shares were traded
during such 30 Trading Days.
(ii) Series F Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation at any time on or after the
fifth anniversary of the Issue Date out of funds legally available
therefor at a redemption price payable in cash equal to the
Liquidation Preference per Series F Preferred Share (plus all
accumulated, accrued and unpaid dividends as provided below).
(b) Upon any redemption of Series F Preferred Shares pursuant to
this Section 5, the Corporation shall pay all accrued and unpaid
dividends, if any, thereon to the Call Date, without interest. If the Call
Date falls after a dividend payment record date and prior to the
corresponding Dividend Payment Date, then each holder of Series F
Preferred Shares at the close of business on such dividend payment record
date shall be entitled to the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding any redemption of such
shares before such Dividend Payment Date. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on Series F Preferred Shares called for
redemption.
(c) If full cumulative dividends on the Series F Preferred Shares
and any other class or series of Parity Shares of the Corporation have not
been declared and paid or declared and set apart for payment, the Series F
Preferred Shares may not be redeemed under this Section 5 in part and the
Corporation may not purchase or acquire Series F Preferred Shares,
otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Series F Preferred Shares.
(d) Notice of the redemption of any Series F Preferred Shares under
this Section 5 shall be mailed by first-class mail to each holder of
record of Series F Preferred Shares to be redeemed at the address of each
such holder as shown on the Corporation's records, not less than 30 nor
more than 90 days prior to the Call Date. Neither the failure to mail any
notice required by this paragraph (d), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to the other holders. Any notice which was mailed in the manner herein
provided shall be conclu-
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<PAGE>
sively presumed to have been duly given on the date mailed whether or not
the holder receives the notice. Each such mailed notice shall state, as
appropriate: (1) the Call Date; (2) the number of Series F Preferred
Shares to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from
such holder; (3) the redemption price if the Series F Preferred Shares are
redeemed for cash and the number of Common Shares to be issued if the
Series F Preferred Shares are redeemed for Common Shares; (4) the place or
places at which certificates for such shares are to be surrendered; (5)
the then-current Conversion Price; and (6) that dividends on the shares to
be redeemed shall cease to accrue on such Call Date except as otherwise
provided herein. Notice having been mailed as aforesaid, from and after
the Call Date (unless the Corporation shall fail to make available an
amount of cash necessary to effect such redemption), (i) except as
otherwise provided herein, dividends on the Series F Preferred Shares so
called for redemption shall cease to accrue, (ii) such shares shall no
longer be deemed to be outstanding, and (iii) all rights of the holders
thereof as holders of Series F Preferred Shares of the Corporation shall
cease (except the rights to convert and to receive the Common Shares
and/or cash payable upon such redemption, without interest thereon, upon
surrender and endorsement of their certificates if so required and to
receive any dividends payable thereon). The Corporation's obligation to
provide Common Shares and/or cash in accordance with the preceding
sentence shall be deemed fulfilled if, on or before the Call Date, the
Corporation shall deposit with a bank or trust company (which may be an
affiliate of the Corporation) that has an office in the Borough of
Manhattan, City of New York, and that has, or is an affiliate of a bank or
trust company that has, capital and surplus of at least $50,000,000,
necessary for such redemption, in trust, with irrevocable instructions
that such Common Shares and/or cash be applied to the redemption of the
Series F Preferred Shares so called for redemption. In the case of any
redemption pursuant to paragraph (a)(i) of this Section 5, at the close of
business on the Call Date, each holder of Series F Preferred Shares to be
redeemed (unless the Corporation defaults in the delivery of the Common
Shares or cash payable on such Call Date) shall be deemed to be the record
holder of the Common Shares into which such Series F Preferred Shares are
to be converted at redemption, regardless of whether such holder has
surrendered the certificates representing the Series F Preferred Shares to
be so redeemed. No interest shall accrue for the benefit of the holders of
Series F Preferred Shares to be redeemed on any cash so set aside by the
Corporation. Subject to applicable escheat laws, any such cash unclaimed
at the end of two years from the Call Date shall revert to the general
funds of the Corporation, after which reversion the holders of such shares
so called for redemption shall look only to the general funds of the
Corporation for the payment of such cash.
As promptly as practicable after the surrender in accordance with
such notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Corporation shall so require and
if the notice shall so state), such shares
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<PAGE>
shall be exchanged for any cash (without interest thereon) for which such
shares have been redeemed. If fewer than all the outstanding Series F
Preferred Shares are to be redeemed, shares to be redeemed shall be
selected by the Corporation from outstanding Series F Preferred Shares not
previously called for redemption pro rata (as nearly as may be), by lot or
by any other method determined by the Corporation in its sole discretion
to be equitable. If fewer than all the Series F Preferred Shares
represented by any certificate are redeemed, then new certificates
representing the unredeemed shares shall be issued without cost to the
holder thereof.
(e) In the case of any redemption pursuant to paragraph (a)(i) of
this Section 5,
(i) no fractional Common Shares or scrip representing
fractions of Common Shares shall be issued upon redemption of the
Series F Preferred Common Shares. Instead of any fractional interest
in Common Shares that would otherwise be deliverable upon redemption
of Series F Preferred Shares, the Corporation shall pay to the
holder of such share an amount in cash (rounded to the nearest cent)
based upon the Current Market Price of the Common Shares on the
Trading Day immediately preceding the Call Date. If more than one
share shall be surrendered for redemption at one time by the same
holder, the number of full Common Shares issuable upon redemption
thereof shall be computed on the basis of the aggregate number of
Series F Preferred Shares so surrendered.
(ii) the Corporation covenants that any Common Shares issued
upon redemption of Series F Preferred Shares shall be validly
issued, fully paid and non-assessable. The Corporation shall
endeavor to list the Common Shares required to be delivered upon any
such redemption of Series F Preferred Shares, prior to such
redemption, upon each national securities exchange, if any, upon
which the outstanding Common Shares are listed at the time of such
delivery.
Section 6. Conversion. Holders of Series F Preferred Shares shall have the
right to convert all or a portion of such shares into Common Shares, as follows:
(a) Subject to and upon compliance with the provisions of this
Section 6 and the provisions of Article VIII of the Corporation's Articles
of Incorporation, a holder of Series F Preferred Shares shall have the
right, at any time, at his or her option, to convert such shares into the
number of fully paid and non-assessable Common Shares obtained by dividing
the aggregate Liquidation Preference of such shares (exclusive of accrued
but unpaid dividends) by the Conversion Price (as in effect at the time
and on the date provided for in the last paragraph of paragraph (b) of
this Section 6) by surrendering such shares to be converted, such
surrender to be made in the manner provided in paragraph (b) of this
Section 6; provided, however, that the right to convert
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<PAGE>
shares called for redemption pursuant to Section 5 shall terminate at the
close of business on the fifth Business Day prior to the Call Date fixed
for such redemption, unless the Corporation shall default in making
payment of the cash payable upon such redemption under Section 5.
(b) In order to exercise the conversion right, the holder of each
Series F Preferred Share to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or
in blank, at the office of the Transfer Agent, accompanied by written
notice to the Corporation that the holder thereof elects to convert such
Series F Preferred Shares. Unless the shares issuable on conversion are to
be issued in the same name as the name in which such Series F Preferred
Share is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that
such taxes have been paid).
Holders of Series F Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment
record date and prior to such Dividend Payment Date. However, Series F
Preferred Shares surrendered for conversion during the period between the
close of business on any dividend payment record date and the opening of
business on the corresponding Dividend Payment Date (except shares
converted after the issuance of notice of redemption with respect to a
Call Date during such period, such Series F Preferred Shares being
entitled to such dividend on the Dividend Payment Date) must be
accompanied by payment of an amount equal to the dividend payable on such
shares on such Dividend Payment Date. A holder of Series F Preferred
Shares on a dividend payment record date who (or whose transferee) tenders
any such shares for conversion into Common Shares on the corresponding
Dividend Payment Date will receive the dividend payable by the Corporation
on such Series F Preferred Shares on such date, and the converting holder
need not include payment of the amount of such dividend upon surrender of
Series F Preferred Shares for conversion. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for dividends on the
Common Shares issued upon such conversion.
As promptly as practicable after the surrender of certificates for
Series F Preferred Shares as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on his or her written
order, a certificate or certificates for the number of full Common Shares
issuable upon the conversion of such shares in accordance with provisions
of this Section 6, and any fractional interest in respect of a
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<PAGE>
Common Share arising upon such conversion shall be settled as provided in
paragraph (c) of this Section 6.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
Series F Preferred Shares shall have been surrendered and such notice
shall have been received by the Corporation as aforesaid (and if
applicable, payment of an amount equal to the dividend payable on such
shares shall have been received by the Corporation as described above),
and the person or persons in whose name or names any certificate or
certificates for Common Shares shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such conversion
shall be at the Conversion Price in effect at such time on such date
unless the share transfer books of the Corporation shall be closed on that
date, in which event such person or persons shall be deemed to have become
such holder or holders of record at the close of business on the next
succeeding day on which such share transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date on which
such shares shall have been surrendered and such notice received by the
Corporation.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series F Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise
be deliverable upon the conversion of a Series F Preferred Share, the
Corporation shall pay to the holder of such share an amount in cash based
upon the Current Market Price of the Common Shares on the Trading Day
immediately preceding the date of conversion. If more than one share shall
be surrendered for conversion at one time by the same holder, the number
of full Common Shares issuable upon conversion thereof shall be computed
on the basis of the aggregate number of Series F Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after July 2, 1999 (A) pay a
dividend or make a distribution on its capital shares in Common
Shares, (B) subdivide its outstanding Common Shares into a greater
number of shares, (C) combine its outstanding Common Shares into a
smaller number of shares or (D) issue any shares of capital stock by
reclassification of its Common Shares, the Conversion Price in
effect at the opening of business on the day following the date
fixed for the determination of stockholders entitled to receive
such dividend or distribution or at the opening of business on the
Business Day next following the day on which such subdivision,
combination or reclassification becomes effective, as the case may
be, shall be adjusted so that the holder of any Series F Preferred
Share thereafter surrendered for conversion shall be entitled to
receive
14
<PAGE>
the number of Common Shares that such holder would have owned or
have been entitled to receive after the happening of any of the
events described above as if such Series F Preferred Shares had been
converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a
subdivision, combination or reclassification. An adjustment made
pursuant to this subparagraph (i) shall become effective immediately
after the opening of business on the Business Day next following the
record date (except as provided in paragraph (h) below) in the case
of a dividend or distribution and shall become effective immediately
after the opening of business on the Business Day next following the
effective date in the case of a subdivision, combination or
reclassification.
(ii) If the Corporation shall issue after July 2, 1999 rights,
options or warrants to all holders of Common Shares entitling them
(for a period expiring within 45 days after the record date
mentioned below) to subscribe for or purchase Common Shares at a
price per share less than 94% (100% if a stand-by underwriter is
used and charges the Corporation a commission) of the Fair Market
Value per Common Share on the record date for the determination of
stockholders entitled to receive such rights, options or warrants,
then the Conversion Price in effect at the opening of business on
the Business Day next following such record date shall be adjusted
to equal the price determined by multiplying (A) the Conversion
Price in effect immediately prior to the opening of business on the
Business Day next following the date fixed for such determination by
(B) a fraction, the numerator of which shall be the sum of (x) the
number of Common Shares outstanding on the close of business on the
date fixed for such determination and (y) the number of shares that
the aggregate proceeds to the Corporation from the exercise of such
rights, options or warrants for Common Shares would purchase at 94%
of such Fair Market Value (or 100% in the case of a stand-by
underwriting), and the denominator of which shall be the sum of (x)
the number of Common Shares outstanding on the close of business on
the date fixed for such determination and (y) the number of
additional Common Shares offered for subscription or purchase
pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately after the opening of business on the
day next following such record date (except as provided in paragraph
(h) below). In determining whether any rights, options or warrants
entitle the holders of Common Shares to subscribe for or purchase
Common Shares at less than 94% of such Fair Market Value (or 100% in
the case of a stand-by underwriting), there shall be taken into
account any consideration received by the Corporation upon issuance
and upon exercise of such rights, options or warrants, the value of
such consideration, if other than cash, to be determined by the
Board of Directors.
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<PAGE>
(iii) If the Corporation shall distribute to all holders of
its Common Shares any securities of the Corporation (other than
Common Shares) or evidence of its indebtedness or assets (excluding
cumulative cash dividends or distributions paid with respect to the
Common Shares after December 31, 1998 which are not in excess of the
following: the sum of (A) the Corporation's cumulative undistributed
Funds from Operations at December 31, 1998, plus (B) the cumulative
amount of Funds from Operations, as determined by the Board of
Directors, after December 31, 1998, minus (C) the cumulative amount
of dividends accrued or paid in respect of the Series F Preferred
Shares or any other class or series of preferred stock of the
Corporation after July 2, 1999) or rights, options or warrants to
subscribe for or purchase any of its securities (excluding those
rights, options and warrants issued to all holders of Common Shares
entitling them for a period expiring within 45 days after the record
date referred to in subparagraph (ii) above to subscribe for or
purchase Common Shares, which rights and warrants are referred to in
and treated under subparagraph (ii) above) (any of the foregoing
being hereinafter in this subparagraph (iii) collectively called the
"Securities" and individually a "Security"), then in each such case
the Conversion Price shall be adjusted so that it shall equal the
price determined by multiplying (x) the Conversion Price in effect
immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution
by (y) a fraction, the numerator of which shall be the Fair Market
Value per Common Share on the record date mentioned below less the
then fair market value (as determined by the Board of Directors,
whose determination shall be conclusive), of the portion of the
Securities or assets or evidences of indebtedness so distributed or
of such rights, options or warrants applicable to one Common Share,
and the denominator of which shall be the Fair Market Value per
Common Share on the record date mentioned below. Such adjustment
shall become effective immediately at the opening of business on the
Business Day next following (except as provided in paragraph (h)
below) the record date for the determination of stockholders
entitled to receive such distribution. For the purposes of this
subparagraph (iii), the distribution of a Security, which is
distributed not only to the holders of the Common Shares on the date
fixed for the determination of stockholders entitled to such
distribution of such Security, but also is distributed with each
Common Share delivered to a Person converting a Series F Preferred
Share after such determination date, shall not require an adjustment
of the Conversion Price pursuant to this subparagraph (iii);
provided that on the date, if any, on which a person converting a
Series F Preferred Share would no longer be entitled to receive such
Security with a Common Share (other than as a result of the
termination of all such Securities), a distribution of such
Securities shall be deemed to have occurred and the Conversion Price
shall be adjusted as provided in this subparagraph (iii) (and
16
<PAGE>
such day shall be deemed to be "the date fixed for the determination
of the stockholders entitled to receive such distribution" and "the
record date" within the meaning of the two preceding sentences).
(iv) In case a tender or exchange offer (which term shall not
include open market repurchases by the Corporation) made by the
Corporation or any subsidiary of the Corporation for all or any
portion of the Common Shares shall expire and such tender or
exchange offer shall involve the payment by the Corporation or such
subsidiary of consideration per Common Share having a fair market
value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of
the Board of Directors), at the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or exchange
offer, that exceeds the Current Market Price per Common Share on the
Trading Day next succeeding the Expiration Time, the Conversion
Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the effectiveness of the Conversion Price reduction
contemplated by this subparagraph, by a fraction of which the
numerator shall be the number of Common Shares outstanding
(including any tendered or exchanged shares) at the Expiration Time,
multiplied by the Current Market Price per Common Share on the
Trading Day next succeeding the Expiration Time, and the denominator
shall be the sum of (A) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders
based upon the acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares
deemed so accepted, up to any maximum, being referred to as the
"Purchased Shares") and (B) the product of the number of Common
Shares outstanding (less any Purchased Shares) at the Expiration
Time and the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day
following the Expiration Time.
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase or
decrease of at least 1% in such price; provided, however, that any
adjustments that by reason of this subparagraph (v) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment until made; and provided, further, that any
adjustment shall be required and made in accordance with the
provisions of this Section 6 (other than this subparagraph (v)) not
later than such time as may be required in order to preserve the
tax-free nature of a distribution to the holders of Common Shares.
Notwithstanding any other provisions of this
17
<PAGE>
Section 6, the Corporation shall not be required to make any
adjustment of the Conversion Price for the issuance of any Common
Shares pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Corporation and
the investment of additional optional amounts in Common Shares under
such plan. All calculations under this Section 6 shall be made to
the nearest cent (with $.005 being rounded upward) or to the nearest
one-tenth of a share (with .05 of a share being rounded upward), as
the case may be. Anything in this paragraph (d) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion Price,
in addition to those required by this paragraph (d), as it in its
discretion shall determine to be advisable in order that any share
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase shares or
securities, or distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its stockholders
shall not be taxable.
(e) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share
exchange, self tender offer for all or substantially all of its Common
Shares, sale of all or substantially all of the Corporation's assets or
recapitalization of the Common Shares and excluding any transaction as to
which subparagraph (d)(i) of this Section 6 applies) (each of the
foregoing being referred to herein as a "Transaction"), in each case as a
result of which all or substantially all of the Corporation's Common
Shares are converted into the right to receive shares, securities or other
property (including cash or any combination thereof), each Series F
Preferred Share which is not redeemed or converted into the right to
receive shares, securities or other property prior to such Transaction
shall thereafter be convertible into the kind and amount of shares,
securities and other property (including cash or any combination thereof)
receivable upon the consummation of such Transaction by a holder of that
number of Common Shares into which one Series F Preferred Share was
convertible immediately prior to such Transaction, assuming such holder of
Common Shares (i) is not a Person with which the Corporation consolidated
or into which the Corporation merged or which merged into the Corporation
or to which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person and (ii)
failed to exercise his rights of election, if any, as to the kind or
amount of shares, securities and other property (including cash)
receivable upon such Transaction (provided that if the kind or amount of
shares, securities and other property (including cash) receivable upon
such Transaction is not the same for each Common Share held immediately
prior to such Transaction by other than a Constituent Person or an
affiliate thereof and in respect of which such rights of election shall
not have been exercised ("Non-Electing Share"), then for the purpose of
this paragraph (e) the kind and amount of shares, securities and other
property (including cash) receivable upon such Transaction by each
Non-Electing Share shall be deemed to be the kind and amount so receivable
per share by a plurality
18
<PAGE>
of the Non-Electing Shares). The Corporation shall not be a party to any
Transaction unless the terms of such Transaction are consistent with the
provisions of this paragraph (e), and it shall not consent or agree to the
occurrence of any Transaction until the Corporation has entered into an
agreement with the successor or purchasing entity, as the case may be, for
the benefit of the holders of the Series F Preferred Shares that will
contain provisions enabling the holders of the Series F Preferred Shares
that remain outstanding after such Transaction to convert into the
consideration received by holders of Common Shares at the Conversion Price
in effect immediately prior to such Transaction. The provisions of this
paragraph (e) shall similarly apply to successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Shares (other than cash dividends or
distributions paid with respect to the Common Shares after December
31, 1998 not in excess of the sum of the Corporation's cumulative
undistributed Funds from Operations at December 31, 1998, plus the
cumulative amount of Funds from Operations, as determined by the
Board of Directors, after December 31, 1998, minus the cumulative
amount of dividends accrued or paid in respect of the Series F
Preferred Shares or any other class or series of preferred shares of
capital stock of the Corporation after July 2, 1999); or
(ii) the Corporation shall authorize the granting to all
holders of Common Shares of rights, options or warrants to subscribe
for or purchase any shares of any class or any other rights, options
or warrants; or
(iii) there shall be any reclassification of the Common Shares
(other than an event to which subparagraph (d)(i) of this Section 6
applies) or any consolidation or merger to which the Corporation is
a party and for which approval of any stockholders of the
Corporation is required, or a statutory share exchange, or a self
tender offer by the Corporation for all or substantially all of its
outstanding Common Shares or the sale or transfer of all or
substantially all of the assets of the Corporation as an entirety;
or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent and
shall cause to be mailed to the holders of Series F Preferred Shares at
their addresses as shown on the records of the Corporation, as promptly as
possible, but at least 10 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is
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<PAGE>
to be taken for the purpose of such dividend, distribution or granting of
rights, options or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Shares of record to be entitled to such
dividend, distribution or rights, options or warrants are to be determined
or (B) the date on which such reclassification, consolidation, merger,
statutory share exchange, sale, transfer, liquidation, dissolution or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Shares of record shall be entitled to
exchange their Common Shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, statutory
share exchange, sale, transfer, liquidation, dissolution or winding up.
Failure to give or receive such notice or any defect therein shall not
affect the legality or validity of the proceedings described in this
Section 6.
(g) Whenever the Conversion Price is adjusted as herein provided,
the Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment
which certificate shall be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment of
the Conversion Price setting forth the adjusted Conversion Price and the
effective date of such adjustment and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Series F
Preferred Share at such holder's last address as shown on the records of
the Corporation.
(h) In any case in which paragraph (d) of this Section 6 provides
that an adjustment shall become effective on the day next following the
record date for an event, the Corporation may defer until the occurrence
of such event (A) issuing to the holder of any Series F Preferred Share
converted after such record date and before the occurrence of such event
the additional Common Shares issuable upon such conversion by reason of
the adjustment required by such event over and above the Common Shares
issuable upon such conversion before giving effect to such adjustment and
(B) paying to such holder any amount of cash in lieu of any fraction
pursuant to paragraph (c) of this Section 6.
(i) There shall be no adjustment of the Conversion Price in case of
the issuance of any shares of capital stock of the Corporation in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 6. If any action or transaction
would require adjustment of the Conversion Price pursuant to more than one
paragraph of this Section 6, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
(j) If the Corporation shall take any action affecting the Common
Shares, other than action described in this Section 6, that in the opinion
of the Board of
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<PAGE>
Directors would materially and adversely affect the conversion rights of
the holders of the Series F Preferred Shares, the Conversion Price for the
Series F Preferred Shares may be adjusted, to the extent permitted by law,
in such manner, if any, and at such time, as the Board of Directors, in
its sole discretion, may determine to be equitable in the circumstances.
(k) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Shares, for the purpose of effecting
conversion of the Series F Preferred Shares, the full number of Common
Shares deliverable upon the conversion of all outstanding Series F
Preferred Shares not theretofore converted. For purposes of this paragraph
(k), the number of Common Shares that shall be deliverable upon the
conversion of all outstanding Series F Preferred Shares shall be computed
as if at the time of computation all such outstanding shares were held by
a single holder.
The Corporation covenants that any Common Shares issued upon
conversion of the Series F Preferred Shares shall be validly issued, fully
paid and non-assessable. Before taking any action that would cause an
adjustment reducing the Conversion Price below the then-par value of the
Common Shares deliverable upon conversion of the Series F Preferred
Shares, the Corporation will take any action that, in the opinion of its
counsel, may be necessary in order that the Corporation may validly and
legally issue fully paid and (subject to any customary qualification based
upon the nature of a real estate investment trust) non-assessable Common
Shares at such adjusted Conversion Price.
The Corporation shall endeavor to list the Common Shares required to
be delivered upon conversion of the Series F Preferred Shares, prior to
such delivery, upon each national securities exchange, if any, upon which
the outstanding Common Shares are listed at the time of such delivery.
The Corporation shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the issuance
of any securities that the Corporation shall be obligated to deliver upon
conversion of the Series F Preferred Shares. In addition to any legend
required by Article VIII of the Articles of Incorporation, the
certificates evidencing such securities shall bear such legends
restricting transfer thereof in the absence of registration under
applicable securities laws or an exemption therefrom as the Corporation
may in good faith deem appropriate.
(l) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of Common Shares or other securities or property on conversion of
the Series F Preferred Shares pursuant hereto; provided, however, that the
Corporation shall not be required to pay any tax that may
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<PAGE>
be payable in respect of any transfer involved in the issue or delivery of
Common Shares or other securities or property in a name other than that of
the holder of the Series F Preferred Shares to be converted, and no such
issue or delivery shall be made unless and until the person requesting
such issue or delivery has paid to the Corporation the amount of any such
tax or established, to the reasonable satisfaction of the Corporation,
that such tax has been paid.
Section 7. Shares To Be Retired. All Series F Preferred Shares which shall
have been issued and reacquired in any manner by the Corporation shall be
restored to the status of authorized but unissued shares of capital stock of the
Corporation, without designation as to class or series.
Section 8. Ranking. Any class or series of shares of capital stock of the
Corporation shall be deemed to rank:
(a) prior to the Series F Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution
or winding up, if the holders of such class or series shall be entitled to
the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority
to the holders of Series F Preferred Shares;
(b) on a parity with the Series F Preferred Shares, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof shall
be different from those of the Series F Preferred Shares, if the holders
of such class or series and the Series F Preferred Shares shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective
amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other ("Parity
Shares");
(c) junior to the Series F Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Junior Shares;
and
(d) junior to the Series F Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully Junior
Shares.
Section 9. Voting. If and whenever four quarterly dividends (whether or
not consecutive) payable on the Series F Preferred Shares or any series or class
of Parity Shares shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, the number of
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<PAGE>
directors then constituting the Board of Directors shall be increased by two and
the holders of Series F Preferred Shares, together with the holders of shares of
every other series of Parity Shares (any such other series, the "Voting
Preferred Shares"), voting as a single class regardless of series, shall be
entitled to elect the two additional directors to serve on the Board of
Directors at any annual meeting of stockholders or special meeting held in place
thereof, or at a special meeting of the holders of the Series F Preferred Shares
and the Voting Preferred Shares called as hereinafter provided. Whenever all
arrears in dividends on the Series F Preferred Shares and the Voting Preferred
Shares then outstanding shall have been paid and dividends thereon for the
current quarterly dividend period shall have been paid or declared and set apart
for payment, then the right of the holders of the Series F Preferred Shares and
the Voting Preferred Shares to elect such additional two directors shall cease
(but subject always to the same provision for the vesting of such voting rights
in the case of any similar future arrearage in quarterly dividends), and the
terms of office of all persons elected as directors by the holders of the Series
F Preferred Shares and the Voting Preferred Shares shall forthwith terminate and
the number of the Board of Directors shall be reduced accordingly. At any time
after such voting power shall have been so vested in the holders of Series F
Preferred Shares and the Voting Preferred Shares, the Secretary of the
Corporation may, and upon the written request of any holder of Series F
Preferred Shares (addressed to the Secretary at the principal office of the
Corporation) shall, call a special meeting of the holders of the Series F
Preferred Shares and of the Voting Preferred Shares for the election of the
directors to be elected by them as herein provided, such call to be made by
notice similar to that provided in the Bylaws of the Corporation for a special
meeting of the stockholders or as required by law. If any such special meeting
required to be called as above provided shall not be called by the Secretary
within 20 days after receipt of any such request, then any holder of Series F
Preferred Shares may call such meeting, upon the notice above provided, and for
that purpose shall have access to the records of the Corporation. The directors
elected at any such special meeting shall hold office until the next annual
meeting of the stockholders or special meeting held in lieu thereof if such
office shall not have previously terminated as above provided. If any vacancy
shall occur among the directors elected by the holders of the Series F Preferred
Shares and the Voting Preferred Shares, a successor shall be elected by the
Board of Directors, upon the nomination of the then-remaining director elected
by the holders of the Series F Preferred Shares and the Voting Preferred Shares
or the successor of such remaining director, to serve until the next annual
meeting of the stockholders or special meeting held in place thereof if such
office shall not have previously terminated as provided above.
So long as any Series F Preferred Shares are outstanding, in addition to
any other vote or consent of stockholders required by law or by the
Corporation's Articles of Incorporation, the affirmative vote of at least 66K%
of the votes entitled to be cast by the holders of the Series F Preferred Shares
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating:
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(a) Any amendment, alteration or repeal of any of the provisions of
the Corporation's Articles of Incorporation, the Corporation's By-Laws or
these Articles Supplementary that materially and adversely affects the
voting powers, rights or preferences of the holders of the Series F
Preferred Shares; provided, however, that the amendment of the provisions
of the Corporation's Articles of Incorporation so as to authorize or
create or to increase the authorized amount of, any Fully Junior Shares,
Junior Shares that are not senior in any respect to the Series F Preferred
Shares or any Parity Shares shall not be deemed to materially adversely
affect the voting powers, rights or preferences of the holders of Series F
Preferred Shares; or
(b) A share exchange that affects the Series F Preferred Shares, a
consolidation with or merger of the Corporation into another entity, or a
consolidation with or merger of another entity into the Corporation,
unless in each such case each Series F Preferred Share (i) shall remain
outstanding without a material and adverse change to its terms and rights
or (ii) shall be converted into or exchanged for convertible preferred
shares of the surviving entity having preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption thereof identical to
that of a Series F Preferred Share (except for changes that do not
materially and adversely affect the holders of the Series F Preferred
Shares); or
(c) The authorization, reclassification or creation of, or the
increase in the authorized amount of, any shares of any class or any
security convertible into shares of any class ranking prior to the Series
F Preferred Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation or in the payment of
dividends;
provided, however, that no such vote of the holders of Series F Preferred Shares
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series F Preferred Shares at the time outstanding to the
extent such redemption is authorized by Section 5 of these Articles
Supplementary.
For purposes of the foregoing provisions of this Section 9, each Series F
Preferred Share shall have one (1) vote per share, except that when any other
series of Preferred Shares shall have the right to vote with the Series F
Preferred Shares as a single class on any matter, then the Series F Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $27.08 of stated liquidation preference. Except as otherwise required
by applicable law or as set forth herein, the Series F Preferred Shares shall
not have any relative, participating, optional or other special voting rights
and powers other than as set forth herein,
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<PAGE>
and the consent of the holders thereof shall not be required for the
taking of any Corporation action.
Section 10. Record Holders. The Corporation and the Transfer Agent may
deem and treat the record holder of any Series F Preferred Shares as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
Transfer Agent shall be affected by any notice to the contrary.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be signed its name and on its behalf by its authorized officers
who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
this document are true in all material respects and this statement is made under
penalties of perjury.
July 9, 1999
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By: /s/ W.D. Minami
-------------------------------------
Its: Senior Vice President
Attest:
/s/ Robert D. Zimet
- ----------------------------------
Secretary
<PAGE>
EXHIBIT 99.3
Series G Cumulative Convertible
Redeemable Preferred Stock
ARTICLES SUPPLEMENTARY
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
====================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series G Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
====================
Dated as of July 9, 1999
<PAGE>
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
====================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series G Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
====================
Charles E. Smith Residential Realty, Inc., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland pursuant to section 8-203(b) of the Annotated Code of
Maryland that:
FIRST: Pursuant to authority granted by the Amended and Restated Articles
of Incorporation of the Corporation, the Board of Directors adopted a resolution
by Unanimous Written Consent dated July 1, 1999 designating and classifying
641,026 unissued and undesignated shares of preferred stock as Series G
Cumulative Convertible Redeemable Preferred Stock.
SECOND: The following is a description of the Series G Cumulative
Convertible Redeemable Preferred Stock, including the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption thereof:
Section 1. Number of Shares and Designation. This class of preferred stock
shall be designated as Series G Cumulative Convertible Redeemable Preferred
Stock and the number of shares which shall constitute such series shall not be
more than 641,026 shares, par value $0.01 per share, which number may be
decreased (but not below the number thereof then outstanding) from time to time
by the Board of Directors.
Section 2. Definitions. For purposes of the Series G Preferred Shares, the
following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series G Preferred
Shares.
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New York
City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to holders
required under Section 5(d) as the Call Date.
"Common Shares" shall mean the shares of Common Stock, par value
$0.01 per share, of the Corporation.
"Constituent Person" shall have the meaning set forth in Section
6(e).
"Conversion Price" shall mean the conversion price per Common Share
for which the Series G Preferred Shares are convertible, as such
Conversion Price may be adjusted pursuant to Section 6. The initial
conversion price shall be $39.00 (equivalent to a conversion rate of one
Common Share for each Series G Preferred Share).
"Current Market Price" of publicly traded shares of Common Stock or
any other class of shares of capital stock or other security of the
Corporation or any other issuer for any day shall mean the last reported
sales price, regular way on such day, or, if no sale takes place on such
day, the average of the reported closing bid and asked prices on such day,
regular way, in either case as reported on the New York Stock Exchange
("NYSE") or, if such security is not listed or admitted for trading on the
NYSE, on the principal national securities exchange on which such security
is listed or admitted for trading or, if not listed or admitted for
trading on any national securities exchange, on the Nasdaq Stock Market
("NASDAQ") or, if such security is not quoted on such National Market
System, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by NASDAQ or, if bid and asked prices
for such security on such day shall not have been reported through NASDAQ,
the average of the bid and asked prices on such day as furnished by any
NYSE member firm regularly making a market in such security selected for
such purpose by the Board of Directors.
"Dividend Payment Date" shall mean (i) for any Dividend Period with
respect to which the Corporation pays a dividend on the Common Shares, the
date on which such dividend is paid, or (ii) for any Dividend Period with
respect to which the Corporation does not pay a dividend on the Common
Shares, a date to be set by the Board of Directors, which date shall not
be later than the forty-fifth calendar day after the end of the applicable
Dividend Period.
<PAGE>
"Dividend Periods" shall mean quarterly dividend periods commencing
on January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period, which shall commence on
the Issue Date and end on and include the last calendar day of the
calendar quarter containing the Issue Date, and other than the Dividend
Period during which any Series G Preferred Shares shall be redeemed
pursuant to Section 5, which shall end on and include the Call Date with
respect to the Series G Preferred Shares being redeemed).
"Expiration Time" shall have the meaning set forth in Section
6(d)(iv).
"Fair Market Value" shall mean the average of the daily Current
Market Prices of a Common Share on the five (5) consecutive Trading Days
selected by the Corporation commencing not more than 20 Trading Days
before, and ending not later than, the earlier of the day in question and
the day before the "ex date" with respect to the issuance or distribution
requiring such computation. The term "ex date," when used with respect to
any issuance or distribution, means the first day on which the Common
Shares trade regular way, without the right to receive such issuance or
distribution, on the exchange or in the market, as the case may be, used
to determine that day's Current Market Price.
"Fully Junior Shares" shall mean the Common Shares and any other
class or series of shares of capital stock of the Corporation now or
hereafter issued and outstanding over which the Series G Preferred Shares
have preference or priority in both (i) the payment of dividends and (ii)
the distribution of assets on any liquidation, dissolution or winding up
of the Corporation.
"Funds from Operations" shall mean net income (loss) (computed in
accordance with generally accepted accounting principles) excluding gains
(or losses) from debt restructuring, and distributions in excess of
earnings allocated to other Operating Partnership interests or minority
interests (as reflected in the financial statements of the Corporation)
plus depreciation/amortization of assets unique to the real estate
industry, all computed in a manner consistent with the revised definition
of Funds From Operations adopted by the National Association of Real
Estate Investment Trusts (NAREIT), in its White Paper dated March 1995, as
such definitions may be modified from time to time, as determined by the
Corporation in good faith.
"Issue Date" shall mean the date on which the first Series G
Preferred Shares are issued.
"Junior Shares" shall mean the Common Shares and any other class or
series of capital stock of the Corporation now or hereafter issued and
outstanding over which the
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<PAGE>
Series G Preferred Shares have preference or priority in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Corporation.
"Non-Electing Share" shall have the meaning set forth in Section
6(e).
"Operating Partnership" shall mean the Charles E. Smith Residential
Realty L.P., a Delaware limited partnership.
"Parity Shares" shall have the meaning set forth in Section 8(b).
"Person" shall mean any individual, firm, partnership, corporation,
limited liability company or other entity, and shall include any successor
(by merger or otherwise) of such entity.
"Purchased Shares" shall have the meaning set forth in Section
6(d)(iv).
"Securities" and "Security" shall have the meanings set forth in
Section 6(d)(iii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series G Preferred Shares" shall mean the shares of Series G
Cumulative Convertible Redeemable Preferred Stock.
"Set apart for payment" shall be deemed to include, without any
action other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distribution by the Board
of Directors, the allocation of funds to be so paid on any series or class
of shares of capital stock of the Corporation; provided, however, that if
any funds 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 G Preferred
Shares as to the payment of dividends are placed in a separate account of
the Corporation or delivered to a disbursing, paying or other similar
agent, then "set apart for payment" with respect to the Series G Preferred
Shares shall mean placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in question
are traded on the NYSE, or if such securities are not listed or admitted
for trading on the NYSE, on the principal national securities exchange on
which such securities are listed or admitted, or if not listed or admitted
for trading on any national securities exchange, on the National Market
System of NASDAQ, or if such securities are not quoted on such National
Market System, in the securities market in which the securities are
traded.
4
<PAGE>
"Transaction" shall have the meaning set forth in Section 6(e).
"Transfer Agent" shall mean First Union National Bank, or such other
agent or agents of the Corporation as may be designated by the Board of
Directors or their designee as the transfer agent, registrar and dividend
disbursing agent for the Series G Preferred Shares.
"Units" shall mean Partnership Units as that term is defined in the
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
"Voting Preferred Shares" shall have the meaning set forth in
Section 9.
"Weighted Average Trading Price" shall mean, for any Trading Day,
the number obtained by dividing (i) the sum of the products, for each sale
of Common Shares on such Trading Day, of (a) the sale price per Common
Share and (b) the number of Common Shares sold by (ii) the total number of
Common Shares sold on such Trading Day.
Section 3. Dividends.
(a) The holders of Series G Preferred Shares shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative preferential
dividends payable in cash in an amount per share equal to the greater of
(i) (A) 7.75% of the Liquidation Preference per annum (equivalent to
$3.0225 per Series G Preferred Share) from the Issue Date up to and
including the first anniversary of the Issue Date, (B) 8.25% of the
Liquidation Preference per annum (equivalent to $3.2175 per Series G
Preferred Share) from the first day after the period described in (A) up
to and including the second anniversary of the Issue Date and (C) 8.50% of
the Liquidation Preference per annum (equivalent to $3.315 per Series G
Preferred Share) thereafter or (ii) the ordinary cash dividends
(determined on each Dividend Payment Date) on the Common Shares, or
portion thereof, into which a Series G Preferred Share is convertible. The
dividends referred to in clause (ii) of the preceding sentence shall equal
the number of Common Shares, or portion thereof, into which a Series G
Preferred Share is convertible, multiplied by the most current quarterly
dividend on a Common Share on or before the applicable Dividend Payment
Date. If the Corporation pays an ordinary cash dividend on the Common
Shares with respect to a Dividend Period after the date on which the
Dividend Payment Date is declared pursuant to clause (ii) of the
definition of Dividend Payment Date and the dividend calculated pursuant
to clause (ii) of this paragraph (a) with respect to such Dividend Period
is greater than the dividend previously declared on the Series G Preferred
Shares with respect to such Dividend Period, the Corporation shall
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<PAGE>
pay an additional dividend to the holders of the Series G Preferred Shares
on the date on which the dividend on the Common Shares is paid, in an
amount equal to the difference between (y) the dividend calculated
pursuant to clause (ii) of this paragraph (a) and (z) the amount of
dividends previously declared on the Series G Preferred Shares with
respect to such Dividend Period. The dividends shall begin to accrue and
shall be fully cumulative from the first day of the applicable Dividend
Period, whether or not in any Dividend Period or Periods there shall be
funds of the Corporation legally available for the payment of such
dividends, and shall be payable quarterly, when, as and if declared by the
Board of Directors, in arrears on Dividend Payment Dates. Each such
dividend shall be payable in arrears to the holders of record of Series G
Preferred Shares as they appear in the records of the Corporation at the
close of business on such record dates, not less than 10 nor more than 50
days preceding such Dividend Payment Dates thereof, as shall be fixed by
the Board of Directors. Accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time and for such interim periods,
without reference to any regular Dividend Payment Date, to holders of
record on such date, not less than 10 nor more than 50 days preceding the
payment date thereof, as may be fixed by the Board of Directors. Any
dividend payment made on Series G Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due with respect to
Series G Preferred Shares which remains payable.
(b) The amount of dividends referred to in clause (i) of Section
3(a) payable for each full Dividend Period on the Series G Preferred
Shares shall be computed by dividing the annual dividend rate by four. The
initial Dividend Period will include a partial dividend for the period
from the Issue Date until the last calendar day of the calendar quarter
containing the Issue Date. The amount of dividends payable for such
period, or any other period shorter than a full Dividend Period, on the
Series G Preferred Shares shall be computed on the basis of a 360-day year
of twelve 30-day months. Holders of Series G Preferred Shares shall not be
entitled to any dividends, whether payable in cash, property or shares, in
excess of cumulative dividends, as herein provided, on the Series G
Preferred Shares. No interest, or sum of money in lieu of interest, shall
be payable in respect of any dividend payment or payments on the Series G
Preferred Shares which may be in arrears.
(c) So long as any Series G Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence,
shall be declared or paid or set apart for payment on any class or series
of Parity Shares for any period unless full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the
Series G Preferred Shares for all Dividend Periods terminating on or prior
to the dividend payment date on such class or series of Parity Shares.
When dividends are not paid in full or a sum sufficient for such payment
is not set apart, as aforesaid, all
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<PAGE>
dividends declared upon Series G Preferred Shares and all dividends
declared upon any other class or series of Parity Shares shall be declared
ratably in proportion to the respective amounts of dividends accumulated
and unpaid on the Series G Preferred Shares and accumulated and unpaid on
such Parity Shares.
(d) So long as any Series G Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of,
or options, warrants or rights to subscribe for or purchase shares of,
Fully Junior Shares) shall be declared or paid or set apart for payment or
other distribution shall be declared or made or set apart for payment upon
Junior Shares, nor shall any Junior Shares be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition
of Common Shares made for purposes of an employee incentive or benefit
plan of the Corporation or any subsidiary) for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption
of any Junior Shares) by the Corporation, directly or indirectly (except
by conversion into or exchange for Fully Junior Shares), unless in each
case (i) the full cumulative dividends on all outstanding Series G
Preferred Shares and any other Parity Shares of the Corporation shall have
been or contemporaneously are declared and paid or declared and set apart
for payment for all past Dividend Periods with respect to the Series G
Preferred Shares and all past dividend periods with respect to such Parity
Shares and (ii) sufficient funds shall have been or contemporaneously are
declared and paid or declared and set apart for the payment of the
dividend for the current Dividend Period with respect to the Series G
Preferred Shares and the current dividend period with respect to such
Parity Shares.
(e) No distributions on Series G Preferred Shares shall be declared
by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement of
the Corporation, including any agreement relating to its indebtedness,
prohibits such declaration, payment or setting apart for payment or
provides that such declaration, payment or setting apart for payment would
constitute a breach thereof or a default thereunder, or if such
declaration or payment shall be restricted or prohibited by law.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Junior Shares, the
holders of the Series G Preferred Shares shall be entitled to receive
Thirty Nine Dollars ($39.00) (the "Liquidation Preference") per Series G
Preferred Share plus an amount equal to all dividends (whether or not
earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled to
any further payment; provided, that the
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dividend payable with respect to the Dividend Period containing the date
of final distribution shall be equal to the greater of (i) the dividend
provided in Section 3(a)(i) or (ii) the dividend determined pursuant to
Section 3(a)(ii) for the preceding Dividend Period. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of
the Corporation, or proceeds thereof, distributable among the holders of
the Series G Preferred Shares shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other shares
of any class or series of Parity Shares, then such assets, or the proceeds
thereof, shall be distributed among the holders of Series G Preferred
Shares and any such other Parity Shares ratably in accordance with the
respective amounts that would be payable on such Series G Preferred Shares
and any such other Parity Shares if all amounts payable thereon were paid
in full. For the purposes of this Section 4, (i) a consolidation or merger
of the Corporation with one or more corporations, real estate investment
trusts or other entities, (ii) a sale, lease or conveyance of all or
substantially all of the Corporation's property or business or (iii) a
statutory share exchange shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the Corporation.
(b) Subject to the rights of the holders of shares of any series or
class or classes of shares of capital stock ranking on a parity with or
prior to the Series G Preferred Shares upon liquidation, dissolution or
winding up, upon any liquidation, dissolution or winding up of the
Corporation, after payment shall have been made in full to the holders of
the Series G Preferred Shares, as provided in this Section 4, any other
series or class or classes of Junior Shares shall, subject to the
respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the
holders of the Series G Preferred Shares shall not be entitled to share
therein.
Section 5. Redemption at the Option of the Corporation.
(a) The Series G Preferred Shares shall not be redeemable by the
Corporation prior to the sixth anniversary of the Issue Date. On and after
the sixth anniversary of the Issue Date, the Corporation, at its option,
may redeem the Series G Preferred Shares, in whole at any time or from
time to time in part as set forth herein, subject to the provisions
described below:
(i) Series G Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation, at any time on or after the
sixth anniversary of the Issue Date by issuing and delivering to
each holder for each Series G Preferred Share to be redeemed such
number of authorized but previously unissued Common Shares as equals
the Liquidation Preference (excluding any accumulated, accrued and
unpaid dividends which are to be paid in cash as provided below) per
Series G Preferred Share divided by the Conversion Price
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as in effect as of the opening of business on the Call Date;
provided, however, that the Corporation may redeem Series G
Preferred Shares pursuant to this paragraph (a)(i) only if (A) the
Weighted Average Trading Price, for twenty (20) Trading Days, within
the last thirty (30) Trading Days immediately before the date of the
notice given pursuant to Section 5(d), equals or exceeds 108% of the
Conversion Price in effect on the date of the notice given pursuant
to Section 5(d) and (B) at least 1,000,000 Common Shares were traded
during such 30 Trading Days.
(ii) Series G Preferred Shares may be redeemed, in whole or in
part, at the option of the Corporation at any time on or after the
sixth anniversary of the Issue Date out of funds legally available
therefor at a redemption price payable in cash equal to the
Liquidation Preference per Series G Preferred Share (plus all
accumulated, accrued and unpaid dividends as provided below).
(b) Upon any redemption of Series G Preferred Shares pursuant to
this Section 5, the Corporation shall pay all accrued and unpaid
dividends, if any, thereon to the Call Date, without interest. If the Call
Date falls after a dividend payment record date and prior to the
corresponding Dividend Payment Date, then each holder of Series G
Preferred Shares at the close of business on such dividend payment record
date shall be entitled to the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding any redemption of such
shares before such Dividend Payment Date. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on Series G Preferred Shares called for
redemption.
(c) If full cumulative dividends on the Series G Preferred Shares
and any other class or series of Parity Shares of the Corporation have not
been declared and paid or declared and set apart for payment, the Series G
Preferred Shares may not be redeemed under this Section 5 in part and the
Corporation may not purchase or acquire Series G Preferred Shares,
otherwise than pursuant to a purchase or exchange offer made on the same
terms to all holders of Series G Preferred Shares.
(d) Notice of the redemption of any Series G Preferred Shares under
this Section 5 shall be mailed by first-class mail to each holder of
record of Series G Preferred Shares to be redeemed at the address of each
such holder as shown on the Corporation's records, not less than 30 nor
more than 90 days prior to the Call Date. Neither the failure to mail any
notice required by this paragraph (d), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to the other holders. Any notice which was mailed in the manner herein
provided shall be conclusively presumed to have been duly given on the
date mailed whether or not the holder receives the notice. Each such
mailed notice shall state, as appropriate: (1) the Call
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Date; (2) the number of Series G Preferred Shares to be redeemed and, if
fewer than all the shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder; (3) the redemption
price if the Series G Preferred Shares are redeemed for cash and the
number of Common Shares to be issued if the Series G Preferred Shares are
redeemed for Common Shares; (4) the place or places at which certificates
for such shares are to be surrendered; (5) the then-current Conversion
Price; and (6) that dividends on the shares to be redeemed shall cease to
accrue on such Call Date except as otherwise provided herein. Notice
having been mailed as aforesaid, from and after the Call Date (unless the
Corporation shall fail to make available an amount of cash necessary to
effect such redemption), (i) except as otherwise provided herein,
dividends on the Series G Preferred Shares so called for redemption shall
cease to accrue, (ii) such shares shall no longer be deemed to be
outstanding, and (iii) all rights of the holders thereof as holders of
Series G Preferred Shares of the Corporation shall cease (except the
rights to convert and to receive the Common Shares and/or cash payable
upon such redemption, without interest thereon, upon surrender and
endorsement of their certificates if so required and to receive any
dividends payable thereon). The Corporation's obligation to provide Common
Shares and/or cash in accordance with the preceding sentence shall be
deemed fulfilled if, on or before the Call Date, the Corporation shall
deposit with a bank or trust company (which may be an affiliate of the
Corporation) that has an office in the Borough of Manhattan, City of New
York, and that has, or is an affiliate of a bank or trust company that
has, capital and surplus of at least $50,000,000, necessary for such
redemption, in trust, with irrevocable instructions that such Common
Shares and/or cash be applied to the redemption of the Series G Preferred
Shares so called for redemption. In the case of any redemption pursuant to
paragraph (a)(i) of this Section 5, at the close of business on the Call
Date, each holder of Series G Preferred Shares to be redeemed (unless the
Corporation defaults in the delivery of the Common Shares or cash payable
on such Call Date) shall be deemed to be the record holder of the Common
Shares into which such Series G Preferred Shares are to be converted at
redemption, regardless of whether such holder has surrendered the
certificates representing the Series G Preferred Shares to be so redeemed.
No interest shall accrue for the benefit of the holders of Series G
Preferred Shares to be redeemed on any cash so set aside by the
Corporation. Subject to applicable escheat laws, any such cash unclaimed
at the end of two years from the Call Date shall revert to the general
funds of the Corporation, after which reversion the holders of such shares
so called for redemption shall look only to the general funds of the
Corporation for the payment of such cash.
As promptly as practicable after the surrender in accordance with
such notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Corporation shall so require and
if the notice shall so state), such shares shall be exchanged for any cash
(without interest thereon) for which such shares have been redeemed. If
fewer than all the outstanding Series G Preferred Shares are to be
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<PAGE>
redeemed, shares to be redeemed shall be selected by the Corporation from
outstanding Series G Preferred Shares not previously called for redemption
pro rata (as nearly as may be), by lot or by any other method determined
by the Corporation in its sole discretion to be equitable. If fewer than
all the Series G Preferred Shares represented by any certificate are
redeemed, then new certificates representing the unredeemed shares shall
be issued without cost to the holder thereof.
(e) In the case of any redemption pursuant to paragraph (a)(i) of
this Section 5,
(i) no fractional Common Shares or scrip representing
fractions of Common Shares shall be issued upon redemption of the
Series G Preferred Common Shares. Instead of any fractional interest
in Common Shares that would otherwise be deliverable upon redemption
of Series G Preferred Shares, the Corporation shall pay to the
holder of such share an amount in cash (rounded to the nearest cent)
based upon the Current Market Price of the Common Shares on the
Trading Day immediately preceding the Call Date. If more than one
share shall be surrendered for redemption at one time by the same
holder, the number of full Common Shares issuable upon redemption
thereof shall be computed on the basis of the aggregate number of
Series G Preferred Shares so surrendered.
(ii) the Corporation covenants that any Common Shares issued
upon redemption of Series G Preferred Shares shall be validly
issued, fully paid and non-assessable. The Corporation shall
endeavor to list the Common Shares required to be delivered upon any
such redemption of Series G Preferred Shares, prior to such
redemption, upon each national securities exchange, if any, upon
which the outstanding Common Shares are listed at the time of such
delivery.
Section 6. Conversion. Holders of Series G Preferred Shares shall have the
right to convert all or a portion of such shares into Common Shares, as follows:
(a) Subject to and upon compliance with the provisions of this
Section 6 and the provisions of Article VIII of the Corporation's Articles
of Incorporation, a holder of Series G Preferred Shares shall have the
right, at any time, at his or her option, to convert such shares into the
number of fully paid and non-assessable Common Shares obtained by dividing
the aggregate Liquidation Preference of such shares (exclusive of accrued
but unpaid dividends) by the Conversion Price (as in effect at the time
and on the date provided for in the last paragraph of paragraph (b) of
this Section 6) by surrendering such shares to be converted, such
surrender to be made in the manner provided in paragraph (b) of this
Section 6; provided, however, that the right to convert shares called for
redemption pursuant to Section 5 shall terminate at the close of
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<PAGE>
business on the fifth Business Day prior to the Call Date fixed for such
redemption, unless the Corporation shall default in making payment of the
cash payable upon such redemption under Section 5.
(b) In order to exercise the conversion right, the holder of each
Series G Preferred Share to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or
in blank, at the office of the Transfer Agent, accompanied by written
notice to the Corporation that the holder thereof elects to convert such
Series G Preferred Shares. Unless the shares issuable on conversion are to
be issued in the same name as the name in which such Series G Preferred
Share is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that
such taxes have been paid).
Holders of Series G Preferred Shares at the close of business on a
dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment
record date and prior to such Dividend Payment Date. However, Series G
Preferred Shares surrendered for conversion during the period between the
close of business on any dividend payment record date and the opening of
business on the corresponding Dividend Payment Date (except shares
converted after the issuance of notice of redemption with respect to a
Call Date during such period, such Series G Preferred Shares being
entitled to such dividend on the Dividend Payment Date) must be
accompanied by payment of an amount equal to the dividend payable on such
shares on such Dividend Payment Date. A holder of Series G Preferred
Shares on a dividend payment record date who (or whose transferee) tenders
any such shares for conversion into Common Shares on the corresponding
Dividend Payment Date will receive the dividend payable by the Corporation
on such Series G Preferred Shares on such date, and the converting holder
need not include payment of the amount of such dividend upon surrender of
Series G Preferred Shares for conversion. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on converted shares or for dividends on the
Common Shares issued upon such conversion.
As promptly as practicable after the surrender of certificates for
Series G Preferred Shares as aforesaid, the Corporation shall issue and
shall deliver at such office to such holder, or on his or her written
order, a certificate or certificates for the number of full Common Shares
issuable upon the conversion of such shares in accordance with provisions
of this Section 6, and any fractional interest in respect of a
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Common Share arising upon such conversion shall be settled as provided in
paragraph (c) of this Section 6.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for
Series G Preferred Shares shall have been surrendered and such notice
shall have been received by the Corporation as aforesaid (and if
applicable, payment of an amount equal to the dividend payable on such
shares shall have been received by the Corporation as described above),
and the person or persons in whose name or names any certificate or
certificates for Common Shares shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such conversion
shall be at the Conversion Price in effect at such time on such date
unless the share transfer books of the Corporation shall be closed on that
date, in which event such person or persons shall be deemed to have become
such holder or holders of record at the close of business on the next
succeeding day on which such share transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date on which
such shares shall have been surrendered and such notice received by the
Corporation.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series G Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise
be deliverable upon the conversion of a Series G Preferred Share, the
Corporation shall pay to the holder of such share an amount in cash based
upon the Current Market Price of the Common Shares on the Trading Day
immediately preceding the date of conversion. If more than one share shall
be surrendered for conversion at one time by the same holder, the number
of full Common Shares issuable upon conversion thereof shall be computed
on the basis of the aggregate number of Series G Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after July 2, 1999 (A) pay a
dividend or make a distribution on its capital shares in Common
Shares, (B) subdivide its outstanding Common Shares into a greater
number of shares, (C) combine its outstanding Common Shares into a
smaller number of shares or (D) issue any shares of capital stock by
reclassification of its Common Shares, the Conversion Price in
effect at the opening of business on the day following the date
fixed for the determination of stockholders entitled to receive
such dividend or distribution or at the opening of business on the
Business Day next following the day on which such subdivision,
combination or reclassification becomes effective, as the case may
be, shall be adjusted so that the holder of any Series G Preferred
Share thereafter surrendered for conversion shall be entitled to
receive
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<PAGE>
the number of Common Shares that such holder would have owned or
have been entitled to receive after the happening of any of the
events described above as if such Series G Preferred Shares had been
converted immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case of a
subdivision, combination or reclassification. An adjustment made
pursuant to this subparagraph (i) shall become effective immediately
after the opening of business on the Business Day next following the
record date (except as provided in paragraph (h) below) in the case
of a dividend or distribution and shall become effective immediately
after the opening of business on the Business Day next following the
effective date in the case of a subdivision, combination or
reclassification.
(ii) If the Corporation shall issue after July 2, 1999 rights,
options or warrants to all holders of Common Shares entitling them
(for a period expiring within 45 days after the record date
mentioned below) to subscribe for or purchase Common Shares at a
price per share less than 94% (100% if a stand-by underwriter is
used and charges the Corporation a commission) of the Fair Market
Value per Common Share on the record date for the determination of
stockholders entitled to receive such rights, options or warrants,
then the Conversion Price in effect at the opening of business on
the Business Day next following such record date shall be adjusted
to equal the price determined by multiplying (A) the Conversion
Price in effect immediately prior to the opening of business on the
Business Day next following the date fixed for such determination by
(B) a fraction, the numerator of which shall be the sum of (x) the
number of Common Shares outstanding on the close of business on the
date fixed for such determination and (y) the number of shares that
the aggregate proceeds to the Corporation from the exercise of such
rights, options or warrants for Common Shares would purchase at 94%
of such Fair Market Value (or 100% in the case of a stand-by
underwriting), and the denominator of which shall be the sum of (x)
the number of Common Shares outstanding on the close of business on
the date fixed for such determination and (y) the number of
additional Common Shares offered for subscription or purchase
pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately after the opening of business on the
day next following such record date (except as provided in paragraph
(h) below). In determining whether any rights, options or warrants
entitle the holders of Common Shares to subscribe for or purchase
Common Shares at less than 94% of such Fair Market Value (or 100% in
the case of a stand-by underwriting), there shall be taken into
account any consideration received by the Corporation upon issuance
and upon exercise of such rights, options or warrants, the value of
such consideration, if other than cash, to be determined by the
Board of Directors.
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(iii) If the Corporation shall distribute to all holders of
its Common Shares any securities of the Corporation (other than
Common Shares) or evidence of its indebtedness or assets (excluding
cumulative cash dividends or distributions paid with respect to the
Common Shares after December 31, 1998 which are not in excess of the
following: the sum of (A) the Corporation's cumulative undistributed
Funds from Operations at December 31, 1998, plus (B) the cumulative
amount of Funds from Operations, as determined by the Board of
Directors, after December 31, 1998, minus (C) the cumulative amount
of dividends accrued or paid in respect of the Series G Preferred
Shares or any other class or series of preferred stock of the
Corporation after July 2, 1999) or rights, options or warrants to
subscribe for or purchase any of its securities (excluding those
rights, options and warrants issued to all holders of Common Shares
entitling them for a period expiring within 45 days after the record
date referred to in subparagraph (ii) above to subscribe for or
purchase Common Shares, which rights and warrants are referred to in
and treated under subparagraph (ii) above) (any of the foregoing
being hereinafter in this subparagraph (iii) collectively called the
"Securities" and individually a "Security"), then in each such case
the Conversion Price shall be adjusted so that it shall equal the
price determined by multiplying (x) the Conversion Price in effect
immediately prior to the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution
by (y) a fraction, the numerator of which shall be the Fair Market
Value per Common Share on the record date mentioned below less the
then fair market value (as determined by the Board of Directors,
whose determination shall be conclusive), of the portion of the
Securities or assets or evidences of indebtedness so distributed or
of such rights, options or warrants applicable to one Common Share,
and the denominator of which shall be the Fair Market Value per
Common Share on the record date mentioned below. Such adjustment
shall become effective immediately at the opening of business on the
Business Day next following (except as provided in paragraph (h)
below) the record date for the determination of stockholders
entitled to receive such distribution. For the purposes of this
subparagraph (iii), the distribution of a Security, which is
distributed not only to the holders of the Common Shares on the date
fixed for the determination of stockholders entitled to such
distribution of such Security, but also is distributed with each
Common Share delivered to a Person converting a Series G Preferred
Share after such determination date, shall not require an adjustment
of the Conversion Price pursuant to this subparagraph (iii);
provided that on the date, if any, on which a person converting a
Series G Preferred Share would no longer be entitled to receive such
Security with a Common Share (other than as a result of the
termination of all such Securities), a distribution of such
Securities shall be deemed to have occurred and the Conversion Price
shall be adjusted as provided in this subparagraph (iii) (and
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<PAGE>
such day shall be deemed to be "the date fixed for the determination
of the stockholders entitled to receive such distribution" and "the
record date" within the meaning of the two preceding sentences).
(iv) In case a tender or exchange offer (which term shall not
include open market repurchases by the Corporation) made by the
Corporation or any subsidiary of the Corporation for all or any
portion of the Common Shares shall expire and such tender or
exchange offer shall involve the payment by the Corporation or such
subsidiary of consideration per Common Share having a fair market
value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of
the Board of Directors), at the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or exchange
offer, that exceeds the Current Market Price per Common Share on the
Trading Day next succeeding the Expiration Time, the Conversion
Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior to the effectiveness of the Conversion Price reduction
contemplated by this subparagraph, by a fraction of which the
numerator shall be the number of Common Shares outstanding
(including any tendered or exchanged shares) at the Expiration Time,
multiplied by the Current Market Price per Common Share on the
Trading Day next succeeding the Expiration Time, and the denominator
shall be the sum of (A) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders
based upon the acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of all shares validly tendered or
exchanged and not withdrawn as of the Expiration Time (the shares
deemed so accepted, up to any maximum, being referred to as the
"Purchased Shares") and (B) the product of the number of Common
Shares outstanding (less any Purchased Shares) at the Expiration
Time and the Current Market Price per Common Share on the Trading
Day next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the day
following the Expiration Time.
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase or
decrease of at least 1% in such price; provided, however, that any
adjustments that by reason of this subparagraph (v) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment until made; and provided, further, that any
adjustment shall be required and made in accordance with the
provisions of this Section 6 (other than this subparagraph (v)) not
later than such time as may be required in order to preserve the
tax-free nature of a distribution to the holders of Common Shares.
Notwithstanding any other provisions of this
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Section 6, the Corporation shall not be required to make any
adjustment of the Conversion Price for the issuance of any Common
Shares pursuant to any plan providing for the reinvestment of
dividends or interest payable on securities of the Corporation and
the investment of additional optional amounts in Common Shares under
such plan. All calculations under this Section 6 shall be made to
the nearest cent (with $.005 being rounded upward) or to the nearest
one-tenth of a share (with .05 of a share being rounded upward), as
the case may be. Anything in this paragraph (d) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion Price,
in addition to those required by this paragraph (d), as it in its
discretion shall determine to be advisable in order that any share
dividends, subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase shares or
securities, or distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its stockholders
shall not be taxable.
(e) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share
exchange, self tender offer for all or substantially all of its Common
Shares, sale of all or substantially all of the Corporation's assets or
recapitalization of the Common Shares and excluding any transaction as to
which subparagraph (d)(i) of this Section 6 applies) (each of the
foregoing being referred to herein as a "Transaction"), in each case as a
result of which all or substantially all of the Corporation's Common
Shares are converted into the right to receive shares, securities or other
property (including cash or any combination thereof), each Series G
Preferred Share which is not redeemed or converted into the right to
receive shares, securities or other property prior to such Transaction
shall thereafter be convertible into the kind and amount of shares,
securities and other property (including cash or any combination thereof)
receivable upon the consummation of such Transaction by a holder of that
number of Common Shares into which one Series G Preferred Share was
convertible immediately prior to such Transaction, assuming such holder of
Common Shares (i) is not a Person with which the Corporation consolidated
or into which the Corporation merged or which merged into the Corporation
or to which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person and (ii)
failed to exercise his rights of election, if any, as to the kind or
amount of shares, securities and other property (including cash)
receivable upon such Transaction (provided that if the kind or amount of
shares, securities and other property (including cash) receivable upon
such Transaction is not the same for each Common Share held immediately
prior to such Transaction by other than a Constituent Person or an
affiliate thereof and in respect of which such rights of election shall
not have been exercised ("Non-Electing Share"), then for the purpose of
this paragraph (e) the kind and amount of shares, securities and other
property (including cash) receivable upon such Transaction by each
Non-Electing
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Share shall be deemed to be the kind and amount so receivable per share by
a plurality of the Non-Electing Shares). The Corporation shall not be a
party to any Transaction unless the terms of such Transaction are
consistent with the provisions of this paragraph (e), and it shall not
consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or purchasing
entity, as the case may be, for the benefit of the holders of the Series G
Preferred Shares that will contain provisions enabling the holders of the
Series G Preferred Shares that remain outstanding after such Transaction
to convert into the consideration received by holders of Common Shares at
the Conversion Price in effect immediately prior to such Transaction. The
provisions of this paragraph (e) shall similarly apply to successive
Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Shares (other than cash dividends or
distributions paid with respect to the Common Shares after December
31, 1998 not in excess of the sum of the Corporation's cumulative
undistributed Funds from Operations at December 31, 1998, plus the
cumulative amount of Funds from Operations, as determined by the
Board of Directors, after December 31, 1998, minus the cumulative
amount of dividends accrued or paid in respect of the Series G
Preferred Shares or any other class or series of preferred shares of
capital stock of the Corporation after July 2, 1999); or
(ii) the Corporation shall authorize the granting to all
holders of Common Shares of rights, options or warrants to subscribe
for or purchase any shares of any class or any other rights, options
or warrants; or
(iii) there shall be any reclassification of the Common Shares
(other than an event to which subparagraph (d)(i) of this Section 6
applies) or any consolidation or merger to which the Corporation is
a party and for which approval of any stockholders of the
Corporation is required, or a statutory share exchange, or a self
tender offer by the Corporation for all or substantially all of its
outstanding Common Shares or the sale or transfer of all or
substantially all of the assets of the Corporation as an entirety;
or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent and
shall cause to be mailed to the holders of Series G Preferred Shares at
their addresses as shown on the records of the Corporation, as promptly as
possible, but at least 10 days prior to the
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<PAGE>
applicable date hereinafter specified, a notice stating (A) the date on
which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, options or warrants, or, if a record
is not to be taken, the date as of which the holders of Common Shares of
record to be entitled to such dividend, distribution or rights, options or
warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, statutory share exchange, sale,
transfer, liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Shares of record shall be entitled to exchange their Common Shares for
securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, statutory share exchange, sale,
transfer, liquidation, dissolution or winding up. Failure to give or
receive such notice or any defect therein shall not affect the legality or
validity of the proceedings described in this Section 6.
(g) Whenever the Conversion Price is adjusted as herein provided,
the Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment
which certificate shall be conclusive evidence of the correctness of such
adjustment absent manifest error. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment of
the Conversion Price setting forth the adjusted Conversion Price and the
effective date of such adjustment and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Series G
Preferred Share at such holder's last address as shown on the records of
the Corporation.
(h) In any case in which paragraph (d) of this Section 6 provides
that an adjustment shall become effective on the day next following the
record date for an event, the Corporation may defer until the occurrence
of such event (A) issuing to the holder of any Series G Preferred Share
converted after such record date and before the occurrence of such event
the additional Common Shares issuable upon such conversion by reason of
the adjustment required by such event over and above the Common Shares
issuable upon such conversion before giving effect to such adjustment and
(B) paying to such holder any amount of cash in lieu of any fraction
pursuant to paragraph (c) of this Section 6.
(i) There shall be no adjustment of the Conversion Price in case of
the issuance of any shares of capital stock of the Corporation in a
reorganization, acquisition or other similar transaction except as
specifically set forth in this Section 6. If any action or transaction
would require adjustment of the Conversion Price pursuant to more than one
paragraph of this Section 6, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest absolute
value.
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<PAGE>
(j) If the Corporation shall take any action affecting the Common
Shares, other than action described in this Section 6, that in the opinion
of the Board of Directors would materially and adversely affect the
conversion rights of the holders of the Series G Preferred Shares, the
Conversion Price for the Series G Preferred Shares may be adjusted, to the
extent permitted by law, in such manner, if any, and at such time, as the
Board of Directors, in its sole discretion, may determine to be equitable
in the circumstances.
(k) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Shares, for the purpose of effecting
conversion of the Series G Preferred Shares, the full number of Common
Shares deliverable upon the conversion of all outstanding Series G
Preferred Shares not theretofore converted. For purposes of this paragraph
(k), the number of Common Shares that shall be deliverable upon the
conversion of all outstanding Series G Preferred Shares shall be computed
as if at the time of computation all such outstanding shares were held by
a single holder.
The Corporation covenants that any Common Shares issued upon
conversion of the Series G Preferred Shares shall be validly issued, fully
paid and non-assessable. Before taking any action that would cause an
adjustment reducing the Conversion Price below the then-par value of the
Common Shares deliverable upon conversion of the Series G Preferred
Shares, the Corporation will take any action that, in the opinion of its
counsel, may be necessary in order that the Corporation may validly and
legally issue fully paid and (subject to any customary qualification based
upon the nature of a real estate investment trust) non-assessable Common
Shares at such adjusted Conversion Price.
The Corporation shall endeavor to list the Common Shares required to
be delivered upon conversion of the Series G Preferred Shares, prior to
such delivery, upon each national securities exchange, if any, upon which
the outstanding Common Shares are listed at the time of such delivery.
The Corporation shall endeavor to comply with all federal and state
securities laws and regulations thereunder in connection with the issuance
of any securities that the Corporation shall be obligated to deliver upon
conversion of the Series G Preferred Shares. In addition to any legend
required by Article VIII of the Articles of Incorporation, the
certificates evidencing such securities shall bear such legends
restricting transfer thereof in the absence of registration under
applicable securities laws or an exemption therefrom as the Corporation
may in good faith deem appropriate.
(l) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of Common Shares or other
20
<PAGE>
securities or property on conversion of the Series G Preferred Shares
pursuant hereto; provided, however, that the Corporation shall not be
required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of Common Shares or other securities or
property in a name other than that of the holder of the Series G Preferred
Shares to be converted, and no such issue or delivery shall be made unless
and until the person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or established, to the reasonable
satisfaction of the Corporation, that such tax has been paid.
Section 7. Shares To Be Retired. All Series G Preferred Shares which shall
have been issued and reacquired in any manner by the Corporation shall be
restored to the status of authorized but unissued shares of capital stock of the
Corporation, without designation as to class or series.
Section 8. Ranking. Any class or series of shares of capital stock of the
Corporation shall be deemed to rank:
(a) prior to the Series G Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution
or winding up, if the holders of such class or series shall be entitled to
the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority
to the holders of Series G Preferred Shares;
(b) on a parity with the Series G Preferred Shares, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof shall
be different from those of the Series G Preferred Shares, if the holders
of such class or series and the Series G Preferred Shares shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective
amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other ("Parity
Shares");
(c) junior to the Series G Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Junior Shares;
and
(d) junior to the Series G Preferred Shares, as to the payment of
dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully Junior
Shares.
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<PAGE>
Section 9. Voting. If and whenever four quarterly dividends (whether or
not consecutive) payable on the Series G Preferred Shares or any series or class
of Parity Shares shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, the number of directors then constituting the
Board of Directors shall be increased by two and the holders of Series G
Preferred Shares, together with the holders of shares of every other series of
Parity Shares (any such other series, the "Voting Preferred Shares"), voting as
a single class regardless of series, shall be entitled to elect the two
additional directors to serve on the Board of Directors at any annual meeting of
stockholders or special meeting held in place thereof, or at a special meeting
of the holders of the Series G Preferred Shares and the Voting Preferred Shares
called as hereinafter provided. Whenever all arrears in dividends on the Series
G Preferred Shares and the Voting Preferred Shares then outstanding shall have
been paid and dividends thereon for the current quarterly dividend period shall
have been paid or declared and set apart for payment, then the right of the
holders of the Series G Preferred Shares and the Voting Preferred Shares to
elect such additional two directors shall cease (but subject always to the same
provision for the vesting of such voting rights in the case of any similar
future arrearage in quarterly dividends), and the terms of office of all persons
elected as directors by the holders of the Series G Preferred Shares and the
Voting Preferred Shares shall forthwith terminate and the number of the Board of
Directors shall be reduced accordingly. At any time after such voting power
shall have been so vested in the holders of Series G Preferred Shares and the
Voting Preferred Shares, the Secretary of the Corporation may, and upon the
written request of any holder of Series G Preferred Shares (addressed to the
Secretary at the principal office of the Corporation) shall, call a special
meeting of the holders of the Series G Preferred Shares and of the Voting
Preferred Shares for the election of the directors to be elected by them as
herein provided, such call to be made by notice similar to that provided in the
Bylaws of the Corporation for a special meeting of the stockholders or as
required by law. If any such special meeting required to be called as above
provided shall not be called by the Secretary within 20 days after receipt of
any such request, then any holder of Series G Preferred Shares may call such
meeting, upon the notice above provided, and for that purpose shall have access
to the records of the Corporation. The directors elected at any such special
meeting shall hold office until the next annual meeting of the stockholders or
special meeting held in lieu thereof if such office shall not have previously
terminated as above provided. If any vacancy shall occur among the directors
elected by the holders of the Series G Preferred Shares and the Voting Preferred
Shares, a successor shall be elected by the Board of Directors, upon the
nomination of the then-remaining director elected by the holders of the Series G
Preferred Shares and the Voting Preferred Shares or the successor of such
remaining director, to serve until the next annual meeting of the stockholders
or special meeting held in place thereof if such office shall not have
previously terminated as provided above.
So long as any Series G Preferred Shares are outstanding, in addition to
any other vote or consent of stockholders required by law or by the
Corporation's Articles of Incorporation, the affirmative vote of at least 66K%
of the votes entitled to be cast by the holders of the Series
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<PAGE>
G Preferred Shares given in person or by proxy, either in writing without a
meeting or by vote at any meeting called for the purpose, shall be necessary for
effecting or validating:
(a) Any amendment, alteration or repeal of any of the provisions of
the Corporation's Articles of Incorporation, the Corporation's By-Laws or
these Articles Supplementary that materially and adversely affects the
voting powers, rights or preferences of the holders of the Series G
Preferred Shares; provided, however, that the amendment of the provisions
of the Corporation's Articles of Incorporation so as to authorize or
create or to increase the authorized amount of, any Fully Junior Shares,
Junior Shares that are not senior in any respect to the Series G Preferred
Shares or any Parity Shares shall not be deemed to materially adversely
affect the voting powers, rights or preferences of the holders of Series G
Preferred Shares; or
(b) A share exchange that affects the Series G Preferred Shares, a
consolidation with or merger of the Corporation into another entity, or a
consolidation with or merger of another entity into the Corporation,
unless in each such case each Series G Preferred Share (i) shall remain
outstanding without a material and adverse change to its terms and rights
or (ii) shall be converted into or exchanged for convertible preferred
shares of the surviving entity having preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption thereof identical to
that of a Series G Preferred Share (except for changes that do not
materially and adversely affect the holders of the Series G Preferred
Shares); or
(c) The authorization, reclassification or creation of, or the
increase in the authorized amount of, any shares of any class or any
security convertible into shares of any class ranking prior to the Series
G Preferred Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation or in the payment of
dividends;
provided, however, that no such vote of the holders of Series G Preferred Shares
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series G Preferred Shares at the time outstanding to the
extent such redemption is authorized by Section 5 of these Articles
Supplementary.
For purposes of the foregoing provisions of this Section 9, each Series G
Preferred Share shall have one (1) vote per share, except that when any other
series of Preferred Shares shall have the right to vote with the Series G
Preferred Shares as a single class on any matter, then the Series G Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $27.08 of stated liquidation preference. Except as otherwise required
by
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<PAGE>
applicable law or as set forth herein, the Series G Preferred Shares shall not
have any relative, participating, optional or other special voting rights and
powers other than as set forth herein, and the consent of the holders thereof
shall not be required for the taking of any Corporation action.
Section 10. Record Holders. The Corporation and the Transfer Agent may
deem and treat the record holder of any Series G Preferred Shares as the true
and lawful owner thereof for all purposes, and neither the Corporation nor the
Transfer Agent shall be affected by any notice to the contrary.
24
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be signed its name and on its behalf by its authorized officers
who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
this document are true in all material respects and this statement is made under
penalties of perjury.
July 9, 1999
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By: /s/ W.D. Minami
-------------------------------------
Its: Senior Vice President
Attest:
/s/ Robert D. Zimet
- ----------------------------
Secretary
<PAGE>
EXHIBIT 99.4
TWENTY-THIRD AMENDMENT TO
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CHARLES E. SMITH RESIDENTIAL REALTY L.P.
THIS TWENTY-THIRD AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF CHARLES E. SMITH RESIDENTIAL REALTY L.P. (this
"Twenty-Third Amendment"), dated as of July 13, 1999, is entered into by Charles
E. Smith Residential Realty, Inc., a Maryland corporation, as general partner
(the "General Partner") of Charles E. Smith Residential Realty L.P. (the
"Partnership"), for itself and on behalf of the limited partners of the
Partnership.
WHEREAS, Section 4.2.B of the First Amended and Restated Agreement
of Limited Partnership of the Partnership (as heretofore amended, the
"Partnership Agreement") provides that the General Partner shall not issue
additional convertible securities containing the right to subscribe for or
purchase shares of Common Stock of the General Partner ("REIT Shares" and
collectively, the "New Securities"), other than to all holders of REIT Shares,
unless the General Partner causes the Partnership to issue to the General
Partner Partnership Interests having designations, preferences and other rights,
all such that the economic interests are substantially the same as those of the
New Securities;
WHEREAS, the General Partner has entered into a Preferred Share
Purchase Agreement dated as of July 2, 1999, pursuant to which the General
Partner has agreed to issue, among other things, shares of a newly created
series of capital stock, designated Series E Cumulative Convertible Redeemable
Preferred Stock (the "Series E Preferred Stock"); and
WHEREAS, pursuant to the authority granted to the General Partner
pursuant to Section 4.2 of the Partnership Agreement, the General Partner
desires to amend the Partnership Agreement (i) to establish a new class of
Units, to be entitled Series E Cumulative Convertible Redeemable Preferred Units
(the "Series E Preferred Units"), and to set forth the designations, rights,
powers, preferences and duties of such Series E Preferred Units, which are
substantially the same as those of the Series E Preferred Stock, and (ii) to
make certain other changes to the Partnership Agreement;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement, as
follows:
1. Section 4.2 of the Partnership Agreement is hereby amended by
adding after Section 4.2.G the following section:
H. Series E Preferred Units. Under the authority granted to it
by Section 4.2.A. hereof, the General Partner hereby establishes an
additional class of Partnership Units entitled "Series E Cumulative
Convertible Redeemable Preferred Units" (the "Series E Preferred
Units").
<PAGE>
Series E Preferred Units shall have the designations, preferences,
rights, powers and duties as set forth in Exhibit J hereto.
2. Exhibits to Partnership Agreement.
A. The General Partner shall maintain the information set forth in
Exhibit A to the Partnership Agreement, as such information shall change from
time to time, in such form as the General Partner deems appropriate for the
conduct of the Partnership's affairs, and Exhibit A shall be deemed amended from
time to time to reflect the information so maintained by the General Partner,
whether or not a formal amendment to the Partnership Agreement has been executed
amending such Exhibit A. In addition to the designation of Series E Preferred
Units pursuant to this Twenty-Third Amendment, such information shall reflect
(and Exhibit A shall be deemed amended from time to time to reflect) the
issuance of any additional Partnership Units to the General Partner or any other
Person, the transfer of Partnership Units and the redemption of any Partnership
Units, all as contemplated herein.
B. The Partnership Agreement is hereby amended by attaching thereto
as Exhibit J the Exhibit J attached hereto.
3. Certain Capitalized Terms. All capitalized terms used in this
Twenty-Third Amendment and not otherwise defined shall have the meanings
assigned in the Partnership Agreement. Except as modified herein, all terms and
conditions of the Partnership Agreement shall remain in full force and effect,
which terms and conditions the General Partner hereby ratifies and affirms.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Twenty-Third
Amendment as of the date first set forth above.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.,
as General Partner of
Charles E. Smith Residential Realty L.P.
and on behalf of existing Limited Partners
By: /s/ Ernest A Gerardi, Jr.
Name: Ernest A. Gerardi, Jr.
Title: President
3
<PAGE>
EXHIBIT J
DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS AND LIMITATIONS AS TO
SERIES E PREFERRED UNITS
The Series E Preferred Units shall have the following designations,
preferences, rights, powers and duties:
(1) Certain Defined Terms. The following capitalized terms used in
this Exhibit J shall have the respective meanings set forth below:
"Distribution Date" means (i) for any Distribution Period with
respect to which the Partnership pays a distribution on the Class A Units,
the date on which such distribution is paid, or (ii) for any Distribution
Period with respect to which the Partnership does not pay a distribution
on the Class A Units, the date set by the General Partner for payment of
dividends on the Series E Preferred Stock, which date shall not be later
than the forty-fifth calendar day after the end of the applicable
Distribution Period.
"Distribution Period" means quarterly periods commencing on January
1, April 1, July 1 and October 1 of each year and ending on and including
the day preceding the first day of the next succeeding Distribution Period
(other than the initial Distribution Period, which shall commence on the
Issue Date and end on and include the last calendar day of the calendar
quarter containing the Issue Date, and other than the Distribution Period
during which any Series E Preferred Units shall be redeemed pursuant to
Section 4, which shall end on and include the date of such redemption.
"Fully Junior Units" shall mean the Common Units and any other class
or series of Partnership Units now or hereafter issued and outstanding
over which the Series E Preferred Units have preference or priority in
both (i) the payment of dividends and (ii) the distribution of assets on
any liquidation, dissolution or winding up of the Partnership.
"Issue Date" shall mean the date on which the first Series E
Preferred Units are issued.
"Junior Units" shall mean the Common Units and any other class or
series of Partnership Units now or hereafter issued and outstanding over
which the Series E Preferred Units have preference or priority in the
payment of dividends or in the distribution of assets on any liquidation,
dissolution or winding up of the Partnership.
"Parity Units" has the meaning ascribed thereto in Section 6(B).
(2) Distributions.
J-1
<PAGE>
(A) The General Partner, in its capacity as the holder of the
then outstanding Series E Preferred Units, shall be entitled to receive
out of funds legally available therefor, when, as and if declared by the
General Partner, distributions payable in cash at the rate per Series E
Preferred Unit equal to the greater of (a)(i) $2.82875 per annum from the
Issue Date up to and including the first anniversary of the Issue Date,
(ii) $3.01125 per annum from the day after the period described in (i) up
to and including the second anniversary of the Issue Date and (iii)
$3.1025 per annum thereafter, or (b) the ordinary cash distributions
(determined on each Distribution Date) paid on the number of Class A
Units, or portion thereof, into which a Series E Preferred Unit is
convertible. The distributions referred to in clause (b) of the preceding
sentence shall equal the number of Class A Units, or portion thereof, into
which a Series E Preferred Unit is convertible, multiplied by the most
recent quarterly distribution on a Class A Unit on or before the
applicable Distribution Date. If the Partnership pays an ordinary cash
distribution on the Class A Units with respect to a Distribution Period
after the date on which the Distribution Date is declared pursuant to
clause (ii) of the definition of Distribution Date and the distribution
calculated with respect to clause (b) of the first sentence of this
Section 2(A) is greater than the distribution previously declared on the
Series E Preferred Units with respect to such Distribution Period, the
Partnership shall pay an additional distribution in respect of the Series
E Preferred Units on the date on which the distribution on the Class A
Units is paid, in an amount equal to the difference between (y) the
distribution calculated pursuant to clause (b) of the first sentence of
this Section 2(A) and (z) the amount of distributions previously declared
on the Series E Preferred Units with respect to such Distribution Period.
Distributions shall begin to accrue and shall be fully cumulative from the
first day of the applicable Distribution Period, whether or not in any
Distribution Period or Periods there shall be funds of the Partnership
legally available for the payment of such distributions, and shall be
payable quarterly, when, as and if declared by the General Partner, in
arrears on Distribution Dates. Accrued and unpaid distributions for any
past Distribution Periods may be declared and paid at any time and for
such interim periods, without reference to any regular Distribution Date,
to the General Partner on such date as may be fixed by the General Partner
for payment of the corresponding dividend on the Series E Preferred Stock.
Any distribution made on the Series E Preferred Units shall first be
credited against the earliest accrued but unpaid distribution due with
respect to Series E Preferred Units which remains payable.
(B) The amount of distributions referred to in clause (a) of
the first sentence of Section 2(A) shall be equal to the annual
distribution rate payable for each full Distribution Period for the Series
E Preferred Units shall be computed by dividing by four. The distribution
for the initial Distribution Period will include a partial distribution
for the period from the Issue Date until the last calendar day of the
calendar quarter containing the Issue Date. The amount of distributions
payable for such initial Distribution Period, or any other period shorter
than a full Distribution Period, on the Series E Preferred Units shall be
computed on the basis of a 360-day year of twelve 30-day months.
J-2
<PAGE>
No interest, or sum of money in lieu of interest, shall be payable in
respect of any distribution payment or payments on the Series E Preferred
Units that may be in arrears.
(C) So long as any Series E Preferred Units are outstanding,
no distributions, except as described in the immediately following
sentence, shall be declared or paid or set apart for payment on any class
or series of Parity Units for any period unless full cumulative
distributions have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for such
payment on the Series E Preferred Units for all Distribution Periods
terminating on or prior to the distribution payment date for such class or
series of Parity Units. When distributions are not paid in full or a sum
sufficient for such payment is not set apart, as aforesaid, all
distributions declared upon Series E Preferred Units and all distributions
declared upon any other class or series of Parity Units shall be declared
ratably in proportion to the respective amounts of distributions
accumulated and unpaid on the Series E Preferred Units and accumulated and
unpaid on such Parity Units.
(D) So long as any Series E Preferred Units are outstanding,
no distributions (other than distributions paid solely in Fully Junior
Units or options, warrants or rights to subscribe for or purchase Fully
Junior Units) shall be declared or paid or set apart for payment or other
distribution shall be declared or made or set apart for payment upon
Junior Units, nor shall any Junior Units be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition
of Class A Units made for purposes of an employee incentive or benefit
plan of the General Partner or any subsidiary) for any consideration (or
any moneys be paid to or made available for a sinking fund for the
redemption of any such Junior Units) by the Partnership, directly or
indirectly (except by conversion into or exchange for Fully Junior Units),
unless in each case (i) the full cumulative distributions on all
outstanding Series E Preferred Units and any other Parity Units of the
Partnership shall have been paid or declared and set apart for payment for
all past Distribution Periods with respect to the Series E Preferred Units
and all past distribution periods with respect to such Parity Units and
(ii) sufficient funds shall have been paid or set apart for the payment of
the distribution for the current Distribution Period with respect to the
Series E Preferred Units and the current distribution period with respect
to such Parity Units.
(E) No distributions on the Series E Preferred Units shall be
declared by the General Partner or paid or set apart for payment by the
Partnership at such time as the terms and provisions of any agreement of
the General Partner or the Partnership, including any agreement relating
to indebtedness of either of them, prohibits such declaration, payment, or
setting apart for payment or provides that such declaration, payment or
setting apart for payment would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or
prohibited by law.
J-3
<PAGE>
(3) Liquidation Preference.
(A) In the event of any liquidation, dissolution or winding up
of the Partnership, whether voluntary or involuntary, before any payment
or distribution of the assets of the Partnership shall be made to or set
apart for the holders of Junior Units, the General Partner, in its
capacity as holder of the Series E Preferred Units, shall be entitled to
receive Thirty-Six Dollars and Fifty Cents ($36.50) (the "Series E
Liquidation Preference") per Series E Preferred Unit plus an amount equal
to all distributions (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution to the General Partner,
in its capacity as such holder; but the General Partner, in its capacity
as the holder of Series E Preferred Units, shall not be entitled to any
further payment; provided that the distribution payable with respect to
the Distribution Period containing the date of final distribution shall be
equal to the greater of (i) the distribution provided in clause (a) of the
first sentence of Section 2(A) or (ii) the distribution determined
pursuant to clause (b) of the first sentence of Section 2(A) for the
preceding Distribution Period. If, upon any liquidation, dissolution or
winding up of the Partnership, the assets of the Partnership, or proceeds
thereof, distributable to the General Partner, in its capacity as the
holder of Series E Preferred Units, shall be insufficient to pay in full
the preferential amount aforesaid and liquidating payments on any other
class or series of Parity Units, then such assets, or the proceeds
thereof, shall be distributed among the General Partner, in its capacity
as the holder of such Series E Preferred Units, and the holders of such
other Parity Units ratably in accordance with the respective amounts that
would be payable on such Series E Preferred Units and such other Parity
Units if all amounts payable thereon were paid in full. For the purposes
of this Section 3, (x) a consolidation or merger of the Partnership with
one or more partnerships, limited liability companies, corporations, real
estate investment trusts or other entities and (y) a sale, lease or
conveyance of all or substantially all of the Partnership's property or
business shall not be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary, of the Partnership.
(B) Subject to the rights of the holders of Partnership Units
of any series or class ranking on a parity with or prior to the Series E
Preferred Units upon any liquidation, dissolution or winding up of the
Partnership, after payment shall have been made in full to the General
Partner, in its capacity as the holder of the Series E Preferred Units, as
provided in this Section 3, any other series or class or classes of Junior
Units shall, subject to any respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets remaining to
be paid or distributed, and the General Partner, in its capacity as the
holder of the Series E Preferred Units, shall not be entitled to share
therein.
4. Redemption Right.
(A) Except as provided in Section 4(B), the Series E Preferred
Units shall not be redeemable prior to the third anniversary of the Issue
Date.
J-4
<PAGE>
On and after the third anniversary of the Issue Date, the General Partner
may cause the Partnership to redeem the Series E Preferred Units, in whole
or in part, (x) for Class A Units, subject to the conditions set forth in
paragraph (i) below, or (y) for cash in an amount per Series E Preferred
Unit equal to the Series E Liquidation Preference plus accrued and unpaid
distributions (the "Redemption Price"), in each case subject to the
conditions set forth below.
(i) The Series E Preferred Units shall be redeemed only if the
General Partner shall concurrently therewith redeem an
equivalent number of shares of Series E Preferred Stock for
REIT Shares or cash, as the case may be. Such redemption of
Series E Preferred Units shall occur substantially
concurrently with the redemption by the General Partner of
such Series E Preferred Shares (such date of redemption the
"Redemption Date").
(ii) In the event that the General Partner redeems shares of Series
E Preferred Stock in exchange for REIT Shares, an equivalent
number of Series E Preferred Units shall be converted into a
number of Class A Units equal to (x) the number of REIT Shares
issued by the General Partner in redemption of such shares of
Series E Preferred Stock divided by (y) the Conversion Factor.
(iii) In the event that the General Partner redeems shares of Series
E Preferred Stock for cash (including payments of cash in lieu
of fractional REIT Shares), the Partnership shall redeem a
like number of Series E Preferred Units in exchange for the
amount of cash that the General Partner is required to pay
pursuant to the terms of the Series E Preferred Stock in
connection with such redemption.
(iv) Upon any redemption of Series E Preferred Units, the
Partnership shall pay any accrued and unpaid distributions
with respect to the Series E Preferred Units being redeemed
for any Distribution Period ending on or prior to the
Redemption Date. If the Redemption Date falls after a
Partnership Record Date and prior to the corresponding
Distribution Date, then the General Partner, in its capacity
as the holder of the Series E Preferred Units being redeemed,
shall be entitled to distributions payable on the
corresponding Distribution Date notwithstanding the redemption
of such Series E Preferred Units before such Distribution
Date. Except as provided above, the Partnership shall make no
payment or allowance for unpaid distributions, whether or not
in arrears, on Series E Preferred Units called for redemption.
(v) Any Class A Unit issued upon redemption of the Series E
Preferred Units shall be validly issued, fully paid and
non-assessable.
J-5
<PAGE>
(B) In the event that the General Partner is required to
redeem any shares of Series E Preferred Stock pursuant to the terms
thereof, the Partnership shall redeem an equivalent number of Series E
Preferred Units for consideration equal to the consideration payable by
the General Partner upon redemption of such shares of Series E Preferred
Stock.
5. Conversion to Class A Units.
(A) In the event that a holder of Series E Preferred Stock
exercises its right to convert such Series E Preferred Stock into REIT
Shares, then, concurrently therewith, an equivalent number of Series E
Preferred Units shall be automatically converted into a number of Class A
Units equal to (x) the number of REIT Shares issued upon conversion of
such Series E Preferred Shares divided by (y) the Conversion Factor. Any
such conversion will be effective at the same time as the conversion of
Series E Preferred Stock into REIT Shares is effective.
(B) The General Partner, in its capacity as the holder of
Series E Preferred Units that are converted pursuant to this Section 5
effective during the period after a Partnership Record Date and prior to
the opening of business on the corresponding Distribution Date, shall not
be entitled to receive the distribution payable on such Series E Preferred
Units on such Distribution Date notwithstanding such conversion thereof
following the corresponding Partnership Record Date and prior to such
Distribution Date.
6. Ranking. Any class or series of Partnership Units shall be deemed
to rank:
(A) prior to the Series E Preferred Units, as to the payment
of distributions and as to distribution of assets upon liquidation,
dissolution or winding up of the Partnership, if the holders of such class
or series of Partnership Units shall be entitled to the receipt of
distributions or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders
of Series E Preferred Units;
(B) on a parity with the Series E Preferred Units as to the
payment of distributions and as to the distribution of assets upon
liquidation, dissolution or winding up of the Partnership, whether or not
the distribution rates, distribution payment dates or redemption or
liquidation prices per Partnership Unit be different from those of the
Series E Preferred Units, if the holders of such class or series of
Partnership Units and the Series E Preferred Units shall be entitled to
the receipt of distributions and of amounts distributable upon
liquidation, dissolution or winding up in proportion to their respective
amounts of accrued and unpaid distributions per Partnership Unit or
liquidation preferences, without preference or priority one over the other
("Parity Units");
J-6
<PAGE>
(C) junior to the Series E Preferred Units, as to the payment
of distributions or as to the distribution of assets upon liquidation,
dissolution or winding up of the Partnership, if such class or series of
Partnership Units shall be Junior Units; and
(D) junior to the Series E Preferred Units, as to the payment
of distributions and as to the distribution of assets upon liquidation,
dissolution or winding up of the Partnership, if such class or series of
Partnership Units shall be Fully Junior Units;
7. Voting. Except as required by law, the General Partner, in its
capacity as the holder of the Series E Preferred Units, shall not be
entitled to vote at any meeting of the Partners or for any other purpose
or otherwise to participate in any action taken by the Partnership or the
Partners, or to receive notice of any meeting of the Partners.
8. Restriction on Ownership. The Series E Preferred Units shall be
owned and held solely by the General Partner.
9. General. The rights of the General Partner, in its capacity as
the holder of the Series E Preferred Units, are in addition to and not in
limitation on any other rights or authority of the General partner, in any
other capacity, under the Agreement. In addition, nothing contained in
this Exhibit J shall be deemed to limit or otherwise restrict any rights
or authority of the General Partner under the Agreement, other than in its
capacity as the holder of the Series E Preferred Units.
* * * *
J-7
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,005
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,146
<PP&E> 1,426,467
<DEPRECIATION> (241,556)
<TOTAL-ASSETS> 1,284,914
<CURRENT-LIABILITIES> 33,050
<BONDS> 863,506
0
121,500
<COMMON> 195
<OTHER-SE> 156,307
<TOTAL-LIABILITY-AND-EQUITY> 1,284,914
<SALES> 0
<TOTAL-REVENUES> 139,555
<CGS> 0
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<OTHER-EXPENSES> 4,629
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<INTEREST-EXPENSE> 26,343
<INCOME-PRETAX> 41,614
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<EXTRAORDINARY> 359
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