-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GalujYijUV8TnUOMoUaB/v48bKQg4RvD57C+8AugaIP9ffDS4y3lDG28CcTWeN3R 9gkeX0zmXJkn/jzU4FBvWg== 0000908737-98-000537.txt : 19980529 0000908737-98-000537.hdr.sgml : 19980529 ACCESSION NUMBER: 0000908737-98-000537 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980527 ITEM INFORMATION: FILED AS OF DATE: 19980528 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH & RETIREMENT PROPERTIES TRUST CENTRAL INDEX KEY: 0000803649 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 046558834 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-09317 FILM NUMBER: 98633241 BUSINESS ADDRESS: STREET 1: 400 CENTRE ST CITY: NEWTON STATE: MA ZIP: 02158 BUSINESS PHONE: 6173323990 MAIL ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02158 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & REHABILITATION PROPERTIES TRUST DATE OF NAME CHANGE: 19920703 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): May 27, 1998 HEALTH AND RETIREMENT PROPERTIES TRUST (Exact name of registrant as specified in charter) Maryland 1-9317 04-6558834 (State or other (Commission file (IRS employer jurisdiction of number) identification no.) incorporation) 400 Centre Street, Newton, Massachusetts 02158 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 617-332-3990 THIS CURRENT REPORT CONTAINS FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTITIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR PROJECTED. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE REGISTRANT UNDERTAKES NO OBLIGATION TO PUBLISH REVISED FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (b) Unaudited Pro Forma Consolidated Financial Statements (set forth beginning on page F-1). (c) Exhibits. 1.1 Purchase Agreement dated as of May 27, 1998 by and among Health and Retirement Properties Trust ("HRP") and the several Underwriters named therein. 3.1 Third Amendment and Restatement of Declaration of Trust of HRP dated July 1, 1994, as amended to date. 3.2 By-laws of HRP, as amended to date. 3.3 Articles Supplementary dated November 4, 1994 to Third Amendment and Restatement of Declaration of Trust dated July 1, 1994 creating the Junior Participating Preferred Shares. 3.4 Articles Supplementary dated May 13, 1997 to Third Amendment and Restatement of Declaration of Trust dated July 1, 1994 increasing the Junior Participating Preferred Shares. 3.5 Articles Supplementary dated May 22, 1998 to Third Amendment and Restatement of Declaration of Trust dated July 1, 1994 increasing the Junior Participating Preferred Shares. 8.1 Opinion of Sullivan & Worcester LLP re: tax matters. 23.1 Consent of Sullivan & Worcester LLP (contained in Exhibit 8.1). HEALTH AND RETIREMENT PROPERTIES TRUST Unaudited Pro Forma Consolidated Financial Statements The following unaudited pro forma consolidated balance sheet at March 31, 1998 is intended to present the consolidated financial position of the Company as if the transactions described in the notes hereto were consummated at March 31, 1998. The following unaudited pro forma consolidated statements of income are intended to present the consolidated results of operations of the Company as if the transactions were consummated as of the beginning of the periods presented. These unaudited pro forma consolidated financial statements should be read in conjunction with, and are qualified in their entirety by reference to, the separate consolidated financial statements of the Company for the year ended December 31, 1997, incorporated herein by reference to the Company's Current Report on Form 8-K dated February 27, 1998 and the Company's unaudited consolidated financial statements for the quarter ended March 31, 1998, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. These unaudited pro forma consolidated financial statements are not necessarily indicative of the expected consolidated financial position or results of operations of the Company for any future period. Differences would result from, among other considerations, future changes in the Company's portfolio of investments, changes in interest rates, changes in the capital structure of the Company, delays in the acquisition of certain properties and changes in property level operating expenses. F-1
HEALTH AND RETIREMENT PROPERTIES TRUST Pro Forma Consolidated Balance Sheet March 31, 1998 (dollars in thousands, except per share amounts) (unaudited) Recent 1735 Market Historical Acquisitions (A) Street (B) Offering (C) Pro Forma ----------- ---------------- ------------ ------------ ------------- ASSETS Real estate properties, at cost: Land $ 288,933 $ 5,185 $ 22,600 $ -- $ 316,718 Buildings and improvements 1,958,782 46,665 203,400 -- 2,208,847 ----------- ----------- ----------- ----------- ----------- 2,247,715 51,850 226,000 -- 2,525,565 Less accumulated depreciation (123,652) -- -- -- (123,652) ----------- ----------- ----------- ----------- ----------- 2,124,063 51,850 226,000 -- 2,401,913 Real estate mortgages and notes, net 84,195 -- -- -- 84,195 Investment in Hospitality Properties Trust 111,433 -- -- -- 111,433 Cash and cash equivalents 21,678 (11,850) (6,000) 25,922 29,750 Interest and rents receivable 20,419 -- -- -- 20,419 Deferred interest and finance costs, net, and other assets 27,463 -- -- -- 27,463 ----------- ----------- ----------- ----------- ----------- $ 2,389,251 $ 40,000 $ 220,000 $ 25,922 $ 2,675,173 =========== =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Bank notes payable $ 160,000 $ 40,000 $ 220,000 $ (420,000) $ -- Senior notes payable, net 499,851 -- -- -- 499,851 Mortgage notes payable 26,157 -- -- -- 26,157 Convertible subordinated debentures 209,818 -- -- -- 209,818 Accounts payable and accrued expenses 32,371 -- -- -- 32,371 Deferred rents 33,448 -- -- -- 33,448 Security deposits 17,818 -- -- -- 17,818 Due to affiliates 7,141 -- -- -- 7,141 Dividend payable 40,377 -- -- -- 40,377 Shareholders' equity: Preferred shares of beneficial interest, $.01 par value; 50,000,000 authorized; none issued -- -- -- -- -- Common shares of beneficial interest, $.01 par value; 125,000,000 and 150,000,000 shares authorized and pro forma, 106,256,403 and 131,256,403 shares issued and outstanding and pro forma 1,063 -- -- 250 1,313 Additional paid-in capital 1,512,767 -- -- 445,672 1,958,439 Cumulative net income 451,679 -- -- -- 451,679 Dividends (603,239) -- -- -- (603,239) ----------- ----------- ----------- ----------- ----------- Total shareholders' equity 1,362,270 -- -- 445,922 1,808,192 ----------- ----------- ----------- ----------- ----------- $ 2,389,251 $ 40,000 $ 220,000 $ 25,922 $ 2,675,173 =========== =========== =========== =========== =========== -- -- -- -- --
F-2
HEALTH AND RETIREMENT PROPERTIES TRUST Pro Forma Consolidated Statement of Income For the Three Months Ended March 31, 1998 (amounts in thousands, except per share data) (unaudited) 1998 First Quarter 1600 Market Recent Historical Acquisitions (D) Street (E) Acquisitions (D) -------------- ---------------- ----------- ---------------- Revenues: Rental income $ 66,894 $ 2,455 $ 4,721 $ 1,854 Interest and other income 5,058 -- -- -- -------- -------- -------- -------- Total revenues 71,952 2,455 4,721 1,854 -------- -------- -------- -------- Expenses: Operating expenses 13,502 338 1,915 556 Interest 13,651 1,028 1,869 650 Depreciation and amortization 12,658 479 650 291 General and administrative 3,619 104 145 66 -------- -------- -------- -------- Total expenses 43,430 1,949 4,579 1,563 -------- -------- -------- -------- Income (loss) before equity in earnings of Hospitality Properties Trust 28,522 506 142 291 Equity in earnings of Hospitality Properties Trust 1,327 -- -- -- Gain on equity transaction of Hospitality Properties Trust 1,532 -- -- -- -------- -------- -------- -------- Income (loss) before extraordinary item $ 31,381 $ 506 $ 142 $ 291 ======== ======== ======== ======== Weighted average shares outstanding 101,471 ======== Basic and diluted earnings per common share: Income (loss) before extraordinary item $ 0.31 ======== 1735 Market Street (F) Other (G) Offering (H) Pro Forma ----------- ---------- ------------ ------------ Revenues: Rental income $ 7,483 $ -- $ -- $ 83,407 Interest and other income -- -- -- 5,058 -------- -------- -------- -------- Total revenues 7,483 -- -- 88,465 -------- -------- -------- -------- Expenses: Operating expenses 2,459 -- -- 18,770 Interest 3,575 (1,291) (6,825) 12,657 Depreciation and amortization 1,271 -- -- 15,349 General and administrative 283 -- -- 4,217 -------- -------- -------- -------- Total expenses 7,588 (1,291) (6,825) 50,993 -------- -------- -------- -------- Income (loss) before equity in earnings of Hospitality Properties Trust (105) 1,291 6,825 37,472 Equity in earnings of Hospitality Properties Trust -- -- -- 1,327 Gain on equity transaction of Hospitality Properties Trust -- -- -- 1,532 -------- -------- -------- -------- Income (loss) before extraordinary item $ (105) $ 1,291 $ 6,825 $ 40,331 ======== ======== ======== ======== Weighted average shares outstanding 130,941 ======== Basic and diluted earnings per common share: Income (loss) before extraordinary item $ 0.31 ========
F-3
HEALTH AND RETIREMENT PROPERTIES TRUST Pro Forma Consolidated Statement of Income For the Year Ended December 31, 1997 (amounts in thousands, except per share data) (unaudited) Second Quarter Third Quarter Historical GPI (I) CSMC (J) Acquisitions (K) Acquisitions (K) ---------- --------- --------- ---------------- ---------------- Revenues: Rental income $188,000 $ 11,959 $ 6,831 $ 2,948 $ 3,179 Interest and other income 20,863 (366) -- -- -- -------- -------- -------- -------- -------- Total revenues 208,863 11,593 6,831 2,948 3,179 -------- -------- -------- -------- -------- Expenses: Operating expenses 26,765 2,053 1,910 -- 954 Interest 36,766 (1,216) 3,232 1,087 1,463 Depreciation and amortization 39,330 4,156 1,119 627 501 General and administrative 11,670 2,105 249 139 111 -------- -------- -------- -------- -------- Total expenses 114,531 7,098 6,510 1,853 3,029 -------- -------- -------- -------- -------- Income (loss) before equity in earnings of Hospitality Properties Trust, gain on sale of properties and extraordinary item 94,332 4,495 321 1,095 150 Equity in earnings of Hospitality Properties Trust 8,590 -- -- -- -- Gain on equity transaction of Hospitality Properties Trust 9,282 -- -- -- -- -------- -------- -------- -------- -------- Income (loss) before gain on sale of properties and extraordinary item 112,204 4,495 321 1,095 150 Gain on sale of properties, net 2,898 -- -- -- -- -------- -------- -------- -------- -------- Income (loss) before extraordinary item $115,102 $ 4,495 $ 321 $ 1,095 $ 150 ======== ======== ======== ======== ======== Weighted average shares outstanding 92,168 ======== Basic and diluted earnings per common share: Income (loss) before extraordinary item $ 1.25 ======== West 34th Franklin Bridgepoint Fourth Quarter 1998 Street (L) Plaza (M) Square (N) Acquisitions(K) Acquisitions (Q) ---------- ----------- ----------- ---------------- --------------- Revenues: Rental income $ 10,771 $ 9,614 $ 5,599 $ 8,461 $ 26,039 Interest and other income -- -- -- -- -- -------- -------- -------- -------- -------- Total revenues 10,771 9,614 5,599 8,461 26,039 -------- -------- -------- -------- -------- Expenses: Operating expenses 3,641 4,904 2,162 2,634 5,583 Interest 2,876 2,486 3,216 4,338 9,100 Depreciation and amortization 1,869 1,334 1,175 1,269 4,601 General and administrative 415 296 262 283 1,024 -------- -------- -------- -------- -------- Total expenses 8,801 9,020 6,815 8,524 20,308 -------- -------- -------- -------- -------- Income (loss) before equity in earnings of Hospitality Properties Trust, gain on sale of properties and extraordinary item 1,970 594 (1,216) (63) 5,731 Equity in earnings of Hospitality Properties Trust -- -- -- -- -- Gain on equity transaction of Hospitality Properties Trust -- -- -- -- -- -------- -------- -------- -------- -------- Income (loss) before gain on sale of properties and extraordinary item 1,970 594 (1,216) (63) 5,731 Gain on sale of properties, net -- -- -- -- -- -------- -------- -------- -------- -------- Income (loss) before extraordinary item $ 1,970 $ 594 $ (1,216) $ (63) $ 5,731 ======== ======== ======== ======== ======== Weighted average shares outstanding Basic and diluted earnings per common share: Income (loss) before extraordinary item 1600 Market 1735 Market Street (O) Street (P) Other (R) Offering (S) Pro Forma ------------ ------------ ---------- ------------ ---------- Revenues: Rental income $ 18,883 $ 29,836 $ -- $ -- $ 322,120 Interest and other income -- -- -- -- 20,497 --------- --------- --------- --------- --------- Total revenues 18,883 29,836 -- -- 342,617 --------- --------- --------- --------- --------- Expenses: Operating expenses 7,659 10,276 -- -- 68,541 Interest 7,475 14,300 (6,395) (27,300) 51,428 Depreciation and amortization 2,601 5,085 -- -- 63,667 General and administrative 578 1,130 -- -- 18,262 --------- --------- --------- --------- --------- Total expenses 18,313 30,791 (6,395) (27,300) 201,898 --------- --------- --------- --------- --------- Income (loss) before equity in earnings of Hospitality Properties Trust, gain on sale of properties and extraordinary item 570 (955) 6,395 27,300 140,719 Equity in earnings of Hospitality Properties Trust -- -- -- -- 8,590 Gain on equity transaction of Hospitality Properties Trust -- -- -- -- 9,282 --------- --------- --------- --------- --------- Income (loss) before gain on sale of properties and extraordinary item 570 (955) 6,395 27,300 158,591 Gain on sale of properties, net -- -- -- -- 2,898 --------- --------- --------- --------- --------- Income (loss) before extraordinary item $ 570 $ (955) $ 6,395 $ 27,300 $ 161,489 ========= ========= ========= ========= ========= Weighted average shares outstanding 130,725 ========= Basic and diluted earnings per common share: Income (loss) before extraordinary item $ 1.24 =========
F-4 HEALTH AND RETIREMENT PROPERTIES TRUST Notes To Unaudited Pro Forma Consolidated Financial Statements (dollars in thousands, except per share data) Consolidated Balance Sheet Adjustments A. Represents the Company's acquisitions in April 1998 and May 1998 of two commercial office properties located in Massachusetts, a medical office property located in California and three commercial office properties located in New Jersey (the "Recent Acquisitions"). These acquisitions were funded with available cash and by drawings under the Company's revolving line of credit. B. Represents the Company's acquisition on May 22, 1998 of a mortgage secured by a commercial office property located in Philadelphia, Pennsylvania ("1735 Market Street"). The Company has also entered into an agreement with the current owners of 1735 Market Street to acquire a controlling interest in the property subject to definitive agreements and the resolution of certain issues. The acquisition is subject to various conditions and no assurances can be given as to when or if this acquisition will be consummated. In addition, the realization on the collateral may involve foreclosure or other judicial proceedings. This acquisition was funded with available cash and by drawings under the Company's revolving line of credit. C. Represents the public offering of 25,000,000 common shares of beneficial interest of the Company ("Common Shares") at a per share price of $18.875 (the "Offering"). Net proceeds will be used, in part, to repay amounts outstanding under the Company's revolving line of credit. Consolidated Statement of Income Adjustments for the Quarter Ended March 31, 1998 D. Represents the increases in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Recent Acquisitions and the Company's acquisitions during January 1998, February 1998 and March 1998 of two medical office properties and three commercial office properties located in Pennsylvania, four commercial office properties located in Texas, a medical office property located in Massachusetts, a commercial office property located in Maryland, one medical office property and two commercial office properties located in Minnesota and three medical office properties and a commercial office property located in Florida (collectively, "1998 First Quarter Acquisitions"), and the increase in interest expense from the use of the Company's revolving line of credit to fund these acquisitions. E. Represents the increase in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Company's acquisition on March 30, 1998 of a commercial office property located at 1600 Market Street in Philadelphia, Pennsylvania ("1600 Market Street") and the increase in interest expense from the use of the Company's revolving line of credit to fund this acquisition. F. Represents the increase in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Company's acquisition of 1735 Market Street, as well as the increase in interest expense from the use of the Company's revolving line of credit to fund this acquisition. G. Represents the net decrease in interest expense relating to the issuance of additional Remarketed Reset Notes and 6.7% Senior Notes due 2005 in February 1998 (collectively the "1998 Notes') and the issuance of 6,977,575 common shares in February 1998 and March 1998; the proceeds of these offerings were used to repay amounts then outstanding on the Company's revolving credit facility. H. Reflects the decrease in interest expense as a result of the Offering and the application of the net proceeds to the Company's revolving line of credit. F-5 HEALTH AND RETIREMENT PROPERTIES TRUST Notes To Unaudited Pro Forma Consolidated Financial Statements (dollars in thousands, except per share data) Consolidated Statement of Income Adjustments for the Year Ended December 31, 1997 I. Represents the increase in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Company's acquisition of the government office properties ("Government Office Properties") from Government Property Investors, Inc ("GPI"). Also reflects the decrease in interest expense arising from the Company's issuance of common shares in a March 1997 offering, the proceeds of which were used in part to repay amounts then outstanding under the Company' revolving line of credit, net of an increase in interest expense related to the Company's assumption of certain debt in connection with the acquisition of the Government Office Properties. J. Represents the increase in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Company's acquisition of two medical office properties and two parking structures located in Los Angeles, California ("CSMC"), as well as the increase in interest expense due to the use of the Company's revolving line of credit to fund this acquisition. K. Represents the increase in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Company's acquisition of a) a 200 unit retirement housing property located in Spokane, Washington and 20 medical office clinics and ancillary structures located in Massachusetts during the second quarter ("Second Quarter Acquisitions"), b) three medical and two commercial office buildings located in Pennsylvania during the third quarter ("Third Quarter Acquisitions") and c) a medical office property located in Colorado, a medical office property located in Maryland, a medical office property located in Rhode Island, three medical office properties located in California, and a medical office property located in Washington, D.C. during the fourth quarter ("Fourth Quarter Acquisitions"), as well as the increase in interest expense due to the use of the Company's revolving line of credit to fund these acquisitions. L. Represents the increase in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Company's acquisition of West 34th Street in New York City ("West 34th Street"), as well as the increase in interest expense due to the use of the Company's revolving line of credit to fund the acquisition. M. Represents the increase in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Company's acquisition of Franklin Plaza in Philadelphia, Pennsylvania ("Franklin Plaza"), as well as the increase in interest expense due to the use of the Company's revolving line of credit to fund the acquisition. N. Represents the increase in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Company's acquisition of Bridgepoint Square, Austin, Texas ("Bridgepoint Square"). Bridgepoint Square consists of five properties, of which one property was under construction at September 30, 1997 and one property was completed in July 1997. Also represents the increase in interest expense due to the use of the Company's revolving line of credit to fund the acquisition. O. Represents the increase in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Company's acquisition of 1600 Market Street, as well as the increase in interest expense due to the use of the Company's revolving line of credit to fund the acquisition. P. Represents the increase in rental income, depreciation and amortization and general and administrative expenses arising from the Company's acquisition of 1735 Market Street, as well as the increase in interest expense due to the use of the Company's revolving line of credit to fund the acquisition. F-6 HEALTH AND RETIREMENT PROPERTIES TRUST Notes To Unaudited Pro Forma Consolidated Financial Statements (dollars in thousands, except per share data) Consolidated Statement of Income Adjustments for the Year Ended December 31, 1997 - continued Q. Represents the increase in rental income, operating expenses, depreciation and amortization and general and administrative expenses arising from the Company's Recent Acquisitions and the 1998 First Quarter Acquisitions (collectively, "1998 Acquisitions"), as well as the increase in interest expense due to the use of the Company's revolving line of credit to fund these acquisitions. R. Represents the net decrease in interest expense relating to the issuance of Remarketed Reset Notes in July 1997, the issuance of 6.75% Senior Notes in December 1997, the issuance of the 1998 Notes, the prepayment of Floating Rate Senior Notes in July 1997, and the issuance of common shares in February 1998 and March 1998. S. Reflects the decrease in interest expense as a result of the Company's Offering and the application of net proceeds to the Company's revolving line of credit. T. The Company has proposed acquisitions, which include a medical office property and a commercial office property located in Texas, three commercial office properties located in Ohio, a commercial office property located in Pennsylvania, a commercial office property located in Connecticut, a commercial office property located in Delaware, a commercial office property located in Massachusetts and a commercial office property located in New York (the "Proposed Acquisitions"). Upon the consummation of the Proposed Acquisitions, adjusted pro forma total assets, total real estate investments, total borrowings and shareholders' equity at March 31, 1998 would be $2,806,423, $2,681,690, $867,076 and $1,808,192, respectively, for the three months ended March 31, 1998, adjusted pro forma total revenues, total expenses and net income would be $93,730, $55,516 and $41,073, respectively, and for the year ended December 31, 1997, adjusted pro forma total revenues, total expenses and net income would be $369,978, $ 222,382 and $167,264, respectively. The Proposed Acquisitions are subject to various closing conditions customary in real estate transactions, including, but not limited to, due diligence, Board of Trustees approval and final documentation. No assurances can be given as to when or if these Proposed Acquisitions will be consummated. F-7 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. HEALTH AND RETIREMENT PROPERTIES TRUST By: /s/ Ajay Saini Ajay Saini Treasurer and Chief Financial Officer Date: May 28, 1998 EX-1.1 2 EXHIBIT 1.1 25,000,000 Shares HEALTH AND RETIREMENT PROPERTIES TRUST (a Maryland real estate investment trust) Common Shares of Beneficial Interest PURCHASE AGREEMENT May 27, 1998 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION A.G. EDWARDS & SONS, INC. LEGG MASON WOOD WALKER INCORPORATED MORGAN STANLEY & CO. INCORPORATED PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES INCORPORATED SMITH BARNEY INC. as Representatives of the several Underwriters named in Schedule A hereto c/o MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated World Financial Center - North Tower 250 Vesey Street New York, NY 10281-1326 Ladies and Gentlemen: Health and Retirement Properties Trust, a Maryland real estate investment trust (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Donaldson Lufkin & Jenrette Securities Corporation ("Donaldson Lufkin"), A.G. Edwards & Sons, Inc. ("A.G. Edwards"), Legg Mason Wood Walker Incorporated ("Legg Mason"), Morgan Stanley & Co. Incorporated ("Morgan Stanley"), PaineWebber Incorporated ("PaineWebber"), Prudential Securities Incorporated ("Prudential") and Smith Barney Inc. ("Smith Barney"), together with each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters" which term shall also include any underwriter substituted as hereinafter provided in Section 10), for whom Merrill Lynch, Donaldson Lufkin, A.G. Edwards, Legg Mason, Morgan Stanley, PaineWebber, Prudential and Smith Barney are acting as representatives (in such capacity, Merrill Lynch, Donaldson Lufkin, A.G. Edwards, Legg Mason, Morgan Stanley, PaineWebber, Prudential and Smith Barney are hereinafter collectively referred to as the "Representatives"), with respect to the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the number of common shares of beneficial interest, par value $.01 per share, of the Company (the "Common Shares") set forth in said Schedule A and with respect to the grant by the Company to the Underwriters of the option described in Section 2 hereof to purchase all or any part of an additional 3,750,000 Common Shares to cover over-allotments. The aforesaid 25,000,000 Common Shares (the "Initial Shares"), together with all or any part of the 3,750,000 Common Shares subject to the option described in Section 2 hereof (the "Option Shares"), are collectively hereinafter called the "Shares". The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-26887) for the registration of debt securities, preferred shares of beneficial interest, depositary shares, Common Shares and warrants under the Securities Act of 1933, as amended (the "1933 Act"), and has filed such amendments thereto, if any, as may have been required to the date hereof. Such registration statement has been declared effective under the 1933 Act. Such registration statement (as amended, if applicable) and the prospectus constituting a part thereof, as supplemented by the prospectus supplement relating to the Shares (including, in each case, all documents incorporated or deemed to be incorporated by reference therein), as from time to time amended or supplemented pursuant to the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), or otherwise, are hereinafter referred to as the "Registration Statement" and the "Prospectus", respectively. The Company has also filed with the Commission a registration statement on Form S-3 (No. 333-52353) pursuant to Rule 462(b) of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations"), which is referred to herein as the "Rule 462(b) Registration Statement." The term "Registration Statement" includes the Rule 462(b) Registration Statement. All references in this Agreement to financial statements and schedules and other information which is "contained", "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or in the Prospectus, as the case may be. Section 1. Representations and Warranties. (a) The Company represents and warrants to each Underwriter as of the date hereof as follows: (i) At the time the Registration Statement became effective, the Registration Statement complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, at the date hereof (unless the term "Prospectus" 2 refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the date of effectiveness of the Registration Statement, in which case at the time it is first provided to the Underwriters for such use) and at the Closing Time referred to in Section 2 hereof, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection (i) shall not apply to statements or omissions in the Registration Statement or the Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through Merrill Lynch expressly for use in the Registration Statement or the Prospectus. (ii) The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations"), and, when read together with the other information in the Prospectus, at the time the Registration Statement became effective and at Closing Time, did not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iii) The Company is a Maryland real estate investment trust duly organized, validly existing and in good standing under the laws of the State of Maryland. Each of its subsidiaries has been duly organized and is validly existing as a corporation or trust in good standing under the laws of its jurisdiction of incorporation or organization. Each of the Company and its subsidiaries has full power and authority (corporate and other) to carry on its business as described in the Registration Statement and in the Prospectus and to own, lease and operate its properties. Each of the Company and its subsidiaries is duly qualified and is in good standing as a foreign corporation or trust, as the case may be, and is authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (iv) The financial statements of the Company and its subsidiaries, together with the related schedules and notes thereto, and, to the actual knowledge of the Company (including without limitation, for purposes of this Agreement, its managing trustees) without independent inquiry (the "Actual Knowledge of the Company"), of Marriott International Inc. (f/k/a New Marriott MI, Inc.) ("MII"), included or incorporated by reference in the Registration Statement and in the Prospectus, comply as to form in all material respects with the requirements of the 1933 Act. Such financial statements of the Company, together with the related schedules and notes thereto, and, to the Actual Knowledge of the Company, of MII, present fairly the consolidated financial position, results of operations, shareholders' equity and changes in financial position of the Company and its subsidiaries and MII, respectively, at the respective dates or for the 3 respective periods therein specified and have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied throughout the periods involved. The pro forma financial statements and other pro forma financial information (including the notes thereto) included or incorporated by reference in the Registration Statement and in the Prospectus (i) present fairly the information shown therein, (ii) have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and (iii) have been properly compiled on the basis described therein and the assumptions used in the preparation of such pro forma financial statements and other pro forma financial information (including the notes thereto) are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. The adjusted pro forma financial statements and other adjusted pro forma financial information (including the notes thereto) included or incorporated by reference in the Registration Statement and in the Prospectus (i) present fairly the information shown therein and (ii) have been properly compiled on the basis described therein and the assumptions used in the preparation of such adjusted pro forma financial statements and other adjusted pro forma financial information (including the notes thereto) are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (v) The accountants who have certified the financial statements of the Company and its subsidiaries and, to the Actual Knowledge of the Company, of MII, included or incorporated by reference in the Registration Statement and in the Prospectus are independent certified public accountants as required by the 1933 Act. (vi) All of the outstanding shares of beneficial interest of the Company have been duly authorized and are validly issued, fully paid, non-assessable (except as otherwise described in the Registration Statement) and free of preemptive or similar rights or other rights to subscribe for or to purchase securities provided for by law or by its Declaration of Trust or bylaws; the Shares to be issued and sold pursuant to this Agreement have been duly authorized and, when issued and delivered to the Underwriters against payment therefor as provided hereunder, will have been validly issued and will be fully paid, non-assessable (except as otherwise described in the Registration Statement) and free of preemptive or similar rights; the Company has no outstanding preferred shares of beneficial interest; there are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or liens related to or entitling any person to purchase or otherwise to acquire any Common Shares of, or other ownership interest in, the Company, except as otherwise disclosed in the Registration Statement or the Prospectus and except for (i) awards under the Company's Incentive Share Award Plan made in the ordinary course of business and (ii) a grant of Common Shares to the children of the late Ralph J. Watts, a former Trustee of the Company, which have been authorized but are not yet issued; all outstanding Common Shares, except for shares issued pursuant to the Company's Incentive Share Award Plan, are listed on the New York Stock Exchange (the "NYSE") and the Company knows of no reason or set of facts which is likely to result in the delisting of such Common Shares or the inability to list the Shares; and there are no rights of holders of securities of the Company to the registration of Common Shares or other securities that would require inclusion of such Common Shares or other securities in the offering of the Shares. 4 (vii) All of the outstanding shares of beneficial interest of, or other ownership interests in, each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and, except as to subsidiaries that are partnerships, nonassessable, and, except as disclosed in the Registration Statement or in the Prospectus, are or will be owned by the Company free and clear of any security interest, claim, lien, encumbrance or adverse interest of any nature. (viii) The authorized capital of the Company, including the Common Shares, conforms as to legal matters to the description thereof contained in the Prospectus (or the documents incorporated therein by reference). (ix) Since the respective dates as of which information is given in the Prospectus, and except as otherwise disclosed therein, (i) there has been no material adverse change in the business, operations, earnings, prospects, properties or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, (ii) there have been no material transactions entered into by the Company and its subsidiaries, on a consolidated basis, other than transactions in the ordinary course of business, (iii) neither the Company nor its subsidiaries has incurred any material liabilities or obligations, direct or contingent, (iv) the Company and its subsidiaries, on a consolidated basis, have not, (A) other than regular quarterly dividends, declared, paid or made a dividend or distribution of any kind on any class of its shares of beneficial interest (other than dividends or distributions from wholly owned subsidiaries to the Company), (B) issued any shares of beneficial interest of the Company or any of its subsidiaries or any options, warrants, convertible securities or other rights to purchase the shares of beneficial interest of the Company or any of its subsidiaries (other than the issuance of Common Shares upon conversion of certain convertible debentures of the Company) or (C) repurchased or redeemed shares of beneficial interest, and (v) there has not been (A) any material decrease in the Company's net worth or (B) any material increase in the short-term or long-term debt (including capitalized lease obligations but excluding borrowings under existing bank lines of credit) of the Company and its subsidiaries, on a consolidated basis. (x) The Company and each of its subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xi) Neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws or other organizational documents or in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any other agreement, indenture or instrument to which the Company or any of its subsidiaries is a party or by which any of their respective properties or assets may be bound or affected, except for any such 5 violation that would not have a material adverse effect on the condition, financial or otherwise or in the earnings, business affairs or business prospects of the Company and its subsidiaries, taken as a whole. The Company is not in violation of any law, ordinance, governmental rule or regulation or court decree to which it is subject, except for any such violations that would not, individually or in the aggregate, have a material adverse effect on the business, operations, earnings, prospects, properties or condition (financial or otherwise) of any of the Company and its subsidiaries, taken as a whole. (xii) Except as disclosed in the Registration Statement or in the Prospectus, there is not now pending or, to the knowledge of the Company, threatened, any litigation, action, suit or proceeding to which the Company is or will be a party before or by any court or governmental agency or body, which (A) might result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company or (B) might materially and adversely affect the property or assets of the Company or (C) concerns the Company and is required to be disclosed in the Registration Statement or the Prospectus, or (D) could adversely affect the consummation of this Agreement and the issuance, purchase and sale of the Shares. No contract or other document is required to be described in the Registration Statement or in the Prospectus or to be filed as an exhibit to the Registration Statement that is not described therein or filed as required. (xiii) The execution, delivery and performance by the Company of this Agreement, the issuance, offering and sale by the Company of the Shares as contemplated by the Registration Statement and by the Prospectus and the consummation of the transactions contemplated hereby and compliance with the terms and provisions hereof, will not violate or conflict with or constitute a breach of any of the terms or provisions of, or a default under, (i) the Amended and Restated Declaration of Trust (the "Declaration of Trust") or the By-laws of the Company or the charter or by-laws or other organizational documents of any subsidiaries of the Company, (ii) any agreement, indenture or other instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective properties or assets is bound, or (iii) any laws, administrative regulations or rulings or decrees to which the Company or any of its subsidiaries or their respective properties or assets may be subject. (xiv) No consent, approval, authorization or order of, or registration, filing or qualification with, any governmental body or regulatory agency having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets is required for the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, the issuance, sale and delivery of the Shares pursuant to this Agreement, except such as have been obtained and such as may be required under foreign and state securities or "Blue Sky" or real estate syndication laws. (xv) Except as otherwise disclosed in the Registration Statement or in the Prospectus, the Company and each of its subsidiaries has good and marketable title or ground leases, free and clear of all liens, claims, encumbrances and restrictions, except liens for taxes not yet due and payable and other liens and encumbrances which do not, 6 either individually or in the aggregate, materially and adversely affect the current use or value thereof, to all property and assets described in the Registration Statement or in the Prospectus as being owned by them. Except as otherwise set forth in the Registration Statement or in the Prospectus, all leases to which the Company and each of its subsidiaries is a party relating to real property, and all other leases which are material to the business of the Company and its subsidiaries, taken as a whole, are valid and binding, and no default (to the Company's knowledge, in the case of leases to which the Company is a party as lessor, that would, individually or in the aggregate, have a material adverse effect on the business, operations, earnings, prospects, properties or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole) has occurred and is continuing thereunder, and the Company and each of its subsidiaries enjoys peaceful and undisturbed possession under all such leases to which it is a party as lessee. With respect to all properties owned or leased by the Company and each of its subsidiaries, the Company or such subsidiary has such documents, instruments, certificates, opinions and assurances, including without limitation, fee, leasehold owners or mortgage title insurance policies (disclosing no encumbrances or title exceptions which are material to the Company and its subsidiaries considered as a whole, except as otherwise set forth in the Registration Statement and in the Prospectus), legal opinions and property insurance policies in each case in form and substance as are usual and customary in transactions involving the purchase of similar real estate and are appropriate for the Company or such subsidiary to have obtained. (xvi) The Company and each of its subsidiaries owns, or possesses adequate rights to use, all patents, trademarks, trade names, service marks, copyrights, licenses and other rights necessary for the conduct of their respective businesses as described in the Registration Statement and in the Prospectus, and neither the Company nor any of its subsidiaries has received any notice of conflict with, or infringement of, the asserted rights of others with respect to any such patents, trademarks, trade names, service marks, copyrights, licenses and other such rights (other than conflicts or infringements that, if proven, would not have a material adverse effect on the business, operations, earnings, prospects, properties or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole), and neither the Company nor any of its subsidiaries knows of any basis therefor. (xvii) All material tax returns required to be filed by the Company and each of its subsidiaries in any jurisdiction have been timely filed, other than those filings being contested in good faith, and all material taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due pursuant to such returns or pursuant to any assessment received by the Company or any of its subsidiaries have been paid, other than those being contested in good faith and for which adequate reserves have been provided. (xviii) Except for those matters which in the aggregate do not have a material adverse effect on the business, operations, earnings, prospects, properties or condition (financial or otherwise) of the Company and its subsidiaries taken as a whole, and except for Hazardous Materials (as defined below) or substances which are handled and/or disposed of in compliance with all applicable federal, state and local requirements, to the 7 Company's knowledge, after due investigation, the real property owned, leased or otherwise operated by the Company and each of its subsidiaries in connection with the operation of their respective businesses, including, without limitation, any subsurface soils and ground water (the "Realty"), is free of contamination from any Hazardous Materials. To the Company's knowledge, after due investigation, the Realty does not contain any underground storage or treatment tanks, active or abandoned water, gas or oil wells, or any other underground improvements or structures, other than the foundations, footings, or other supports for the improvements located thereon which, based on present knowledge, could, in their present condition, reasonably be expected to presently cause a material detriment to or materially impair the beneficial use thereof by the Company or constitute or cause a significant health, safety or other environmental hazard to occupants or users thereof without regard to any special conditions of such occupants or users. The Company represents that, after due investigation, it has no knowledge of any material violation, with respect to the Realty, of any Environmental Law, or of any material liability on the part of the Company with respect to the Realty, resulting from the presence, use, release, threatened release, emission, disposal, pumping, discharge, generation or processing of any Hazardous Materials. As used herein, "Environmental Law" means any federal, state or local statute, regulation, judgment, order or authorization relating to emissions, discharges, releases or threatened releases of Hazardous Materials into ambient air, surface water, ground water, publicly-owned treatment works, septic systems or land, or otherwise relating to the pollution or protection of public health or the environment, and "Hazardous Materials" means any substance, material or waste which is regulated, defined, or listed as a "hazardous waste", "hazardous substance", "toxic substance", "medical waste", "infectious waste" or other similar terms in any Environmental Law or by any federal, state or local government or quasi-government authority, or any petroleum products, asbestos, lead-based paint, polychlorinated biphenyls, flammable explosives or radioactive materials. (xix) Each of the Company and its subsidiaries has such permits, licenses, franchises and authorizations of governmental or regulatory authorities (together, "permits"), including, without limitation, under any applicable Environmental Law, as are necessary to own, lease and operate its properties and to engage in the business currently conducted by it, except such licenses and permits as to which the failure to own or possess will not in the aggregate have a material adverse effect on the business, operations, earnings, prospects, properties or condition (financial or otherwise) of the Company, and the Company does not have any reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such license, certificate, permit, authorization, approval, franchise or right; each of the Company and its subsidiaries has fulfilled and performed all of its obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such permit; and, except as described in the Registration Statement and in the Prospectus, such permits contain no restrictions that are materially burdensome to the Company or any of its subsidiaries. (xx) To the knowledge of the Company, no labor problem exists or is imminent with employees of the Company or any of its subsidiaries that could have a material 8 adverse effect on the business, operations, earnings, prospects, properties or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole. (xxi) Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company, any officer, trustee or director purporting to act on behalf of the Company or any of its subsidiaries, has at any time: (i) made any contributions to any candidate for political office, or failed to disclose fully any such contributions, in violation of law; (ii) made any payment of funds to, or received or retained any funds from, any state, federal or foreign governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or allowed by applicable law; or (iii) engaged in any transactions, maintained any bank accounts or used any corporate funds except for transactions, bank accounts and funds, which have been and are reflected in the normally maintained books and records of the Company and its subsidiaries. (xxii) Except as referred to or described in the Registration Statement and in the Prospectus, none of the subsidiaries of the Company owns any shares of stock or any other securities of any corporation or has any equity interest in any firm, partnership, association or other entity other than the issued capital shares of its subsidiaries, and the Company does not own, directly or indirectly, any shares of stock or any other securities of any corporation or have any equity interest in any firm, partnership, association or other entity other than the issued capital shares of its subsidiaries, except in each case for non-controlling positions acquired in the ordinary course of business. (xxiii) Except as disclosed in the Registration Statement and in the Prospectus, there are no material outstanding loans or advances or material guarantees of indebtedness by the Company or any of its subsidiaries to or for the benefit of any of the officers, trustees or directors of the Company or any of its subsidiaries or any of the members of the families of any of them (xxiv) The Company and each of its subsidiaries maintains insurance, duly in force, with insurers of recognized financial responsibility; such insurance insures against such losses and risks as are adequate in accordance with customary industry practice to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the business, operations, earnings, prospects, properties or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole, except as disclosed in or contemplated by the Registration Statement and by the Prospectus. (xxv) Neither the Company nor any of its officers and directors (as defined in the 1933 Act Regulations) has taken or will take, directly or indirectly, prior to the termination of the offering contemplated by this Agreement, any action designed to stabilize or manipulate the price of any security of the Company, or which has caused or resulted in, or which might in the future reasonably be expected to cause or result in, 9 stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (xxvi) Neither the Company nor any of its subsidiaries is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"), or an "investment adviser" as such term is defined in the Investment Advisers Act of 1940, as amended. (xxvii) The Company is organized in conformity with the requirements for qualification, and, as of the date hereof the Company operates, and as of Closing Time the Company will operate, in a manner that qualifies the Company as a "real estate investment trust" under the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and regulations thereunder, for 1998 and subsequent years. The Company qualified as a real estate investment trust under the Code for each of its taxable years from 1987 through 1997. (xxviii) No default exists, and no event has occurred which, with notice or lapse of time or both, would constitute a default in the due performance and observance of any term, covenant or condition of any indenture, mortgage, deed of trust, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties is bound or may be affected, except such defaults which, singly or in the aggregate, would not have a material adverse effect on the business, operations, earnings, prospects, properties or condition (financial or otherwise) of the Company and its subsidiaries, considered as a whole, except as disclosed in the Registration Statement and in the Prospectus. (xxix) Except as otherwise disclosed in the Prospectus, since the respective dates as of which information is given in the Prospectus, there has been no material adverse change in the business, operations, earnings, prospects, properties or condition (financial or otherwise) of REIT Management & Research, Inc. (the "Advisor"), whether or not arising in the ordinary course of business, that would have a material adverse effect on the Company and its subsidiaries, taken as a whole. The Advisory Agreement, dated as of January 1, 1998 (the "Advisory Agreement"), between the Company and the Advisor, has been duly authorized, executed and delivered by the parties thereto and constitutes the valid agreement of the parties thereto, enforceable in accordance with its terms, except as limited by (a) the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting the rights or remedies of creditors or (b) the effect of general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). (b) Any certificate signed by any officer of the Company or any of its subsidiaries and delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. 10 Section 2. Sale and Delivery to the Underwriters; Closing. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at a price per share of $17.93, the number of Initial Shares set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Shares which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) In addition, on the basis of the representations and warranties herein included and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 3,750,000 Shares at the price per share set forth in (a) above. The option hereby granted will expire 30 days after the date of this Agreement and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Shares upon notice by the Representatives to the Company setting forth the number of Option Shares as to which the several Underwriters are then exercising the option and the time, date and place of payment and delivery for such Option Shares. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Representatives but shall not be later than seven full business days, nor earlier than two full business days, after the exercise of said option, nor in any event prior to Closing Time, unless otherwise agreed upon by the Representatives and the Company. If the option is exercised as to all or any portion of the Option Shares, such Option Shares shall be purchased by the Underwriters, severally and not jointly, in proportion to their respective Initial Share underwriting obligations as set forth in Schedule A. (c) Payment of the purchase price for and delivery of certificates for the Initial Shares shall be made at the offices of Sullivan & Worcester LLP, One Post Office Square, Boston, Massachusetts 02109, or at such other place as shall be agreed upon by the Representatives and the Company, at 9:00 A.M. on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)business day (unless postponed in accordance with the provisions of Section 10 hereof) following the date of this Agreement, or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that the over-allotment option described in (b) above is exercised by the Underwriters, payment of the purchase price for and delivery of certificates for the related Option Shares shall be made at the above-mentioned office of Sullivan & Worcester LLP, or at such other place as shall be mutually agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company. Payment shall be made by wire transfer of immediately available funds payable to the order of the Company against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Shares to be purchased by them. The certificates for the Initial Shares and the Option Shares shall be in such authorized denominations and registered in such names as the Representatives may request in writing at least one full business day before Closing Time or the Date of Delivery, as the case may be. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of and receipt for, and to make payment of, 11 the purchase price for, the Initial Shares and the Option Shares which it has agreed to purchase. The Representatives, individually and not as representatives of the several Underwriters may (but shall not be obligated to) make payment of the purchase price for the Initial Shares or the Option Shares to be purchased by any Underwriter whose check has not been received by Closing Time, but any such payment shall not relieve such Underwriter from its obligations hereunder. The certificates for the Initial Shares and the Option Shares will be made available for examination and packaging by the Representatives not later than 10:00 A.M. (Eastern time) on the business day prior to Closing Time or the Date of Delivery, as the case may be. Section 3. Covenants of the Company. The Company covenants with each Underwriter as follows: (a) Immediately following the execution of this Agreement, the Company will prepare a Prospectus Supplement setting forth the number of Shares covered thereby and their terms not otherwise specified in the Prospectus, the Underwriters' names, the price at which the Shares are to be purchased by the Underwriters from the Company, and such other information as the Representatives and the Company deem appropriate in connection with the offering of the Shares; and the Company will promptly transmit copies of the Prospectus Supplement to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations and will furnish to the Representatives as many copies of the Prospectus (including such Prospectus Supplement) as they shall reasonably request. (b) Until the termination of the initial offering of the Shares, the Company will notify the Representatives immediately, and confirm the notice in writing, (i) of the effectiveness of any amendment to the Registration Statement, (ii) of the transmittal to the Commission for filing of any supplement or amendment to the Prospectus or any document to be filed pursuant to the 1934 Act, (iii) of the receipt of any comments from the Commission with respect to the Shares, (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus with respect to the Shares or for additional information relating thereto, and (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Company will make every reasonable effort to prevent the issuance of any such stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (c) The Company will give the Representatives notice of its intention to file or prepare any post-effective amendment to the Registration Statement or any amendment or supplement (including any document to be filed pursuant to the 1934 Act prior to the termination of the initial offering of the Shares) to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Shares which differs from the prospectus on file at the Commission at the time that the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations), will furnish the Representatives with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which counsel for the Underwriters shall reasonably object. 12 (d) The Company will deliver to each of the Representatives a conformed copy of the Registration Statement as originally filed and of each amendment thereto filed prior to the termination of the initial offering of the Shares (including exhibits filed therewith or incorporated by reference therein and the documents incorporated by reference into the Prospectus pursuant to Item 12 of Form S-3). (e) The Company will furnish to the Representatives, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as the Representatives may reasonably request for the purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or 1934 Act Regulations. (f) If any event shall occur as a result of which it is necessary, in the opinion of counsel for the Underwriters, to amend or supplement the Prospectus in order to make the Prospectus not misleading in the light of the circumstances existing at the time it is delivered, the Company will either (i) forthwith prepare and furnish to the Representatives an amendment of or supplement to the Prospectus or (ii) make an appropriate filing pursuant to Section 13, 14 or 15 of the 1934 Act, in form and substance reasonably satisfactory to counsel for the Underwriters, which will amend or supplement the Prospectus so that it will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered, not misleading. (g) The Company will endeavor in good faith, in cooperation with the Representatives, to qualify the Shares for offering and sale under the applicable securities laws and real estate syndication laws of such states and other jurisdictions of the United States as the Representatives may designate; provided that, in connection therewith, the Company shall not be required to qualify as a foreign corporation or trust or to file any general consent to service of process. In each jurisdiction in which the Shares have been so qualified the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for so long as required for the distribution of the Shares. (h) The Company will make generally available to its security holders as soon as reasonably practicable, but not later than 90 days after the close of the period covered thereby, an earning statement of the Company (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a period of at least twelve months beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. "Earning statement", "make generally available" and "effective date" will have the meanings contained in Rule 158 of the 1933 Act Regulations. (i) The Company will use the net proceeds received by it from the sale of the Shares in the manner specified in the Prospectus under the caption "Use of Proceeds" in all material respects. (j) The Company will use its best efforts to effect the listing of the Shares on the NYSE. 13 (k) The Company currently intends to continue to elect to qualify as a "real estate investment trust" under the Code, and use its best efforts to continue to meet the requirements to qualify as a "real estate investment trust". (l) The Company will timely file any document which it is required to file pursuant to the 1934 Act prior to the termination of the offering of the Shares. (m) The Company will not, during a period of 90 days from the date of this Agreement, without the prior written consent of Merrill Lynch, register, offer, sell, contract to sell, grant any option to purchase or otherwise dispose of any Common Shares or any securities convertible into or exercisable or exchangeable for Common Shares, or warrants to purchase Common Shares, other than (i) the Shares which are to be sold pursuant to this Agreement, (ii) Common Shares issued or to be issued pursuant to the Company's Incentive Share Award Plan, (iii) Common Shares to be issued upon conversion of the Company's outstanding convertible debentures, (iv) Common Shares to be issued as partial or full payment for properties directly or indirectly acquired or to be acquired by the Company or its subsidiaries; provided that, the Company shall have conditioned the issuance of such Common Shares upon the agreement of the recipients to the restrictions of this paragraph (m); provided, however, that any Common Shares issued as a post-closing adjustment in connection with the acquisition previously agreed to of the government office properties from Government Properties Investors, Inc. and related parties shall not be subject to such condition, (v) the issuance of Common Shares to any sponsor or underwriter of a unit investment trust; provided that, the unit investment trust shall have a limitation upon the sale of such Common Shares until the expiration of the 90-day period in this paragraph (m), (vi) Common Shares to be issued to the children of the late Ralph J. Watts and (vii) the registration of Common Shares on an omnibus shelf registration statement. Section 4. Payment of Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the preparation and filing of this Agreement, (iii) the preparation, issuance and delivery of the Shares to the Underwriters, (iv) the fees and disbursements of counsel for the Company, referred to in Section 5(b) hereof, and the Company's accountants, (v) the qualification of the Shares under securities laws and real estate syndication laws in accordance with the provisions of Section 3(g) hereof, including filing fees and the fee and disbursements of counsel for the Company in connection therewith and in connection with the preparation of any Blue Sky Survey, (vi) the printing and delivery to the Underwriters of copies of the Registration Statement as originally filed and of each amendment thereto, and of the Prospectus and any amendments or supplements thereto, (vii) the fees and expenses incurred in connection with the listing of the Shares on the NYSE, (viii) the cost of printing or reproducing and delivering to the Underwriters copies of any Blue Sky Survey, (ix) the cost of providing any CUSIP or other identification numbers for the Shares, and (x) any transfer taxes imposed on the sale of the Shares to the Underwriters. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i), the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. 14 Section 5. Conditions of the Underwriters' Obligations. The obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company herein contained, to the performance by the Company of its obligations hereunder, and to the following further conditions: (a) At Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. The price of the Shares and any other information previously omitted from the effective Registration Statement pursuant to Rule 415 of the 1933 Act Regulations shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations within the prescribed time period, and prior to Closing Time the Company shall have provided evidence satisfactory to the Representatives of such timely filing, or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of the 1933 Act Regulations. (b) At Closing Time the Representatives shall have received the favorable opinion, dated as of Closing Time, of Sullivan & Worcester LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) The Company is a Maryland real estate investment trust duly organized, validly existing and in good standing under the laws of the State of Maryland; each of its Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X under the 1933 Act) has been duly organized, is validly existing as a corporation or trust in good standing under the laws of its jurisdiction of incorporation or organization; each of the Company and its subsidiaries has the trust or corporate (as applicable) power and authority to carry on its business as described in the Registration Statement and in the Prospectus and to own, lease and operate its properties; each of the Company and its subsidiaries is duly qualified and is in good standing as a foreign corporation or trust, as the case may be, authorized to do business in each jurisdiction in which its ownership or leasing of property requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (ii) (A) All of the outstanding shares of beneficial interest of the Company have been duly authorized and are validly issued, fully paid and non-assessable (except as otherwise described in the Registration Statement) and (B) the Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, and will be free of any preemptive or, to such counsel's knowledge, similar rights that entitle any person (other than the Underwriters, their successors and assigns) to acquire any Shares upon the issuance thereof by the Company. (iii) All of the issued and outstanding shares of beneficial interest of, or other ownership interests in, each of the Company's subsidiaries have been duly authorized and validly issued and are fully paid and, except as to subsidiaries that are partnerships, non-assessable, and are owned by the Company free and clear of any security interest or other adverse interest (within the meaning of Article 8 of the Massachusetts Uniform Commercial Code). 15 (iv) The Company has the requisite trust power and authority to enter into and perform this Agreement and to issue and deliver the Shares. (v) This Agreement has been duly authorized, executed and delivered by the Company. (vi) The execution, delivery and performance of this Agreement, and the consummation of the transactions herein contemplated will not conflict with or constitute a breach or violation of any of the terms or provisions of, or constitute a default under, (A) the Declaration of Trust or the By-laws of the Company or the charter or by-laws or other organizational documents of any Significant Subsidiary of the Company, (B) except as disclosed in the Prospectus, any material agreement, indenture or other instrument to which the Company, or any of its Significant Subsidiaries or their respective material properties or assets is bound, or (C) any laws, administrative regulations or rulings or decrees known to such counsel to which the Company, any of its Significant Subsidiaries or their respective material properties or assets may be subject. (vii) No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any federal, Massachusetts or Maryland court or public, governmental or regulatory agency or body having jurisdiction over the Company or any of its Significant Subsidiaries or any of their respective material properties or assets is required for the Company's execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, the issuance, sale and delivery of the Shares pursuant to this Agreement, except such as have been obtained and such as may be required under foreign and state securities or "Blue Sky" laws. (viii) The Registration Statement has become effective under the 1933 Act, and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or threatened by the Commission; and any required filing of the Prospectus pursuant to Rule 424 under the 1933 Act has been made in accordance with said Rule 424. (ix) To such counsel's knowledge, except as disclosed in the Registration Statement or in the Prospectus, there is not now pending or threatened, any litigation, action, suit or proceeding to which the Company or any of its subsidiaries is or will be a party before or by any court or governmental agency or body, which (A) might result in any material adverse change in the condition, financial or otherwise, or in the business, operations, earnings, prospects or properties of the Company and its subsidiaries, taken as a whole, or (B) might materially and adversely affect the property or assets of the Company and its subsidiaries, taken as a whole, or (C) concerns the Company or any of its subsidiaries and is required to be disclosed in the Prospectus, or (D) could adversely affect the consummation of this Agreement and the issuance of the Shares; to such counsel's knowledge, no contract or other document is required to be described in the Registration Statement or in the Prospectus or to be filed as an exhibit to the Registration Statement that is not described therein or filed as required. 16 (x) Except as otherwise disclosed in the Prospectus, to such counsel's knowledge, neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws or other organizational documents or in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any other material agreement, indenture or instrument to which the Company or any of its subsidiaries is a party or by which any of their respective properties or assets may be bound or affected, except for any such violation that would not have a material adverse effect on the business, operations, earnings, business prospects, properties or condition (financial or otherwise) of the Company and its subsidiaries taken as a whole. (xi) To such counsel's knowledge, each of the Company and its subsidiaries has such permits, licenses, franchises and authorizations of governmental or regulatory authorities (together, "permits"), including, without limitation, under any applicable Environmental Law, as are necessary to own, lease and operate its properties and to engage in the business currently conducted by it, except such licenses and permits as to which the failure to own or possess will not in the aggregate have a material adverse effect on the business, operations, earnings, business prospects, properties or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole. (xii) The Registration Statement and the Prospectus and any supplements or amendments thereto (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein and the Excluded Proceedings (as defined in paragraph (xx) below), as to which such counsel need not express any opinion) comply as to form in all material respects with the requirements of the 1933 Act. (xiii) Each document incorporated by reference in the Registration Statement and in the Prospectus (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein and the Excluded Proceedings, as to which such counsel need not express any opinion) complied as to form when filed with the Commission in all material respects with the requirements of the 1934 Act. (xiv) To the extent required to be described therein, the Shares conform in all material respects to the descriptions in the Registration Statement and the Prospectus. (xv) The statements (a) in the Prospectus under the captions "Description of Shares", "Redemption; Business Combinations and Control Share Acquisitions," "Limitation of Liability; Shareholder Liability" and "Federal Income Tax and ERISA Considerations" and (b) in Item 1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the captions "Regulation and Reimbursement," "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts" in each case insofar as they purport to summarize matters arising under Massachusetts or Maryland law or the federal law of the United States, or provisions of documents to which the Company is a party specifically referred to therein, are accurate summaries of such legal matters or provisions. 17 (xvi) The Company has qualified to be taxed as a real estate investment trust pursuant to Sections 856-860 of the Code for each of the fiscal years ended December 31, 1987 through December 31, 1997, and the Company's current anticipated investments and its current plan of operation will enable it to continue to meet the requirements for qualification and taxation as a real estate investment trust under the Code; actual qualification of the Company as a real estate investment trust, however, will depend upon the Company's continued ability to meet, and its meeting, through actual annual operating results and distributions, the various qualification tests imposed under the Code. (xvii) The Company is not required to register as an "investment company" within the meaning of the 1940 Act. (xviii) The Advisor (A) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and (B) has the requisite corporate power and authority to conduct its business as described in the Prospectus and to own and operate its material properties. (xix) The Advisory Agreement has been duly authorized, executed and delivered by the parties thereto and constitutes the valid agreement of the parties thereto, enforceable in accordance with its terms, except (a) as limited by the effect of bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws relating to or affecting the rights or remedies of creditors, (b) as limited by the effect of general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and (c) insofar as the enforceability of the indemnity and contribution provisions contained in such agreement may be limited by federal or state securities laws and the public policy underlying such laws. (xx) Although counsel has not undertaken, except as otherwise indicated in their opinion, to determine independently, and does not assume any responsibility for, the accuracy or completeness of the statements in the Registration Statement, such counsel has participated in the preparation of the Registration Statement and the Prospectus, including review and discussion of the contents thereof (including review and discussion of the contents of all documents incorporated by reference in the Registration Statement and the Prospectus), and nothing has come to the attention of such counsel that has caused them to believe that the Registration Statement (including the documents incorporated by reference therein) at the time the Registration Statement became effective, or the Prospectus, as of its date and as of Closing Time, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that any amendment or supplement to the Prospectus, as of its respective date, and as of Closing Time, as the case may be, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no view with respect to (a) the financial statements and the notes thereto and the schedules and other financial and statistical data included or incorporated by reference in the Registration Statement or in the Prospectus 18 or (b) the proceedings referred to in Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the caption "Legal Proceedings" and any claims related thereto (collectively, the "Excluded Proceedings"). In rendering their opinion as aforesaid, Sullivan & Worcester LLP may rely upon an opinion, dated as of Closing Time, of Piper & Marbury L.L.P. as to matters governed by Maryland law, provided that such reliance is expressly authorized by such opinion and a copy of such opinion is delivered to the Representatives and is, in form and substance, satisfactory to the Representatives and counsel for the Underwriters. In addition, in rendering such opinion, such counsel may state that their opinion as to laws of the State of Delaware is limited to the Delaware General Corporation Law and that their opinion with respect to the qualification of the Company and its subsidiaries to do business in jurisdictions other than their respective jurisdictions of organization is based solely upon certificates to such effect issued by an appropriate official of the applicable jurisdictions. The opinion of Piper & Marbury L.L.P. described in the paragraph above shall be rendered to the Representatives at the request of the Company and shall so state therein. In addition, the Representatives shall have received at Closing Time an opinion (satisfactory to the Representatives and counsel for the Underwriters) of Sherin & Lodgen LLP, special counsel for the Company, dated as of Closing Time, to the effect that the statements describing the proceedings in Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 under the caption "Legal Proceedings", insofar as they purport to summarize legal proceedings, constitute a fair summary of such legal proceedings. (c) The Representatives shall have received at Closing Time an opinion, dated as of Closing Time, of Brown & Wood LLP, counsel for the Underwriters, as to the matters referred to in clauses (ii)(B), (v), (viii), (xii), (xiv) and (xx) of the foregoing paragraph (b). In giving such opinion with respect to the matters covered by clause (xx), such counsel may state that their opinion and belief are based upon their participation in the preparation of the Registration Statement and the Prospectus and any amendments or supplements thereto and review and discussion of the contents thereof, but are without independent check or verification except as specified. In rendering their opinion as aforesaid, Brown & Wood LLP may rely upon an opinion, dated as of Closing Time, of Piper & Marbury L.L P. as to matters governed by Maryland law, and the opinion of Sullivan & Worcester LLP referred to above as to matters governed by Massachusetts law. In addition, in rendering such opinion, such counsel may state that their opinion as to laws of the State of Delaware is limited to the Delaware General Corporation Law. (d) At Closing Time (i) the Registration Statement and the Prospectus shall contain all statements which are required to be stated therein in accordance with the 1933 Act and the 1933 Act Regulations and in all material respects shall conform to the requirements of the 1933 Act and the 1933 Act Regulations, and neither the Registration Statement nor the Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and no action, suit 19 or proceeding at law or in equity shall be pending or to the knowledge of the Company threatened against the Company which would be required to be set forth in the Prospectus other than as set forth therein, (ii) there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change in the condition, financial or otherwise, of the Company or in its earnings, business affairs or business prospects, whether or not arising in the ordinary course of business from that set forth in the Registration Statement, and (iii) no proceedings shall be pending or, to the knowledge of the Company, threatened against the Company before or by any federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding would materially and adversely affect the business, property, financial condition or income of the Company other than as set forth in the Prospectus; and the Representatives shall have received, at Closing Time, a certificate of the President and Chief Operating Officer and the chief financial officer of the Company, dated as of Closing Time, evidencing compliance with the provisions of this subsection (d) and stating that the representations and warranties set forth in Section 1(a) hereof are accurate as though expressly made at and as of Closing Time. (e) At Closing Time, there shall not have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change in the business, operations, earnings, prospects, properties or condition (financial or otherwise) of the Advisor, whether or not arising in the ordinary course of business; and the Representatives shall have received, at Closing Time, a certificate of the President of the Advisor evidencing compliance with this subsection (e). (f) Concurrently with the execution and delivery of this Agreement, and at Closing Time prior to payment and delivery of the Shares, Ernst & Young LLP shall have furnished to the Representatives a letter, dated the date of its delivery, addressed to the Representatives and in form and substance satisfactory to the Representatives, confirming that they are independent accountants with respect to the Company as required by the 1933 Act and the 1933 Act Regulations and with respect to the financial and other statistical and numerical information contained in the Registration Statement and the Prospectus or incorporated by reference therein. Each such letter shall contain information of the type customarily included in accountants' comfort letters to underwriters. (g) At Closing Time counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Shares as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Shares as herein contemplated shall be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters. (h) In the event the Representatives exercise the option described in Section 2 hereof to purchase all or any portion of the Option Shares, the representations and warranties of the Company included herein and the statements in any certificates furnished by the Company hereunder shall be true and correct as of the Date of Delivery, and the Representatives shall have received: 20 (i) A certificate of the President and Chief Executive Officer and the chief financial officer of the Company, dated such date of Delivery, confirming that their certificate delivered at Closing Time pursuant to Section 5(d) hereof remain true as of such Date of Delivery. (ii) The favorable opinion of Sullivan & Worcester LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Shares and otherwise to the same effect as the opinion required by Section 5(b) hereof. (iii) Certificate of the President of the Advisor confirming that his certificate delivered at Closing Time pursuant to Section 5(e) hereof remains true as of such Date of Delivery. (iv) The favorable opinion of Brown & Wood LLP, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Shares and otherwise to the same effect as the opinion required by Section 5(c) hereof. (v) A letter from Ernst & Young, in form and substance satisfactory to the Representatives, dated such Date of Delivery, substantially the same in scope and substance as the letter furnished to the Representatives pursuant to Section 5(f) hereof. If any condition specified in this Section 5 shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof. Section 6. Indemnification. (a) The Company hereby agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls each Underwriter within the meaning of Section 15 of the 1933 Act as follows: (1) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission, or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading: (2) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or 21 omission, if such settlement is effected with the written consent of the Company; and (3) against any and all expense whatsoever, as incurred (including, subject to Section 6(c) hereof, the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceedings by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under paragraph (1) or (2) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto); and provided, further, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter, or the benefit of any person controlling any Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto and excluding documents incorporated or deemed to be incorporated by reference therein) was not sent or given by or on behalf of such Underwriter to such person asserting any such losses, claims, damages or liabilities at or prior to the written confirmation of the sale of such Shares to such person, if required by law so to have been delivered, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or expense. (b) Each Underwriter agrees to indemnify and hold harmless the Company, each of the Company's trustees, each of the Company's officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section 6, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Merrill Lynch expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all 22 indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. Section 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 hereof is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company and the Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and the Underwriters, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Shares pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Shares pursuant to this Agreement (before deducting expenses) received by the Company and the total discount received by the Underwriters, bear to the aggregate initial offering price of the Shares. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 7, the Underwriters shall not be required to contribute any amount in excess of the amount by which the total price at which the Shares purchased from the Company by the Underwriters and distributed to the public were offered to the public exceeds the amount of any damages which the Underwriters have 23 otherwise been required to pay in respect of such losses, liabilities, claims, damages and expenses. For purposes of this Section 7, each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter, and each trustee of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. Section 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriters or any controlling person, or by or on behalf of the Company, and shall survive delivery of the Shares to the Underwriters. Section 9. Termination of Agreement. (a) The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the respective dates as of which information is given in the Registration Statement, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company or the Advisor, whether or not arising in the ordinary course of business, which would make it, in the Representatives' reasonable judgment, impracticable or inadvisable to market the Shares or enforce contracts for the sale of the Shares, (ii) if there has occurred any material adverse change in the financial markets in the United States or any outbreak of hostilities or escalation of existing hostilities or other calamity or crisis the effect of which on the financial markets of the United States is such as to make it, in the Representatives' reasonable judgment, impracticable or inadvisable to market the Shares or enforce contracts for the sale of the Shares, or (iii) if trading in the Company's Common Shares has been suspended by the Commission, or if trading generally on either the New York Stock Exchange or the American Stock Exchange has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by Federal or New York authorities. (b) If this Agreement is terminated pursuant to this Section 9, such termination shall be without liability of any party to any other party except as provided in Section 4, and provided further that Sections 6 and 7 hereof shall survive such termination. Section 10. Default. If one or more of the Underwriters shall fail at Closing Time to purchase the Initial Shares which it or they are obligated to purchase under this Agreement (the "Defaulted Shares"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Shares in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (i) if the number of Defaulted Shares does not exceed 10% of the Initial Shares, the non-defaulting Underwriters shall be obligated to purchase the full amount 24 thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (ii) if the number of Defaulted Shares exceeds 10% of the Initial Shares, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter and the Company. No action taken pursuant to this Section 10 shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Representatives or the Company shall have the right to postpone Closing Time for a period not exceeding seven days in order to effect any required changes in the Prospectus or in any other documents or arrangements. Section 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated at World Financial Center, North Tower, 250 Vesey Street, New York, NY 10281-1326, Attention: Tjarda van S. Clagett, Director; and notices to the Company shall be directed to it at 400 Centre Street, Newton, Massachusetts 02158, Attention: David J. Hegarty, President. Section 12. Parties. This Agreement shall inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than those referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and thereto and their respective successors and said controlling persons and officers, trustees and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Shares from any Underwriter shall be deemed to be a successor by reason merely of such purchase. Section 13. Governing Law and Time; Miscellaneous. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said State. Specified times of day refer to New York City time. THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT THE NAME "HEALTH AND RETIREMENT PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, 25 OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. 26 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, HEALTH AND RETIREMENT PROPERTIES TRUST By /s/ Ajay Saini Name: Ajay Saini Title: Treasurer CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION A.G. EDWARDS & SONS, INC. LEGG MASON WOOD WALKER INCORPORATED MORGAN STANLEY & CO. INCORPORATED PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES INCORPORATED SMITH BARNEY INC. By: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated By /s/ Tjarda van S. Clagett Name: Tjarda van S. Clagett Title: Director For themselves and as Representatives of the other Underwriters named in Schedule A hereto 27 SCHEDULE A Number of Name of Underwriter Initial Shares ------------------- -------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated 2,675,000 Donaldson, Lufkin & Jenrette Securities Corporation 2,675,000 A.G. Edwards & Sons, Inc. 2,675,000 Legg Mason Wood Walker Incorporated 2,675,000 Morgan Stanley & Co. Incorporated 2,675,000 PaineWebber Incorporated 2,675,000 Prudential Securities Incorporated 2,675,000 Smith Barney Inc. 2,675,000 Lehman Brothers Inc. 300,000 Arnhold and S. Bleichroeder, Inc. 300,000 Credit Lyonnais Securities (USA) Inc. 300,000 Dresdner Kleinwort Benson North America LLC 300,000 Nesbitt Burns Securities Inc. 300,000 Societe Generale 300,000 Cowen & Company 300,000 Cruttenden Roth Incorporated 300,000 D.A. Davidson & Co. 300,000 Sands Brothers & Co., Ltd. 300,000 Sutro & Co. Incorporated 300,000 Wheat First Securities, Inc. 300,000 ---------- Total 25,000,000 ========== EX-3.1 3 EXHIBIT 3.1 HEALTH AND REHABILITATION PROPERTIES TRUST Changing its Name to Health and Retirement Properties Trust Third Amendment and Restatement of Declaration of Trust Conformed Composite Copy October 9, 1986 As Amended and Restated on July 1, 1994 and Amended July 9, 1996 and Amended March 3, 1997 and Amended May 26, 1998 INDEX Page ARTICLE I THE TRUST; DEFINITIONS 1.1 Name............................................................. 2 1.2 Places of Business............................................... 2 1.3 Nature of Trust.................................................. 3 1.4 Definitions...................................................... 3 ARTICLE II TRUSTEES 2.1 Number, Term of Office and Qualifications of Trustees.................................................... 8 2.2 Compensation and Other Remuneration.............................. 10 2.3 Resignation, Removal and Death of Trustees....................... 10 2.4 Vacancies........................................................ 10 2.5 Successor and Additional Trustees................................ 11 2.6 Actions by Trustees.............................................. 11 2.7 Certification of Changes in Trustees............................. 12 2.8 Committees....................................................... 12 ARTICLE III TRUSTEES' POWERS 3.1 Power and Authority of Trustees.................................. 13 3.2 Specific Powers and Authority.................................... 13 3.3 Bylaws........................................................... 19 ARTICLE IV ADVISOR 4.1 Employment of Advisor............................................ 20 4.2 Term............................................................. 21 4.3 Other Activities of Advisor...................................... 21 4.4 Advisor Compensation............................................. 22 4.5 Annual Total Operating Expenses.................................. 23 -ii- ARTICLE V INVESTMENT POLICY AND POLICIES WITH RESPECT TO CERTAIN DISTRIBUTIONS TO SHAREHOLDERS 5.1 Statement of Policy............................................... 24 5.2 Prohibited Investments and Activities............................. 26 5.3 Appraisals........................................................ 27 5.4 Change in Investment Policies..................................... 27 ARTICLE VI THE SHARES AND SHAREHOLDERS 6.1 Description of Shares............................................. 28 6.2 Certificates...................................................... 29 6.3 Fractional Shares................................................. 30 6.4 Legal Ownership of Trust Estate................................... 30 6.5 Shares Deemed Personal Property................................... 31 6.6 Share Record; Issuance and Transferability of Shares....................................................... 31 6.7 Dividends or Distributions to Shareholders........................ 32 6.8 Transfer Agent, Dividend Disbursing Agent and Registrar............................................. 32 6.9 Shareholders' Meetings............................................ 33 6.10 Proxies........................................................... 34 6.11 Reports to Shareholders........................................... 34 6.12 Fixing Record Date................................................ 35 6.13 Notice to Shareholders............................................ 35 6.14 Shareholders' Disclosures; Trustees' Right to Refuse to Transfer Shares; Limitation on Holdings; Redemption of Shares............................... 35 6.15 Special Voting Requirements for Certain Business Combinations........................................... 39 ARTICLE VII LIABILITY OF TRUSTEES, SHAREHOLDERS, OFFICERS, EMPLOYEES AND AGENTS, AND OTHER MATTERS 7.1 Limitation of Liability of Shareholders, Trustees, Officers, Employees and Agents for Obligations of the Trust.................................... 41 -iii- 7.2 Express Exculpatory Clauses and Instruments....................... 41 7.3 Limitation of Liability of Trustees, Officers, Employees and Agents to the Trust and to Shareholders for Acts and Omissions............................. 42 7.4 Indemnification and Reimbursement of Trustees, Officers, Employees and Agents ......................................................... 42 7.5 Certain Definitions............................................... 44 7.6 Indemnification and Reimbursement of Shareholders.................................................... 45 7.7 Right of Trustees, Officers, Employees and Agents to Own Shares or Other Property and to Engage in Other Business................................. 45 7.8 Transactions Between Trustees, Officers, Employees or Agents and the Trust............................... 46 7.9 Independent Counsel............................................... 48 7.10 Persons Dealing with Trustees, Officers, Employees or Agents............................................. 48 7.11 Reliance.......................................................... 48 ARTICLE VIII DURATION, AMENDMENT AND TERMINATION OF TRUST 8.1 Duration of Trust................................................. 49 8.2 Termination of Trust.............................................. 49 8.3 Amendment Procedure............................................... 50 8.4 Amendments Effective.............................................. 51 8.5 Transfer to Successor............................................. 51 ARTICLE IX MISCELLANEOUS 9.1 Applicable Law.................................................... 51 9.2 Index and Headings for Reference Only............................. 52 9.3 Successors in Interest............................................ 52 9.4 Inspection of Records............................................. 52 9.5 Counterparts...................................................... 52 9.6 Provisions of the Trust in Conflict with Law or Regulations; Severability................................ 52 9.7 Certifications.................................................... 53 THIRD AMENDMENT AND RESTATEMENT OF DECLARATION OF TRUST OF HEALTH AND REHABILITATION PROPERTIES TRUST Changing its Name to Health and Retirement Properties Trust Dated October 9, 1986 As Amended and Restated on July 1, 1994 -------------------------------------- The Declaration of Health and Rehabilitation Properties Trust (the "Trust"), as filed with the Maryland Department of Assessments and Taxation on October 9, 1986 and as amended on September 27, 1987, July 23, 1992 and July 30, 1993 (the "Declaration"), is hereby amended and restated as follows: DECLARATION OF TRUST made as of the date set forth above by the undersigned Trustees. WITNESSETH: WHEREAS, the Trustees desire to create a trust for the principal purpose of investing in real property and interests therein; and WHEREAS, the Trustees desire that such trust qualify as a "real estate investment trust" under the REIT Provisions of the Internal Revenue Code, and under Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland; and WHEREAS, in furtherance of such purpose the Trustees intend to acquire certain real property and interests therein and to hold, manage and dispose of all such property as Trustees in the manner hereinafter stated; and -2- WHEREAS, it is proposed that the beneficial interest in the Trust be divided into transferable Shares of Beneficial Interest, evidenced by certificates therefor, as hereinafter provided; NOW, THEREFORE, it is hereby agreed and declared that the Trustees will hold any and all property of every type and description which they are acquiring or may hereafter acquire as Trustees, together with the proceeds thereof, in trust, to manage and dispose of the same for the benefit of the holders from time to time of the Shares of Beneficial Interest being issued and to be issued hereunder in the manner and subject to the stipulations contained herein. ARTICLE I THE TRUST; DEFINITIONS 1.1 Name. The name of the Trust created by this Declaration of Trust shall be "Health and Retirement Properties Trust" and so far as may be practicable the Trustees shall conduct the Trust's activities, execute all documents and sue or be sued under that name, which name (and the word "Trust" wherever used in this Declaration of Trust, except where the context otherwise requires) shall refer to the Trustees collectively but not individually or personally nor to the officers, agents, employees or Shareholders of the Trust or of such Trustees. Under circumstances under which the Trustees determine that the use of such name is not practicable or under circumstances in which the Trustees are contractually bound to change that name, they may use such other designation or they may adopt another name under which the Trust may hold property or conduct its activities. 1.2 Places of Business. The Trust shall maintain an office in Maryland at CT Corporation or such other place in Maryland as the Trustees may determine from time to time. The Resident Agent of the Trust at such office shall be The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland, 21202. The Trust may change such Resident Agent from time to time as the Trustees shall determine. The Trust may have such other offices or places of business within or without the State of Maryland as the Trustees may from time to time determine. -3- 1.3 Nature of Trust. The Trust shall be a real estate investment trust within the meaning of Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland. It is also intended that the Trust shall carry on a business as a "real estate investment trust" as described in the REIT Provisions of the Internal Revenue Code. The Trust is not intended to be, shall not be deemed to be, and shall not be treated as a general partnership, limited partnership, joint venture, corporation or joint stock company (but nothing herein shall preclude the Trust from being treated for tax purposes as an association under the Internal Revenue Code) nor shall the Trustees or Shareholders or any of them for any purpose be, nor be deemed to be, nor be treated in any way whatsoever to be, liable or responsible hereunder as partners or joint venturers. The relationship of the Shareholders to the Trustees shall be solely that of beneficiaries of the Trust in accordance with the rights conferred upon them by this Declaration. 1.4 Definitions. The terms defined in this Section 1.4., wherever used in this Declaration, shall, unless the context otherwise requires, have the respective meanings hereinafter specified. Whenever the singular number is used in this Declaration and when permitted by the context, the same shall include the plural, and the masculine gender shall include the feminine and neuter genders, and vice versa. Where applicable, calculations to be made pursuant to any such definition shall be made in accordance with generally accepted accounting principles as in effect from time to time except as otherwise provided in such definition. (a) Advisor. "Advisor" shall mean the Person employed by the Trustees in accordance with the provisions of Article IV. (b) Affiliate. "Affiliate" shall mean, as to any Person, (i) any other Person directly or indirectly controlling, controlled by or under common control with such Person, (ii) any other Person that owns beneficially, directly or indirectly, five percent (5%) or more of the outstanding capital stock, shares or equity interests of such Person, or (iii) any officer, director, employee, general partner or trustee of such Person or of any Person controlling, controlled by or under common control with such Person (excluding trustees who are not otherwise an Affiliate of such Person). -4- (c) Affiliated Trustee. "Affiliated Trustee" shall mean a Trustee who is not an Independent Trustee. (d) Annual Meeting of Shareholders. "Annual Meeting of Shareholders" shall mean the meeting described in the first sentence of Section 6.9. (e) Annual Report. "Annual Report" shall have the meaning set forth in Section 6.11(a). (f) Average Invested Real Estate Assets. "Average Invested Real Estate Assets" for any period shall mean the average of the aggregate book value of the consolidated assets of the Company invested, directly or indirectly, in equity interests in, and loans secured by, real estate and personal property associated with such real estate, before reserves for depreciation or bad debt or other similar non-cash reserves, calculated by taking the average of such values at the end of each month during such period. (g) Book Value. "Book Value" of an asset or assets shall mean the value of such asset or assets of the Trust on the books of the Trust, without deduction for depreciation or other asset valuation reserves and without deduction for mortgages or other security interests to which such asset or assets are subject, except that no asset shall be valued at more than its fair market value as determined by or under procedures adopted by the Trustees, and the underlying assets of a partnership, joint venture or other form of indirect ownership, to the extent of the Trust's interest therein, shall be valued as if owned directly by the Trust. (h) Bylaws. "Bylaws" shall have the meaning set forth in Section 3.3. (i) Declaration. "Declaration" or "this Declaration" shall mean this Declaration of Trust, as amended, restated or modified from time to time. References in this Declaration to "herein" and "hereunder" shall be deemed to refer to this Declaration and shall not be limited to the particular text, article or section in which such words appear. (j) [Intentionally left blank]. -5- (k) Independent Trustee. "Independent Trustee" shall mean a Trustee who, in his individual capacity, (i) is neither an Affiliate of, nor has any material business or professional relationship with, the Advisor or any other Person whom the Trustees may pursuant to Section 6.14(c) hereof permit to purchase in excess of 8.5% of the Trust's Shares (provided, however, that any Trustee affiliated with an underwriter shall not cease to be an Independent Trustee solely on the basis of such underwriter's purchase of Shares in connection with any public offering of the Trust's Shares), and (ii) does not perform any services for the Trust except as Trustee. (l) Internal Revenue Code. "Internal Revenue Code" shall mean the Internal Revenue Code of 1954, as now enacted or hereafter amended, or successor statutes and applicable rules and regulations thereunder. (m) Invested Assets. "Invested Assets" shall mean the Book Value of all the Real Estate Investments of the Trust. (n) Mortgage Loans. "Mortgage Loans" shall mean notes, debentures, bonds and other evidences of indebtedness or obligations, whether negotiable or non-negotiable, and which are secured or collateralized by Mortgages. (o) Mortgages. "Mortgages" shall mean mortgages, deeds of trust or other security interests in Real Property. (p) Net Assets. "Net Assets" shall mean the total assets (other than intangibles) at cost before deducting depreciation or other non-cash reserves less total liabilities, calculated at least quarterly on a basis consistently applied. (q) Net Income. "Net Income" for any period shall be calculated on the basis of the Trust's audited financial statements and shall mean total revenues applicable to such period, less the expenses applicable to such period, other than additions to reserves for depreciation or bad debts or other similar non-cash reserves. (r) Person. "Person" shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business -6- trusts and other entities and governments and agencies and political subdivisions thereof. (s) Real Estate Investment. "Real Estate Investment" shall mean any direct or indirect investment in any interest in Real Property or in any Mortgage Loan, or in any Person whose principal purpose is to make any such investment. (t) Real Property. "Real Property" shall mean and include land leasehold interests (including but not limited to interests of a lessor or lessee therein), rights and interests in land, and in any buildings, structures, improvements, furnishings and fixtures located on or used in connection with land or interests therein, but does not include investments in Mortgages, Mortgage Loans or interests therein. (u) REIT. "REIT" shall mean a real estate investment trust as defined in the REIT Provisions of the Internal Revenue Code. (v) REIT Provisions of the Internal Revenue Code. "REIT Provisions of the Internal Revenue Code" shall mean Parts II and III of Subchapter M of Chapter 1 of Subtitle A of the Internal Revenue Code or any successor provision. (w) Securities. "Securities" shall mean any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in, temporary or interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire any of the foregoing. (x) Shareholders. "Shareholders" shall mean as of any particular time all holders of record of outstanding Shares at such time. (y) Shares. "Shares" or, as the context may require, "shares" shall mean the shares of beneficial interest of the Trust as described in Section 6.1 hereof. (z) Total Assets. "Total Assets" shall mean the Book Value of all the assets of the Trust, as such Book Value appears on the most recent quarterly balance sheet of the Trust. -7- (aa) Total Operating Expenses. "Total Operating Expenses" shall be calculated on the basis of the Trust's annual audited financial statements and shall mean the aggregate annual expenses regarded as ordinary operating expenses (including any compensation payable to the Advisor), exclusive of the following: (i) interest payments and any other cost of borrowed money; (ii) taxes on income and taxes and assessments on real property, if any, and all other taxes applicable to the Trust; (iii) legal, auditing, accounting, underwriting, brokerage, listing, reporting, registration and other fees, and printing, engraving and other expenses and taxes incurred in connection with the issuance, distribution, transfer, trading, registration and stock exchange listing of the Trust's securities, including transfer agent's, registrar's and indenture trustee's fees and charges; (A) expenses of organizing, restructuring, reorganizing or terminating the Trust, or of revising, amending, converting or modifying the Trust's organizational documents; (B) expenses directly connected with the acquisition, disposition and ownership of real estate interests or other property (including the costs of foreclosure, insurance premiums, legal services, brokerage and sales commissions, maintenance, repair, improvement and local management of property), other than expenses with respect thereto of employees of the Advisor, to the extent that such expenses are to be borne by the Advisor pursuant to the terms of the advisory contract; (iv) non-cash provisions for depreciation, depletion and amortization; (v) losses on the disposition of assets and provisions for such losses; and -8- (vi) other extraordinary charges including, without limitation, litigation costs. (bb) Trust. "Trust" shall mean the Trust created by this Declaration. (cc) Trustees. "Trustees" shall mean, as of any particular time, the original signatories hereto as long as they hold office hereunder and additional and successor Trustees, and shall not include the officers, employees or agents of the Trust or the Shareholders. Nothing herein shall be deemed to preclude the Trustees from also serving as officers, employees or agents of the Trust or owning Shares. (dd) Trust Estate. "Trust Estate" shall mean as of any particular time any and all property, real, personal or otherwise, tangible or intangible, which is transferred, conveyed or paid to or purchased by the Trust or Trustees and all rents, income, profits and gains therefrom and which at such time is owned or held by or for the Trust or the Trustees. ARTICLE II TRUSTEES 2.1 Number, Term of Office and Qualifications of Trustees. There shall be no fewer than three (3) nor more than twelve (12) Trustees. The exact number of Trustees shall be five (5) until changed by a two-thirds (2/3) vote of the Trustees or by an amendment of this Declaration duly adopted by the Shareholders. The Board of Trustees shall be classified into three groups, with two (2) Trustees in Group I, two (2) Trustees in Group II, and one (1) Trustee in Group III. Each Trustee in Group I shall serve for a term ending at the annual meeting of Shareholders in 1996; each Trustee in Group II shall serve for a term ending at the annual meeting of Shareholders in 1997; and the Trustee in Group III shall serve for a term ending at the annual meeting of Shareholders in 1995. After the respective terms of the groups indicated, each such group of Trustees shall be elected for successive terms ending at the annual meeting of Shareholders held during the third year after election. -9- The names and business addresses of the current Trustees who will serve as Trustees until the expiration of their respective terms and until their successors are elected and qualify are as follows: Name Address ---- ------- Group I: Barry M. Portnoy Sullivan & Worcester One Post Office Square Boston, MA 02109 John L. Harrington 990 Washington Street Suite 315 Dedham, MA 02026 Group II: Rev. Justinian St. Gabriel's Parish Manning, C.P. Rectory 139 Washington Street Brighton, MA 02135 Gerard M. Martin M & P Partners Limited Partnership 400 Centre Street Newton, MA 02158 Group III: Arthur G. Cumberland Farms, Inc. Koumantzelis 777 Dedham Street Canton, MA 02021-9118 The current Trustees shall be the signatories hereto. No reduction in the number of Trustees shall have the effect of removing any Trustee from office prior to the expiration of term. Subject to the provisions of Section 2.3, each Trustee shall hold office until the election and qualification of his successor. There shall be no cumulative voting in the election of Trustees. A Trustee shall be an individual at least twenty-one (21) years of age who is not under legal disability. A majority of the Trustees shall at all times be persons who are Independent Trustees; provided, however, that upon a failure to comply with this requirement because of the resignation, removal or death of a Trustee who is an Independent Trustee, such requirement shall not be applicable for a period of ninety (90) days. Nominees to serve as Independent Trustees shall be nominated by the then current Independent Trustees, if any. Unless otherwise required -10- by law, no Trustee shall be required to give bond, surety or security in any jurisdiction for the performance of any duties or obligations hereunder. The Trustees in their capacity as Trustees shall not be required to devote their entire time to the business and affairs of the Trust. 2.2 Compensation and Other Remuneration. The Trustees shall be entitled to receive such reasonable compensation for their services as Trustees as the Trustees may determine from time to time. The Trustees and Trust officers shall be entitled to receive remuneration for services rendered to the Trust in any other capacity. Subject to Sections 7.7 and 7.8, such services may include, without limitation, services as an officer of the Trust, legal, accounting or other professional services, or services as a broker, transfer agent or underwriter, whether performed by a Trustee or any person affiliated with a Trustee. 2.3 Resignation, Removal and Death of Trustees. A Trustee may resign at any time by giving written notice to the remaining Trustees at the principal office of the Trust. Such resignation shall take effect on the date specified in such notice, without need for prior accounting. A Trustee may be removed at any time with or without cause by vote or consent of holders of Shares representing two-thirds of the total votes authorized to be cast by Shares then outstanding and entitled to vote thereon, or with cause by all remaining Trustees. A Trustee judged incompetent or bankrupt, or for whom a guardian or conservator has been appointed, shall be deemed to have resigned as of the date of such adjudication or appointment. Upon the resignation or removal of any Trustee, or his otherwise ceasing to be a Trustee, he shall execute and deliver such documents as the remaining Trustees shall require for the conveyance of any Trust property held in his name, shall account to the remaining Trustees as they require for all property which he holds as Trustee and shall thereupon be discharged as Trustee. Upon the incapacity or death of any Trustee, his legal representative shall perform the acts set forth in the preceding sentence and the discharge mentioned therein shall run to such legal representative and to the incapacitated Trustee or the estate of the deceased Trustee, as the case may be. 2.4 Vacancies. If any or all the Trustees cease to be Trustees hereunder, whether by reason of resignation, removal, incapacity, death or otherwise, such event shall not terminate -11- the Trust or affect its continuity. Until vacancies are filled, the remaining Trustee or Trustees (even though fewer than three (3)) may exercise the powers of the Trustees hereunder. Vacancies (including vacancies created by increases in number) may be filled by the remaining Trustee or by a majority of the remaining Trustees (or a majority of the remaining Independent Trustees, if any, if the vacant position was formerly held by an Independent Trustee or is required to be held by an Independent Trustee) or by vote of holders of Shares representing a majority of the total number of votes authorized to be cast by Shares then outstanding and entitled to vote thereon. If at any time there shall be no Trustees in office, successor Trustees shall be elected by the Shareholders as provided in Section 6.9. Any Trustee elected to fill a vacancy created by the resignation, removal or death of a former Trustee shall hold office for the unexpired term of such former Trustee. 2.5 Successor and Additional Trustees. The right, title and interest of the Trustees in and to the Trust Estate shall also vest in successor and additional Trustees upon their qualification, and they shall thereupon have all the rights and obligations of Trustees hereunder. Such right, title and interest shall vest in the Trustees whether or not conveyancing documents have been executed and delivered pursuant to Section 2.3 or otherwise. Appropriate written evidence of the election and qualification of successor and additional Trustees shall be filed with the records of the Trust and in such other offices or places as the Trustees may deem necessary, appropriate or desirable. 2.6 Actions by Trustees. The Trustees may act with or without a meeting. A quorum for all meetings of the Trustees shall be a majority of the Trustees; provided, however, that, whenever pursuant to Section 7.8 or otherwise the vote of a majority of a particular group of Trustees is required at a meeting, a quorum for such meeting shall be a majority of the Trustees which shall include a majority of such group. Unless specifically provided otherwise in this Declaration, any action of the Trustees may be taken at a meeting by vote of a majority of the Trustees present (a quorum being present) or without a meeting by written consents of a majority of the Trustees, which consents shall be filed with the records of meetings of the Trustees. Any action or actions permitted to be taken by the Trustees in connection with the business of the Trust may be -12- taken pursuant to authority granted by a meeting of the Trustees conducted by a telephone conference call, and the transaction of Trust business represented thereby shall be of the same authority and validity as if transacted at a meeting of the Trustees held in person or by written consent. The minutes of any Trustees' meeting held by telephone shall be prepared in the same manner as a meeting of the Trustees held in person. The acquisition or disposition of any investment (other than investments in short-term investment Securities described in Section 5.1) shall require the approval of a majority of Trustees, except as otherwise provided in Section 7.8. Any agreement, deed, mortgage, lease or other instrument or writing executed by one or more of the Trustees or by any authorized Person shall be valid and binding upon the Trustees and upon the Trust when authorized or ratified by action of the Trustees or as provided in the Bylaws. With respect to the actions of the Trustees, Trustees who have, or are Affiliates of Persons who have, any direct or indirect interest in or connection with any matter being acted upon may be counted for all quorum purposes under this Section 2.6 and, subject to the provisions of Section 7.8, may vote on the matter as to which they or their Affiliates have such interest or connection. 2.7 Certification of Changes in Trustees. No alteration in the number of Trustees, no removal of a Trustee and no election or appointment of any individual as Trustee (other than an individual who was serving as a Trustee immediately prior to such election or appointment) shall become effective unless and until there shall be delivered to the secretary of the Trust an instrument in writing signed by a majority of the Trustees, certifying to such alteration in the number of Trustees and/or to such removal of a Trustee and/or naming the individual so elected or appointed as Trustee, together with his written acceptance thereof and agreement to be bound thereby. 2.8 Committees. The Trustees may appoint an audit committee and such other standing committees as the Trustees determine. Each standing committee shall consist of three or more members, provided, however, that the Trustees may appoint a standing committee consisting of at least one Trustee and two non- Trustees. Notwithstanding the foregoing, however, all members of the audit committee shall be Independent Trustees. A majority of -13- the members of each other standing committee comprised solely of Trustees shall be Independent Trustees; provided, however, that upon a failure to comply with this requirement because of the resignation, removal or death of a Trustee who is an Independent Trustee, such requirement shall not be applicable for a period of ninety (90) days. Each committee shall have such powers, duties and obligations as the Trustees may deem necessary or appropriate. The standing committees shall report their activities periodically to the Trustees. ARTICLE III TRUSTEES' POWERS 3.1 Power and Authority of Trustees. The Trustees, subject only to the specific limitations contained in this Declaration, shall have, without further or other authorization, and free from any power or control on the part of the Shareholders, full, absolute and exclusive power, control and authority over the Trust Estate and over the business and affairs of the Trust to the same extent as if the Trustees were the sole owners thereof in their own right, and may do all such acts and things as in their sole judgment and discretion are necessary for or incidental to or desirable for the carrying out of or conducting the business of the Trust. Any construction of this Declaration or any determination made in good faith by the Trustees as to the purposes of the Trust or the existence of any power or authority hereunder shall be conclusive. In construing the provisions of this Declaration, the presumption shall be in favor of the grant of powers and authority to the Trustees. The enumeration of any specific power or authority herein shall not be construed as limiting the aforesaid powers or the general powers or authority or any other specified power or authority conferred herein upon the Trustees. 3.2 Specific Powers and Authority. Subject only to the express limitations contained in this Declaration and in addition to any powers and authority conferred by this Declaration or which the Trustees may have by virtue of any present or future statute or rule or law, the Trustees without any action or consent by the Shareholders shall have and may exercise at any -14- time and from time to time the following powers and authorities which may or may not be exercised by them in their sole judgment and discretion and in such manner and upon such terms and conditions as they may from time to time deem proper: (a) to retain, invest and reinvest the capital or other funds of the Trust in, and to acquire, purchase, or own, real or personal property of any kind, whether tangible or intangible, wherever located in the world, and make commitments for such investments, all without regard to whether any such property is authorized by law for the investment of trust funds or produces or may produce income; to possess and exercise all the rights, powers and privileges appertaining to the ownership of the Trust Estate; and to increase the capital of the Trust at any time by the issuance of any additional authorized Shares (subject to Section 5.2(e)) or other Securities of the Trust for such consideration as they deem advisable; (b) without limitation of the powers set forth in paragraph (a) above, to invest in, purchase or otherwise acquire for such consideration as they deem proper, in cash or other property or through the issuance of shares or through the issuance of notes, debentures, bonds or other obligations of the Trust, and to hold for investment, the entire or any participating interests in any Mortgage Loans or interest in Real Property, including ownership of, or participations in the ownership of, or rights to acquire, equity interests in Real Property or in Persons owning, developing, improving, operating or managing Real Property, which interests may be acquired independently of or in connection with other investment activities of the Trust and, in the latter case, may include rights to receive additional payments based on gross income or rental or other income from the Real Property or improvements thereon; to invest in loans secured by the pledge or transfer of Mortgage Loans; (c) to sell, rent, lease, hire, exchange, release, partition, assign, mortgage, pledge, hypothecate, grant security interests in, encumber, negotiate, convey, transfer or otherwise dispose of any and all the Trust Estate by deeds (including deeds in lieu of foreclosure), trust deeds, assignments, bills of sale, transfers, leases, mortgages, -15- financing statements, security agreements and other instruments for any of such purposes executed and delivered for and on behalf of the Trust or the Trustees by one or more of the Trustees or by a duly authorized officer, employee, agent or nominee of the Trust, provided that no disposition of a Real Estate Investment shall be accomplished without the approval of a majority of the Trustees; (d) to issue Shares, bonds, debentures, notes or other evidences of indebtedness, which may be secured or unsecured and may be subordinated to any indebtedness of the Trust, to such Persons for such cash, property or other consideration (including Securities issued or created by, or interests in, any Person) at such time or times and on such terms as the Trustees may deem advisable and to list any of the foregoing Securities issued by the Trust on any securities exchange and to purchase or otherwise acquire, hold, cancel, reissue, sell and transfer any of such Securities, and to cause the instruments evidencing such Securities to bear an actual or facsimile imprint of the seal of the Trust (if the Trustees shall have adopted such a seal) and to be signed by manual or facsimile signature or signatures (and to issue such Securities, whether or not any Person whose manual or facsimile signature shall be imprinted thereon shall have ceased to occupy the office with respect to which such signature was authorized), provided that, where only facsimile signatures for the Trust are used, the instrument shall be countersigned manually by a transfer agent, registrar or other authentication agent; and to issue any of such Securities of different types in combinations or units with such restrictions on the separate transferability thereof as the Trustees shall determine; (e) to enter into leases of real and personal property as lessor or lessee and to enter into contracts, obligations and other agreements for a term, and to invest in obligations having a term, extending beyond the term of office of the Trustees and beyond the possible termination of the Trust, or having a lesser term; (f) to borrow money and give negotiable or non negotiable instruments therefor; or guarantee, indemnify or act as surety with respect to payment or performance of -16- obligations of third parties; to enter into other obligations on behalf of the Trust; and to assign, convey, transfer, mortgage, subordinate, pledge, grant security interest in, encumber or hypothecate the Trust Estate to secure any indebtedness of the Trust or any other of the foregoing obligations of the Trust; (g) to lend money, whether secured or unsecured; (h) to create reserve funds for any purpose; (i) to incur and pay out of the Trust Estate any charges or expenses, and to disburse any funds of the Trust, which charges, expenses or disbursements are, in the opinion of the Trustees, necessary or incidental to or desirable for the carrying out of any of the purposes of the Trust or conducting the business of the Trust, including without limitation taxes and other governmental levies, charges and assessments, of whatever kind or nature, imposed upon or against the Trustees in connection with the Trust or the Trust Estate or upon or against the Trust Estate or any part hereof, and for any of the purposes herein; (j) to deposit funds of the Trust in banks, trust companies, savings and loan associations and other depositories, whether or not such deposits will draw interest, the same to be subject to withdrawal on such terms and in such manner and by such Person or Persons (including any one or more Trustees or officers, employees or agents, of the Trust) as the Trustees may determine; (k) to possess and exercise all the rights, powers and privileges pertaining to the ownership of all or any Mortgages or Securities issued or created by, or interests in, any Person, forming part of the Trust Estate, to the same extent that an individual might do so, and, without limiting the generality of the foregoing, to vote or give any consent, request or notice, or waive any notice, either in person or by proxy or power of attorney, with or without power of substitution, to one or more Persons, which proxies and powers of attorney may be for meetings or action generally or for any particular meeting or action, and may include the exercise of discretionary powers; -17- (l) to cause to be organized or assist in organizing any Person under the laws of any jurisdiction to acquire the Trust Estate or any part or parts thereof or to carry on any business in which the Trust shall directly or indirectly have any interest, and to sell, rent, lease, hire, convey, negotiate, assign, exchange or transfer the Trust Estate or any part or parts thereof to or with any such Person or any existing Person in exchange for the Securities thereof or otherwise, and to merge or consolidate the Trust with or into any Person or merge or consolidate any Person into the Trust, and to lend money to, subscribe for the Securities of, and enter into any contracts with, any Person in which the Trust holds or is about to acquire Securities or any other interest; (m) to enter into joint ventures, general or limited partnerships, participation or agency arrangements and any other lawful combinations or associations, and to act as a general or limited partner provided, however, that the Trustees may not enter into any such joint venture or other association as aforesaid unless it has first received from counsel an opinion to the effect that such joint venture or other association as aforesaid will be treated for tax purposes as a partnership; (n) to elect, appoint, engage or employ such officers for the Trust as the Trustees may determine, who may be removed or discharged at the discretion of the Trustees, such officers to have such powers and duties, and to serve such terms, as may be prescribed by the Trustees or by the Bylaws; to engage or employ any Persons (including, subject to the provisions of Sections 7.7 and 7.8, any Trustee or officer, agent or employee of the Trust and any Person in which any Trustee, officer or agent is directly or indirectly interested or with which he is directly or indirectly connected) as agents, representatives, employees, or independent contractors (including without limitation real estate advisors, investment advisors, transfer agents, registrars, underwriters, accountants, attorneys at law, real estate agents, managers, appraisers, brokers, architects, engineers, construction managers, general contractors or otherwise) in one or more capacities, and to pay compensation from the Trust for services in as many capacities as such Person may be so engaged or employed; and -18- to delegate any of the powers and duties of the Trustees to any one or more Trustees, agents, representatives, officers, employees, independent contractors or other Persons; provided, however, that no such delegation shall be made to an Affiliate of the Advisor, except with the approval of a majority of the Independent Trustees; (o) to determine or cause to be determined from time to time the value of all or any part of the Trust Estate and of any services, Securities, property or other consideration to be furnished to or acquired by the Trust, and from time to time to revalue or cause to be revalued all or any part of the Trust Estate in accordance with such appraisals or other information as are, in the Trustees' sole judgment, necessary and/or satisfactory; (p) to collect, sue for and receive all sums of money coming due to the Trust, and to engage in, intervene in, prosecute, join, defend, compromise, abandon or adjust, by arbitration or otherwise, any actions, suits, proceedings, disputes, claims, controversies, demands or other litigation relating to the Trust, the Trust Estate or the Trust's affairs, to enter into agreements therefor, whether or not any suit is commenced or claim accrued or asserted and, in advance of any controversy, to enter into agreements regarding arbitration, adjudication or settlement thereof; (q) to renew, modify, release, compromise, extend, consolidate or cancel, in whole or in part, any obligation to or of the Trust or participate in any reorganization of obligors to the Trust; (r) to self-insure or to purchase and pay for out of the Trust Estate insurance contracts and policies, including contracts of indemnity, insuring the Trust Estate against any and all risks and insuring the Trust and/or all or any of the Trustees, the Shareholders, or the officers, employees or agents of the Trust against any and all claims and liabilities of every nature asserted by any Person arising by reason of any action alleged to have been taken or omitted by the Trust or by the Trustees, Shareholders, officers, employees or agents, whether or not the Trust would have the power to indemnify such Person or Persons against any such claim or liability; -19- (s) to cause legal title to any of the Trust Estate to be held by and/or in the name of the Trustees, or, except as prohibited by law, by and/or in the name of the Trust or one or more of the Trustees or any other Person, on such terms, in such manner and with such powers in such Person as the Trustees may determine, and with or without disclosure that the Trust or Trustees are interested therein; (t) to adopt a fiscal year for the Trust, and from time to time to change such fiscal year; (u) to adopt and use a seal (but the use of a seal shall not be required for the execution of instruments or obligations of the Trust); (v) to the extent permitted by law, to indemnify or enter into agreements with respect to indemnification with any Person with which the Trust has dealings, including without limitation any broker/dealer, investment bank, investment advisor or independent contractor, to such extent as the Trustees shall determine; (w) to confess judgment against the Trust; (x) to discontinue the operations of the Trust; (y) to repurchase or redeem Shares and other Securities issued by the Trust; (z) to declare and pay dividends or distributions, consisting of cash, property or Securities, to the holders of Shares of the Trust out of any funds legally available therefor; and (aa) to do all other such acts and things as are incident to the foregoing, and to exercise all powers which are necessary or useful to carry on the business of the Trust and to carry out the provisions of this Declaration. 3.3 Bylaws. The Trustees may make or adopt and from time to time amend or repeal Bylaws (the "Bylaws") not inconsistent with law or with this Declaration, containing provisions relating to the business of the Trust and the conduct of its affairs and -20- in such Bylaws may define the duties of the officers, employees and agents of the Trust. ARTICLE IV ADVISOR 4.1 Employment of Advisor. The Trustees are responsible for the general policies of the Trust and for the general supervision of the business of the Trust conducted by all officers, agents, employees, advisors, managers or independent contractors of the Trust. However, the Trustees are not and shall not be required personally to conduct the business of the Trust, and, consistent with their ultimate responsibility as stated above, the Trustees shall have the power to appoint, employ or contract with any Person (including one or more of themselves or any corporation, partnership, or trust in which one or more of them may be directors, officers, stockholders, partners or trustees) as the Trustees may deem necessary or proper for the transaction of the business of the Trust. The Trustees may therefore employ or contract with such Person (herein referred to as the "Advisor") and, consistent with their ultimate responsibility as set forth in this Section 4.1, the Trustees may grant or delegate such authority to the Advisor as the Trustees may in their sole discretion deem necessary or desirable without regard to whether such authority is normally granted or delegated by trustees. The Advisor shall be required to use its best efforts to supervise the operation of the Trust in a manner consistent with the investment policies and objectives of the Trust. Subject to the provisions of Sections 4.2 and 7.8 hereof, the Trustees shall have the power to determine the terms and compensation of the Advisor or any other Person whom they may employ or with whom they may contract for advisory services. The Trustees may exercise broad discretion in allowing the Advisor to administer and regulate the operations of the Trust, to act as agent for the Trust, to execute documents on behalf of the Trustees and to make executive decisions which conform to general policies and general principles previously established by the Trustees. -21- 4.2 Term. The Trustees shall not enter into any advisory contract with the Advisor unless such contract has an initial term of not more than one year, provides for annual renewal or extension thereafter, provides for termination thereof by the Trustees without cause at any time upon sixty (60) days' written notice by the Trustees, by affirmative vote or written consent of a majority of the Independent Trustees, and provides for termination thereof by the Advisor without cause at any time after the expiration of a period specified in such contract (which period shall not be shorter than the original term) without penalty upon sixty (60) days' written notice by the Advisor. In the event of the termination of an advisory contract, the terminated Advisor shall be required to cooperate with the Trust and take all reasonable steps requested to assist the Trustees in making an orderly transition of the advisory function. It shall be the duty of the Trustees annually to evaluate the performance of the Advisor, and the Independent Trustees have a fiduciary duty to the Shareholders to supervise the relationship of the Trust with the Advisor. 4.3 Other Activities of Advisor. The Advisor shall not be required to administer the Trust as its sole and exclusive function and may have other business interests and may engage in other activities similar or in addition to those relating to the Trust, including the rendering of advice or services of any kind to other investors or any other Persons (including other REITs) and the management of other investments. The Trustees may request the Advisor to engage in certain other activities which complement the Trust's investments, and the Advisor may receive compensation or commissions therefor from the Trust or other Persons. Neither the Advisor nor (subject to any applicable provisions of Section 7.7) any Affiliate of the Advisor shall be obligated to present any particular investment opportunities to the Trust, even if such opportunities are of a character such that, if presented to the Trust, they could be taken by the Trust, and, subject to the foregoing, each of them shall be protected in taking for its own account or recommending to others any such particular investment opportunity. Notwithstanding the foregoing, the Advisor shall be required to use its best efforts to present the Trust with a continuing and suitable program consistent with the investment policies and -22- objectives of the Trust and with investments which are representative of, comparable with and on similar terms as investments being made by Affiliates of the Advisor, or by the Advisor for its own account or for the account of any Person for whom the Advisor is providing advisory services. In addition, the Advisor shall be required to, upon the request of any Trustee, promptly furnish the Trustees with such information on a confidential basis as to any investments within the investment policies of the Trust made by Affiliates of the Advisor or by the Advisor for its own account or for the account of any Person for whom the Advisor is providing advisory services. 4.4 Advisor Compensation. The Trustees, including a majority of the Independent Trustees, shall at least annually review generally the performance of the Advisor in order to determine whether the compensation which the Trust has contracted to pay to the Advisor is reasonable in relation to the nature and quality of services performed and whether the provisions of the advisory contract with the Advisor are being carried out. Each such determination shall be based on such of the following and other factors as the Trustees (including the Independent Trustees) deem appropriate and shall be reflected in the minutes of the meetings of the Trustees: (a) the size of the advisory fee in relation to the size, composition and profitability of the portfolio of the Trust; (b) the success of the Advisor in generating opportunities that meet the investment objectives of the Trust; (c) the rates charged to other REITs and to investors other than REITs by advisors performing similar services; (d) additional revenues realized by the Advisor and its Affiliates through their relationship with the Trust, including loan administration, underwriting or brokerage commissions and servicing, engineering, inspection and other fees, whether paid by the Trust or by others with whom the Trust does business; (e) the quality and extent of service and advice furnished by the Advisor; -23- (f) the performance of the investment portfolio of the Trust, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations; and (g) the quality of the portfolio of the Trust in relationship to any investments generated by the Advisor for its own account. 4.5 Annual Total Operating Expenses. Each advisory contract with an Advisor shall provide that the Total Operating Expenses of the Trust shall not exceed in any fiscal year the lower of: (a) the greater of (i) two percent (2%) of the Average Invested Real Estate Assets for such fiscal year or (ii) twenty-five percent (25%) of the Net Income for such fiscal year (calculated before the deduction therefrom of such Total Operating Expenses); or (b) the lowest of any applicable operating expense limitations that may be imposed by law or regulation in a state in which any securities of the Trust are or will be qualified for sale or by a national securities exchange on which any securities of the Trust are or may be listed, as such limitations may be altered from time to time. The Independent Trustees shall at least annually determine whether the total fees and expenses of the Trust are reasonable in light of the investment experience of the Trust, its Net Assets, its Net Income and the fees and expenses of comparable REITs. Each such determination shall be reflected in the minutes of meetings of the Trustees. Within sixty (60) days after the end of any fiscal quarter of the Trust ending on or after December 31, 1987 for which Total Operating Expenses (for the twelve months then ended) exceed either of the expense limitations provided in subparagraph (a) of this Section 4.5, the Trust shall send to the Shareholders a written disclosure of such fact, together with an explanation of the factors, if any, which the Trustees (including a majority of the Independent Trustees) have concluded were sufficiently -24- unanticipated, unusual or nonrecurring to justify such higher Total Operating Expenses. Each advisory contract with the Advisor shall provide that in the event that the Total Operating Expenses exceed any of the limitations provided in this Section 4.5, then the Advisor shall refund to the Trust the amount by which the aggregate annual Total Operating Expenses paid or incurred by the Trust exceed the limitations herein provided; provided, however, that with respect to the limitations provided in subparagraph (a) of this Section 4.5, only so much of such excess need be refunded as the Trustees, including a majority of the Independent Trustees, shall have found to be unjustified as provided above. ARTICLE V INVESTMENT POLICY AND POLICIES WITH RESPECT TO CERTAIN DISTRIBUTIONS TO SHAREHOLDERS 5.1 Statement of Policy. It shall be the general objectives of the Trust (i) to provide current income for distribution to Shareholders through investments in income-producing rehabilitation, health care and related facilities and other real estate investments, (ii) to provide Shareholders with the opportunity for additional returns through participation in any increases in the operating revenues of investment properties, (iii) to provide Shareholders with the opportunity to realize income from investments in income-producing properties to be financed by the issuance of additional Shares or debt, (iv) to provide Shareholders with the opportunity to realize capital growth resulting from appreciation, if any, in the residual value of investment properties and (v) to preserve and protect Shareholders' capital. These general objectives shall be pursued in a manner consistent with the investment policies specified in the remainder of this Section 5.1. While the Trustees are authorized pursuant to Article III to invest the Trust Estate in a wide variety of investments, it shall be the policy of the Trustees to invest the initial portion of the Trust Estate primarily in income-producing rehabilitation, health care and related facilities including, without limitation, acute care and rehabilitation hospitals, skilled nursing and -25- intermediate care facilities, retirement centers, congregate living facilities, medical office buildings, health care related hotels, outpatient rehabilitation centers, community re-entry/re-training facilities and facilities housing other health care and related products and services. The Trust may make secured borrowings to make permitted additional Real Estate Investments and secured or unsecured borrowings for normal working capital needs, including the repair and maintenance of properties in which it has invested, tenant improvements and leasing commissions. The Trust may make such borrowings from third parties or, subject to approval by a majority of the Independent Trustees, from Affiliates of the Advisor. Interest and other financing charges or fees to be paid on loans from such Affiliates will not exceed the interest and other financing charges or fees which would be charged by third party financing institutions on comparable loans for the same purpose in the same geographic area. To the extent that the Trust Estate has assets not otherwise invested in accordance with this Section 5.1, it shall be the policy of the Trustees to invest such assets in (i) U.S. government Securities; (ii) Securities of U.S. government agencies; (iii) bankers' acceptances; (iv) bank certificates of deposit; (v) interest-bearing deposits in commercial banks; (vi) participations in pools of mortgages or bonds and notes (such as Federal Home Loan Mortgage Corporation participation sale certificates, Government National Mortgage Association modified pass-through certificates and Federal National Mortgage Association bonds and notes; (vii) bank repurchase agreements covering the Securities of the United States or agencies or instrumentalities thereof; and (viii) other short-term investments consistent with the Trust's intention to qualify as a REIT under the Internal Revenue Code. It shall be the policy of the Trustees to make investments in such manner as to comply with the requirements of the Internal Revenue Code with respect to the composition of the investments and the derivation of the income of a real estate investment trust as defined in the REIT Provisions of the Internal Revenue Code; provided, however, that no Trustee, officer, employee or agent of the Trust shall be liable for any act or omission resulting in the loss of tax benefits under the Internal Revenue -26- Code, except for that arising from his own wilful misfeasance, bad faith, gross negligence or reckless disregard of duty. 5.2 Prohibited Investments and Activities. The Trustees shall not engage in any of the following investment practices or activities: (a) investing in any junior mortgage loan unless by appraisal or other method the Independent Trustees determine that (a) capital invested in any such loan is adequately secured on the basis of the equity of the borrower in the property underlying such investment and the ability of the borrower to repay the mortgage loan or (b) such loan is a financing device entered into by the Trust to establish the priority of its capital investment over the capital invested by others investing with the Trust in a real estate project; (b) investing in commodities or commodity futures contracts (other than interest rate futures, when used solely for hedging purposes); (c) investing more than 1% of the Trust's total assets in real estate contracts of sale unless such contracts of sale are in recordable form and appropriately recorded in the chain of title; (d) issuing Securities that are redeemable at the option of the holders thereof; (e) granting warrants or options to purchase shares of beneficial interest of the Trust unless such warrants or options (i) are issued at an exercise price greater than or equal to the fair market value of the shares of beneficial interest of the Trust on the date of the grant and for consideration (including services) that in the judgment of a majority of the Independent Trustees has a market value at least equal to the value of the warrant or option on the date of grant, (ii) are exercisable within ten years from the date of grant and (iii) when aggregated with all other outstanding options and warrants are less than 10% of the value of the outstanding shares of beneficial interest of the Trust on the date of grant; provided that the terms of warrants or options that are issued ratably to all holders -27- of shares of beneficial interest or as part of a financing arrangement need not meet the above restrictions; (f) holding equity investments in unimproved, non-income producing real property, except such properties as are currently undergoing development or are presently intended to be developed within one year, together with mortgage loans on such property (other than first mortgage development loans), aggregating to more than 10% of the Trust's assets; (g) engaging in trading (as compared with investment activities), or engaging in the underwriting of or distributing as agent of the Securities issued by others; (h) making secured and unsecured borrowings which in the aggregate exceed 300% of the Net Assets of the Trust, unless approved by a majority of the Independent Trustees, and disclosed to shareholders; (i) undertaking any activity that would disqualify the Trust as a real estate investment trust under the provisions of the Code as long as a real estate investment trust is accorded substantially the same treatment or benefits under the United States tax laws from time to time in effect as under Sections 856-860 of the Code at the date of adoption of the Trust's Declaration of Trust; and (j) using or applying land for farming, agriculture, horticulture or similar purposes in violation of Section 8-302(b) of the Corporations and Associations Article of the Annotated Code of Maryland. 5.3 Appraisals. If the Trustees shall at any time purchase Real Property, or interests therein, the consideration paid therefor shall generally be based upon the fair market value thereof as determined by an appraisal by a person who is not an Affiliate of the Trust or the Advisor and who is, in the sole judgment of the Trustees, properly qualified to make such a determination. 5.4 Change in Investment Policies. The investment policies set out in this Article V may be changed by a vote of a majority -28- of the Trustees, including a majority of the Independent Trustees. ARTICLE VI THE SHARES AND SHAREHOLDERS 6.1 Description of Shares. The interest of the Shareholders shall be divided into 200,000,000 shares of beneficial interest which shall be known collectively as "Shares," all of which shall be validly issued, fully paid and non-assessable by the Trust upon receipt of full consideration for which they have been issued or without additional consideration if issued by way of share dividend or share split. There shall be two classes of Shares: 50,000,000 shares of one such class shall be known as "Preferred Shares" and 150,000,000 shares of the other such class shall be known as "Common Shares," each such class having $.01 par value per share. Each holder of Shares shall as a result thereof be deemed to have agreed to and be bound by the terms of this Declaration. The Shares may be issued for such consideration as the Trustees shall deem advisable. The Trustees are hereby expressly authorized at any time, and from time to time, to provide for issuance of Shares upon such terms and conditions and pursuant to such agreements as the Trustees may determine. The Trustees are hereby expressly authorized at any time, and from time to time, without Shareholder approval, to amend this Declaration to increase or decrease the aggregate number of Shares or the number of Shares of any class that the Trust has authority to issue. The Trustees are hereby expressly authorized at any time, and from time to time, without Shareholder approval, to set (or change if such class has previously been established) the par value, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms, or conditions of redemption, of the Preferred Shares, and such Preferred Shares may further be divided by the Trustees into classes or series. Except as otherwise determined by the Trustees with respect to any class or series of Preferred Shares, the holders of Shares shall be entitled to the rights and powers hereinafter set forth in this Section 6.1: The holders of Shares shall be entitled to -29- receive, when and as declared from time to time by the Trustees out of any funds legally available for the purpose, such dividends or distributions as may be declared from time to time by the Trustees. In the event of the termination of the Trust pursuant to Section 8.1 or otherwise, or upon the distribution of its assets, the assets of the Trust available for payment and distribution to Shareholders shall be distributed ratably among the holders of Shares at the time outstanding in accordance with Section 8.2. All Shares shall have equal non-cumulative voting rights at the rate of one vote per Share, and equal dividend, distribution, liquidation and other rights, and shall have no preference, conversion, exchange, sinking fund or redemption rights. Absent a contrary written agreement of the Trust authorized by the Trustees, and notwithstanding any other determination by the Trustees with respect to any class or series of Preferred Shares, no holder of Shares or Preferred Shares shall be entitled as a matter of right to subscribe for or purchase any part of any new or additional issue of Shares of any class whatsoever of the Trust, or of securities convertible into any shares of any class whatsoever of the Trust, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend. 6.2 Certificates. Ownership of Shares shall be evidenced by certificates. Every Shareholder shall be entitled to receive a certificate, in such form as the Trustees shall from time to time approve, specifying the number of Shares of the applicable class held by such Shareholder. Subject to Sections 6.6 and 6.14(c) hereof, such certificates shall be treated as negotiable and title thereto and to the Shares represented thereby shall be transferred by delivery thereof to the same extent in all respects as a stock certificate, and the Shares represented thereby, of a Maryland business corporation. Unless otherwise determined by the Trustees, such certificates shall be signed by the Chairman, if any, and the President and shall be countersigned by a transfer agent, and registered by a registrar if any, and such signatures may be facsimile signatures in accordance with Section 3.2(d) hereof. There shall be filed with each transfer agent a copy of the form of certificate so approved by the Trustees, certified by the Chairman, President, or Secretary, and such form shall continue to be used unless and until the Trustees approve some other form. -30- In furtherance of the provisions of Sections 6.1 and 6.14(c) hereof, each Certificate evidencing Shares shall contain a legend imprinted thereon to substantially the following effect or such other legend as the Trustees may from time to time adopt: REFERENCE IS MADE TO THE DECLARATION OF TRUST OF THE TRUST FOR A STATEMENT OF ALL THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF EACH CLASS OR SERIES OF SHARES THAT THE TRUST IS AUTHORIZED TO ISSUE, THE VARIATIONS IN THE RELATIVE RIGHTS AND PREFERENCES OF ANY PREFERRED OR SPECIAL CLASS OF SHARES IN SERIES, TO THE EXTENT THEY HAVE BEEN FIXED AND DETERMINED, AND THE AUTHORITY OF THE TRUSTEES TO FIX AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. ANY SUCH STATEMENT SHALL BE FURNISHED WITHOUT CHARGE ON REQUEST TO THE TRUST AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE. IF NECESSARY TO EFFECT COMPLIANCE BY THE TRUST WITH REQUIREMENTS OF THE INTERNAL REVENUE CODE RELATING TO REAL ESTATE INVESTMENT TRUSTS, THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE REDEEMED BY THE TRUST AND/OR THE TRANSFER THEREOF MAY BE PROHIBITED ALL UPON THE TERMS AND CONDITIONS SET FORTH IN THE DECLARATION OF TRUST. THE TRUST WILL FURNISH A COPY OF SUCH TERMS AND CONDITIONS TO THE REGISTERED HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT CHARGE. 6.3 Fractional Shares. In connection with any issuance of Shares, the Trustees may issue fractional Shares or may adopt provisions for the issuance of scrip including without limitation, the time within which any such scrip must be surrendered for exchange into full Shares and the rights, if any, of holders of scrip upon the expiration of the time so fixed, the rights, if any, to receive proportional distributions, and the rights, if any, to redeem scrip for cash, or the Trustees may in their discretion, or if they see fit at the option of, each holder, provide in lieu of scrip for the adjustment of the fractions in cash. The provisions of Section 6.2 hereof relative to certificates for Shares shall apply so far as applicable to such scrip, except that such scrip may in the discretion of the Trustees be signed by a transfer agent alone. 6.4 Legal Ownership of Trust Estate. The legal ownership of the Trust Estate and the right to conduct the business of the -31- Trust are vested exclusively in the Trustees (subject to Section 3.2(s)), and the Shareholders shall have no interest therein (other than beneficial interest in the Trust conferred by their Shares issued hereunder) and they shall have no right to compel any partition, division, dividend or distribution of the Trust or any of the Trust Estate. 6.5 Shares Deemed Personal Property. The Shares shall be personal property and shall confer upon the holders thereof only the interest and rights specifically set forth or provided for in this Declaration. The death, insolvency or incapacity of a Shareholder shall not dissolve or terminate the Trust or affect its continuity nor give his legal representative any rights whatsoever, whether against or in respect of other Shareholders, the Trustees or the Trust Estate or otherwise, except the sole right to demand and, subject to the provisions of this Declaration, the Bylaws and any requirements of law, to receive a new certificate for Shares registered in the name of such legal representative, in exchange for the certificate held by such Shareholder. 6.6 Share Record; Issuance and Transferability of Shares. Records shall be kept by or on behalf of and under the direction of the Trustees, which shall contain the names and addresses of the Shareholders, the number of Shares held by them respectively, and the numbers of the certificates representing the Shares, and in which there shall be recorded all transfers of Shares. The Trust, the Trustees and the officers, employees and agents of the Trust shall be entitled to deem the Persons in whose names certificates are registered on the records of the Trust to be the absolute owners of the Shares represented thereby for all purposes of the Trust; but nothing herein shall be deemed to preclude the Trustees or officers, employees or agents of the Trust from inquiring as to the actual ownership of Shares. Until a transfer is duly effected on the records of the Trust, the Trustees shall not be affected by any notice of such transfer, either actual or constructive. Shares shall be transferable on the records of the Trust only by the record holder thereof or by his agent thereunto duly authorized in writing upon delivery to the Trustees or a transfer agent of the certificate or certificates therefor, properly endorsed or accompanied by duly executed instruments of transfer and accompanied by all necessary documentary stamps together with -32- such evidence of the genuineness of each such endorsement, execution or authorization and of other matters as may reasonably be required by the Trustees or such transfer agent. Upon such delivery, the transfer shall be recorded in the records of the Trust and a new certificate for the Shares so transferred shall be issued to the transferee and in case of a transfer of only a part of the Shares represented by any certificate, a new certificate for the balance shall be issued to the transferor. Any Person becoming entitled to any Shares in consequence of the death of a Shareholder or otherwise by operation of law shall be recorded as the holder of such Shares and shall receive a new certificate therefor but only upon delivery to the Trustees or a transfer agent of instruments and other evidence required by the Trustees or the transfer agent to demonstrate such entitlement, the existing certificate for such Shares and such releases from applicable governmental authorities as may be required by the Trustees or transfer agent. In case of the loss, mutilation or destruction of any certificate for shares, the Trustees may issue or cause to be issued a replacement certificate on such terms and subject to such rules and regulations as the Trustees may from time to time prescribe. Nothing in this Declaration shall impose upon the Trustees or a transfer agent a duty, or limit their rights, to inquire into adverse claims. 6.7 Dividends or Distributions to Shareholders. Subject to Section 5.1, the Trustees may from time to time declare and pay to Shareholders such dividends or distributions in cash, property or assets of the Trust or Securities issued by the Trust, out of current or accumulated income, capital, capital gains, principal, interest, surplus, proceeds from the increase or financing or refinancing of Trust obligations, or from the sale of portions of the Trust Estate or from any other source as the Trustees in their discretion shall determine. Shareholders shall have no right to any dividend or distribution unless and until declared by the Trustees. The Trustees shall furnish the Shareholders with a statement in writing advising as to the source of the funds so distributed not later than ninety (90) days after the close of the fiscal year in which the distribution was made. 6.8 Transfer Agent, Dividend Disbursing Agent and Registrar. The Trustees shall have power to employ one or more transfer agents, dividend disbursing agents and registrars (including the Advisor or its Affiliates) and to authorize them on behalf of the Trust to keep records to hold and to disburse -33- any dividends or distributions and to have and perform, in respect of all original issues and transfers of Shares, dividends and distributions and reports and communications to Shareholders, the powers and duties usually had and performed by transfer agents, dividend disbursing agents and registrars of a Maryland business corporation. 6.9 Shareholders' Meetings. There shall be an annual meeting of the Shareholders, at such time and place as shall be determined by or in the manner prescribed in the Bylaws, at which the Trustees shall be elected and any other proper business may be conducted. The Annual Meeting of Shareholders shall be held no fewer than 30 days after delivery to the Shareholders of the Annual Report and within six (6) months after the end of each fiscal year, commencing with the fiscal year ending December 31, 1986. Special meetings of Shareholders may be called by the chief executive officer of the Trust or by a majority of the Trustees or of the Independent Trustees and shall be called by the chief executive officer of the Trust upon the written request of Shareholders holding in the aggregate not less than ten percent (10%) of the total votes authorized to be cast by the outstanding Shares of the Trust entitled to vote at such meeting in the manner provided in the Bylaws. If there shall be no Trustees, the officers of the Trust shall promptly call a special meeting of the Shareholders entitled to vote for the election of successor Trustees. Notice of any special meeting shall state the purposes of the meeting. The holders of Shares entitled to vote at the meeting representing a majority of the total number of votes authorized to be cast by Shares then outstanding and entitled to vote on any question present in person or by proxy shall constitute a quorum at any such meeting for action on such question. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, without regard to class, whether or not a quorum is present, and, except as otherwise provided in the Bylaws, the meeting may be reconvened without further notice. At any reconvened session of the meeting at which there shall be a quorum, any business may be transacted at the meeting as originally noticed. Except as otherwise clearly indicated in this Declaration or the Bylaws, whenever any action is to be taken by the Shareholders, it shall be authorized by the affirmative vote of -34- the holders of Shares representing a majority of the total number of votes authorized to be cast by shares then outstanding and entitled to vote thereon. At all elections of Trustees, voting by Shareholders shall be conducted under the non-cumulative method and the election of Trustees shall be by the affirmative vote of the holders of Shares representing a majority of the total number of votes authorized to be cast by shares then outstanding and entitled to vote thereon. Whenever Shareholders are required or permitted to take any action (unless a vote at a meeting is specifically required as in Sections 8.1, 8.3 and 8.5), such action may be taken without a meeting by written consents setting forth the action so taken, signed by the holders of a majority (or such higher percentage as may be specified elsewhere in this Declaration) of the total number of votes authorized to be cast by shares then outstanding and entitled to vote thereon. 6.10 Proxies. Whenever the vote or consent of a Shareholder entitled to vote is required or permitted under this Declaration, such vote or consent may be given either directly by such Shareholder or by a proxy in the form prescribed in, and subject to the provisions of, the Bylaws. The Trustees may solicit such proxies from the Shareholders or any of them entitled to vote in any matter requiring or permitting the Shareholders' vote or consent. 6.11 Reports to Shareholders. (a) Not later than ninety (90) days after the close of each fiscal year of the Trust following the end of fiscal year 1986, the Trustees shall mail or deliver a report of the business and operations of the Trust during such fiscal year to the Shareholders, which report shall constitute the accounting of the Trustees for such fiscal year. Subject to Section 8-401 of the Annotated Code of Maryland, the report (the "Annual Report") shall be in such form and have such content as the Trustees deem proper. The Annual Report shall include a balance sheet, an income statement and a surplus statement, each prepared in accordance with generally accepted accounting principles. Such financial statements shall be certified by an independent public accountant based on a full examination of the books and records of the Trust conducted in accordance with generally -35- accepted auditing procedure. Manually signed copies of the Annual Report and of the auditor's certificate will be filed with the Maryland Department of Assessments and Taxation. A manually signed copy of the accountant's report shall be filed with the Trustees. (b) Not less than forty-five (45) days after the end of each of the first three fiscal quarters the Trustees shall send interim reports to the Shareholders containing financial information which may be unaudited and otherwise having such form and content as the Trustees deem proper. 6.12 Fixing Record Date. The Bylaws may provide for fixing or, in the absence of such provision, the Trustees may fix, in advance, a date as the record date for determining the Shareholders entitled to notice of or to vote at any meeting of Shareholders or to express consent to any proposal without a meeting or for the purpose of determining Shareholders entitled to receive payment of any dividend or distribution (whether before or after termination of the Trust) or any Annual Report or other communication from the Trustees, or for any other purpose. The record date so fixed shall be not less than ten (10) days nor more than sixty (60) days prior to the date of the meeting or event for the purposes of which it is fixed. 6.13 Notice to Shareholders. Any notice of meeting or other notice, communication or report to any Shareholder shall be deemed duly delivered to such Shareholder when such notice, communication or report is deposited, with postage thereon prepaid, in the United States mail, addressed to such Shareholder at his address as it appears on the records of the Trust or is delivered in person to such Shareholder. 6.14 Shareholders' Disclosure; Trustees' Right to Refuse to Transfer Shares; Limitation on Holdings; Redemption of Shares. (a) The Shareholders shall upon demand disclose to the Trustees in writing such information with respect to direct and indirect ownership of the Shares as the Trustees deem necessary or appropriate to comply with the REIT provisions of the Internal Revenue Code or to comply with the requirements of any taxing authority or governmental agency. -36- (b) Whenever in good faith the Trustees deem it reasonably necessary to protect the status of the Trust as a REIT they may require a statement or affidavit from each Shareholder or proposed transferee of Shares setting forth the number of Shares already owned, directly or indirectly, by him and any related Person specified in the form prescribed by the Trustees for that purpose. If, in the opinion of the Trustees, which shall be binding upon any proposed transferee of Shares, any proposed transfer would jeopardize the status of the Trust as a REIT, the Trustees shall have the right, but not the duty, to refuse to permit such transfer. (c) The Trustees, by notice to the holder thereof, may purchase any or all Shares that have been transferred pursuant to a transfer which, in the opinion of the Trustees, would jeopardize the status of the Trust as a REIT. Without limiting the generality of the foregoing, as a condition to the transfer and/or registration of transfer of any Shares which could result in direct or indirect ownership (as hereafter defined) of Shares representing more than 8.5% in value of the total Shares outstanding (the "Excess Shares") becoming concentrated in the hands of one owner other than an Excepted Person, such potential owner shall file with the Trust the statement or affidavit described in subsection (b) of this Section 6.14 no later than the fifteenth day prior to any transfer, registration of transfer or transaction which, if consummated, would result in such ownership. The Trustees shall have the power (i) by lot or other means deemed equitable by them to call for the purchase from the beneficial owner or the Shareholder of such Excess Shares, and (ii) to refuse to transfer or issue Shares to any Person whose acquisition of such Shares would, in the opinion of the Trustees, result in the direct or indirect beneficial ownership of any Excess Shares by a person other than any of the Excepted Persons. The purchase price for any Excess Shares shall be equal to the fair market value of the Shares reflected in the closing sale price for the Shares, if then listed on a national securities exchange, or such price for the Shares on the principal exchange if then listed on more than one national securities exchange, or if the Shares are not then listed on a national securities exchange, the latest bid quotation for the Shares if then traded over-the-counter, on the last -37- trading day immediately preceding the day on which notices of such acquisition are sent, or, if no such closing sales prices or quotations are available, then the purchase price shall be equal to the net asset value of such Shares as determined by the Trustees in accordance with the provisions of applicable law. Prompt payment of the purchase price shall be made in cash by the Trust in such manner as may be determined by the Trustees. From and after the date fixed for purchase by the Trustees, and so long as payment of the purchase price for the Shares to be so redeemed shall have been made or duly provided for, the holder of any Excess Shares so called for purchase shall cease to be entitled to distributions, voting rights and other benefits with respect to such Shares, excepting only the right to payment of the purchase price fixed as aforesaid. Any transfer of Shares, options, warrants or other securities convertible into Shares that would create a direct or indirect beneficial owner of Excess Shares other than any of the Excepted Persons shall be deemed void ab initio and the intended transferee shall be deemed never to have an interest therein. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the transferee of such Shares, options, warrants or other securities convertible into Shares shall be deemed, at the option of the Trust, to have acted as agent on behalf of the Trust in acquiring such Shares and to hold such Shares on behalf of the Trust. The following persons are "Excepted Persons": (i) the Advisor, (ii) persons to whom the Advisor's Share ownership is attributed or whose Share ownership is attributed to the Advisor, or (iii) other persons approved by the Trustees, at their option and in their sole discretion, provided only that such approval shall not be granted to any person whose ownership of more than 8.5% in value of the total Shares outstanding would result, directly, indirectly or as a result of attribution of ownership, in termination of the status of the Trust as a REIT. (d) Notwithstanding any other provision in this Declaration of Trust or the Bylaws, the foregoing provision may not be amended or repealed without the affirmative vote of 75% of the Shares entitled to vote. -38- (e) Notwithstanding any other provision of this Declaration of Trust to the contrary, any purported acquisition of Shares of the Trust (whether such purported acquisition results from the direct or indirect acquisition or ownership (as hereafter defined) of Shares) which would result in the disqualification of the Trust as a REIT shall be null and void. Any such Shares may be treated by the Trustees in the manner prescribed for Excess Shares in subsection (c) of this Section 6.14. (f) Nothing contained in this Section 6.14 or in any other provision of this Declaration of Trust shall limit the authority of the Trustees to take such other action as they deem necessary or advisable to protect the Trust and the interests of the Shareholders by preservation of the Trust's status as a REIT. (g) If any provision of this Section 6.14 or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provision shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court. To the extent this Section 6.14 may be inconsistent with any other provision of this Declaration of Trust, this Section 6.14 shall be controlling. (h) It shall be the policy of the Trustees to consult with the appropriate officials of any stock exchange on which the relevant Shares of the Trust are listed as far as reasonably possible in advance of the final exercise (at any time when the Shares are listed on such exchange) of any powers granted by subsections (b) or (c) of this Section 6.14. (i) For purposes of this Declaration of Trust, Shares not owned directly shall be deemed to be owned indirectly by a person if that person or a group of which he is a member would be the beneficial owner of such Shares, as defined as of September 1, 1986 in Rule 13d-3 under the Securities -39- Exchange Act of 1934 and/or would be considered to own such Shares by reason of the attribution rules of Section 544 or Section 856(d)(5) of the Internal Revenue Code. 6.15 Special Voting Requirements for Certain Business Combinations. (a) The affirmative vote of the holders of not less than 75% of the Shares then outstanding and entitled to vote thereon shall be required for the approval or authorization of any "Business Combination" (as hereinafter defined) of the Trust with any "Related Person" (as hereinafter defined). However, such 75% voting requirement shall not be applicable if: (1) the Board of Trustees by unanimous vote or written consent shall have expressly approved in advance the acquisition of the outstanding Shares of the Trust that caused the Related Person to become a Related Person or shall have approved the Business Combination prior to the Related Person involved in the Business Combination having become a Related Person; or (2) the Business Combination is solely between the Trust and another limited partnership, partnership, trust or corporation, 100% of the voting securities of which is owned directly or indirectly by the Trust. (b) For purposes of this Section 6.15: (i) The term "Business Combination" shall mean (a) any merger or consolidation of the Trust with or into a Related Person, (b) any sale, lease, exchange, transfer or other disposition, including without limitation a mortgage or any other security device, of all or any "Substantial Part" (as hereinafter defined) of the assets of the Trust (including without limitation any voting securities of a subsidiary) to a Related Person, (c) any merger or consolidation of a Related Person with or into the Trust, (d) any sale, lease, exchange, transfer or other disposition of assets of a Related Person to the Trust having a book value equal to more than 10% of the Invested Assets of the Trust as of the end of the Trust's most recent fiscal year ending prior to the time the -40- determination is made, (e) the issuance of any Securities (other than by way of pro rata distribution to all Shareholders) of the Trust to a Related Person, and (f) any agreement, contract or other arrangement providing for any of the transactions described in this definition of Business Combination. (ii) The term "Related Person" shall mean and include any individual, corporation, partnership, limited partnership or other person or entity other than the Advisor or any wholly owned subsidiary of the Advisor which, together with its "affiliates" and "associates" (as defined as of September 1, 1986, in Rule 12b-2 under the Securities Exchange Act of 1934), "beneficially owns" (as defined as of September 1, 1986, in Rule 13d-3 under the Securities Exchange Act of 1934) in the aggregate 10% or more of the outstanding Shares of the Trust. (iii) The term "Substantial Part" shall mean an amount equal to more than 10% of the Invested Assets of the Trust as of the end of its most recent fiscal year ending prior to the time the determination is being made. (iv) Without limitation, any Shares that any Related Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed beneficially owned by the Related Person. (c) The Trust elects not to be governed by the provisions of Subtitle 6 of Title 3 of the Corporations and Associations Article of the Annotated Code of Maryland, and the provisions of subparagraphs (a) and (b) of this Section 6.15 shall be in substitution for and to the exclusion of said Subtitle 6 of Title 3. (d) Except as otherwise provided in this Section 6.15, the Trust may effect any merger or consolidation in accordance with applicable law. -41- ARTICLE VII LIABILITY OF TRUSTEES, SHAREHOLDERS, OFFICERS, EMPLOYEES AND AGENTS, AND OTHER MATTERS 7.1 Limitation of Liability of Shareholders, Trustees, Officers, Employees and Agents for Obligations of the Trust. The Trustees and the officers, employees and agents (including the Advisor) of the Trust, in incurring any debts, liabilities or obligations or in taking or omitting any other actions for or in connection with the Trust, are, and shall be deemed to be, acting as trustees, officers, employees or agents of the Trust and not in their own individual capacities. Except as otherwise provided in Sections 7.3 hereof with respect to liability of Trustees or officers, agents or employees of the Trust to the Trust or to Shareholders, no Shareholder, Trustee or officer, employee or agent (including the Advisor) of the Trust shall be liable for any debt, claim, demand, judgment decree, liability or obligation of any kind (in tort, contract or otherwise) of, against or with respect to the Trust or arising out of any action taken or omitted for or on behalf of the Trust, and the Trust shall be solely liable therefor and resort shall be had solely to the Trust Estate for the payment or performance thereof, and no Shareholder, Trustee or officer, employee or agent (including the Advisor) of the Trust shall be subject to any personal liability whatsoever, in tort, contract or otherwise, to any other Person or Persons in connection with the Trust Estate or the affairs of the Trust (or any actions taken or omitted for or on behalf of the Trust), and all such other Persons shall look solely to the Trust Estate for satisfaction of claims of any nature arising in connection with the Trust Estate or the affairs of the Trust (or any action taken or omitted for or on behalf of the Trust). 7.2 Express Exculpatory Clauses and Instruments. Any written instrument creating an obligation of the Trust shall include a reference to this Declaration and provide that neither the Shareholders nor the Trustees nor any officers, employees or agents (including the Advisor) of the Trust shall be liable thereunder and that all Persons shall look solely to the Trust Estate for the payment of any claim thereunder or for the performance thereof; however, the omission of such provision from any such instrument shall not render the Shareholders, any -42- Trustee, or any officer, employee or agent (including the Advisor) of the Trust liable nor shall the Shareholders, any Trustee or any officer, employee or agent (including the Advisor) of the Trust be liable to any one for such omission. 7.3 Limitation of Liability of Trustees, Officers, Employees and Agents to the Trust and to Shareholders for Acts and Omissions. (a) No Independent Trustee or officer, employee or agent of the Trust shall have any greater duties than those established by this Declaration of Trust or, in cases as to which such duties are not so established, than those of the directors, officers, employees and agents of a Maryland business corporation in effect from time to time. No Independent Trustee, officer, employee or agent of the Trust shall be liable to the Trust, Shareholders or to any other Person for any act or omission except for his own willful misfeasance, bad faith, gross negligence or reckless disregard of duty. (b) No Affiliated Trustee shall have liability to the Trust, Shareholders or any other Person for any loss suffered by the Trust which arises out of any action or inaction of such Affiliated Trustee if such Affiliated Trustee in good faith had determined that such course of conduct was in the best interest of the Trust and if such course of conduct did not constitute negligence or misconduct of such Affiliated Trustee. 7.4 Indemnification and Reimbursement of Trustees, Officers, Employees and Agents. (a) Except as otherwise provided in paragraph (b) of this Section 7.4, any Person made a party to any action, suit or proceeding or against whom a claim or liability is asserted by reason of the fact that he, his testator or intestate was or is a Independent Trustee, officer, employee or agent of the Trust shall be indemnified and held harmless by the Trust against judgments, fines, amounts paid on account thereof (whether in settlement or otherwise) and reasonable expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense of such action, suit, proceeding, claim or alleged liability or in connection with any appeal therein, whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion; provided, however, that no such Person shall be so indemnified or reimbursed for any claim, -43- obligation or liability which shall have been adjudicated to have arisen out of or been based upon his willful misfeasance, bad faith, gross negligence or reckless disregard of duty; and provided, further, that such Person gives prompt notice thereof, executes such documents and takes such action as will permit the Trust to conduct the defense or settlement thereof and cooperates therein. In the event of a settlement approved by the Trustees of any such claim, alleged liability, action, suit or proceeding, indemnification and reimbursement shall be provided except as to such matters covered by the settlement which the Trust is advised by its counsel would, if adjudicated, likely be adjudicated to have arisen out of or been based upon such Person's willful misfeasance, bad faith, gross negligence or reckless disregard of duty. Such rights of indemnification and reimbursement shall be satisfied only out of the Trust Estate. The rights accruing to any Person under these provisions shall not exclude any other right to which he may be lawfully entitled, nor shall anything contained herein restrict such Person's right to contribution as may be available under applicable law. The Trustees may make advance payments in connection with indemnification under this Section 7.4, provided that the indemnified Person shall have given a written undertaking to reimburse the Trust in the event it is subsequently determined that he is not entitled to such indemnification. Any action taken by or conduct on the part of an Independent Trustee, officer, employee or agent of the Trust in conformity with or in good faith reliance upon the provisions of this Declaration (including without limitation any provision in Article VII hereof) shall not constitute willful misfeasance, bad faith, gross negligence or reckless disregard of duty. (b) Each Affiliated Trustee and any Affiliates (as defined in Section 7.5 hereof) of such Affiliated Trustee shall be indemnified by the Trust against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by them in connection with any action or inaction of such Affiliated Trustee or Affiliate if such Affiliated Trustee or Affiliate, in good faith, determined that such course of conduct was in the best interest of the Trust and if such conduct did not constitute negligence or misconduct on the part of such Affiliated Trustee or Affiliate. Notwithstanding the -44- foregoing, Affiliated Trustees and their Affiliates and any person acting for the Trust as a broker/dealer shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee, or (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee or (iii) a court of competent jurisdiction approves a settlement of the claim against the particular indemnitee. In any claim for indemnification for federal or state securities law violations, the party seeking indemnification shall place before the court the position of the Securities and Exchange Commission and the Massachusetts Securities Division (and any other state securities commissioner or administrator who may so require) with respect to the issue of indemnification for securities law violations. The Trust shall not incur the cost of that portion of any insurance, other than public liability insurance, which insures any party against any liability the indemnification of which is prohibited by this Section 7.4(b). The provision of advances from Trust funds to the Affiliated Trustees and any Affiliates for legal expenses and other costs incurred as a result of any legal action initiated against the Affiliated Trustees by Shareholders of the Trust is prohibited. (c) Notwithstanding anything herein to the contrary, and to the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no Trustee or officer of the Trust shall be personally liable to the Trust or its shareholders for money damages. No amendment of this Declaration or repeal of any of its provisions shall limit or eliminate the limitation on liability provided to Trustees and officers hereunder with respect to any act or omission occurring prior to such amendment or repeal. 7.5 Certain Definitions. For the purposes of Section 7.4(b) hereof, the term "Affiliate," when used in connection with the term "Affiliated Trustee," shall mean any person performing services on behalf of the Trust who (i) directly or indirectly controls, is controlled by, or is under common control with such Affiliated Trustee; (ii) owns or -45- controls ten percent (10%) or more of the outstanding voting securities of such Affiliated Trustee; (iii) is an officer, director, partner or trustee of such Affiliated Trustee; or (iv) is a company for which such Affiliated Trustee acts as an officer, director, partner or trustee. For the purposes of the above definition, the terms "control," "controlling," "controlled by," and "under common control with" refer to the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. 7.6 Indemnification and Reimbursement of Shareholders. Any Shareholder made a party to any action, suit or proceeding or against him a claim or liabilities asserted by reason of the fact that he, his testate or intestate was or is a Shareholder shall be indemnified and held harmless by the Trust against judgments, fines, amounts paid on account thereof (whether in settlement or otherwise) and reasonable expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense of such action, suit, proceeding, claim or alleged liability or in connection with any appeal therein, whether or not the same proceeds to judgment or is settled or otherwise brought to a conclusion; provided however, that such Shareholder gives prompt notice thereof, executes such documents and takes such action as will permit the Trust to conduct the defense or settlement thereof and cooperates therein. In the event that the assets of the Trust Estate are insufficient to satisfy the Trust's indemnity obligations hereunder, each Shareholder shall be entitled to such indemnification pro rata from the Trust Estate. 7.7 Right of Trustees, Officers, Employees and Agents to Own Shares or Other Property and to Engage in Other Business. Any Trustee or officer, employee or agent of the Trust may acquire, own, hold and dispose of Shares in the Trust, for his individual account, and may exercise all rights of a Shareholder to the same extent and in the same manner as if he were not a Trustee or officer, employee or agent of the Trust. Any Trustee or officer, employee or agent of the Trust may, in his personal capacity or in the capacity of trustee, officer, director, stockholder, partner, member, advisor or employee of any Person or otherwise, have business interests and engage in business activities similar to or in addition to those relating to the Trust, which interests and activities may be similar to and -46- competitive with those of the Trust and may include the acquisition, syndication, holding, management, development, operation or disposition, for his own account, or for the account of such Person or others, of interests in Mortgages, interests in Real Property, or interests in Persons engaged in the real estate business. Each Trustee, officer, employee and agent of the Trust shall be free of any obligation to present to the Trust any investment opportunity which comes to him in any capacity other than solely as Trustee, officer, employee or agent of the Trust even if such opportunity is of a character which, if presented to the Trust, could be taken by the Trust. Subject to the provisions of Article IV and Section 7.8, any Trustee or officer, employee or agent of the Trust may be interested as trustee, officer, director, stockholder, partner, member, advisor or employee of, or otherwise have a direct or indirect interest in, any Person who may be engaged to render advice or services to the Trust, and may receive compensation from such Person as well as compensation as Trustee, officer, employee or agent or otherwise hereunder. None of these activities shall be deemed to conflict with his duties and powers as Trustee or officer, employee or agent of the Trust. 7.8 Transactions Between Trustees, Officers, Employees or Agents and the Trust. Except as otherwise provided by this Declaration, and in the absence of fraud, a contract, act or other transaction between the Trust and any other Person in which the Trust is interested, shall be valid, and no Trustee or officer, employee or agent of the Trust shall have any liability as a result of entering into any such contract, act or transaction, even though (a) one or more of the Trustees or officers, employees or agents of the Trust are directly or indirectly interested in or connected with or are trustees, partners, directors, employees, officers or agents of such other Person, or (b) one or more of the Trustees or officers, employees or agents of the Trust individually or jointly with others, is a party or are parties to, or are directly or indirectly interested in or connected with, such contract, act or transaction; provided that in each such case (i) such interest or connection is disclosed or known to the Trustees and thereafter the Trustees authorize or ratify such contract, act or other transaction by affirmative vote of a majority of the Trustees who are not so interested or (ii) such interest or connection is disclosed or known to the Shareholders, and thereafter such contract, act or -47- transaction is approved by Shareholders holding a majority of the Shares then outstanding and entitled to vote thereon. Notwithstanding any other provision of this Declaration, the Trust shall not engage in a transaction with (a) any Trustee, officer, employee or agent of the Trust (acting in his individual capacity), (b) any director, trustee, partner, officer, employee or agent (acting in his individual capacity) of the Advisor or any other investment advisor of the Trust, (c) the Advisor or any other investment advisor of the Trust or (d) an Affiliate of any of the foregoing, except to the extent that such transaction has, after disclosure of such affiliation, been approved or ratified by the affirmative vote of a majority of the Trustees including a majority of the Independent Trustees (or, if the transaction is with a Person other than the Advisor or its Affiliates, a majority of the Trustees not having any interest in such transaction and not Affiliates of any party to the transaction) after a determination by them that to the extent applicable: (A) such transaction is fair and reasonable to the Trust and the Shareholders; (B) based upon an appraisal by a qualified independent real estate appraiser, such qualification to be determined in each instance by a majority of the Independent Trustees who shall, in each case, have been approved by a majority of the Independent Trustees (or, if the transaction is with a Person other than the Advisor its Affiliates, a majority of the Trustees not having any interest in such transaction and not Affiliates of any party to the transaction), the total consideration is not in excess of the appraised value of the interest in Real Property being acquired, if an acquisition is involved, or not less than the appraised value of the interest in Real Property being disposed of, if a disposition is involved; and (C) if such transaction involves payment by the Trust for services rendered to the Trust by a Person in a capacity other than that of Advisor, Trustee or Trust officer, (1) the compensation is not in excess of the compensation, if any, paid to such Person by any other Person who is not an Affiliate of such Person, for any comparable services in the same geographic area, and (2) the compensation is not greater than the charges for comparable services generally -48- available in the same geographic area from other Persons who are competent and not affiliated with any of the parties involved. This Section 7.8 shall not prevent any sale of Shares issued by the Trust for the public offering thereof in accordance with a registration statement filed with the Securities and Exchange Commission under the Securities Act of 1933. The Trustees are not restricted by this Section 7.8 from forming a corporation, partnership, trust or other business association owned by any Trustee, officer, employee or agent or by their nominees for the purpose of holding title to property of the Trust or managing property of the Trust, provided that the Trustees make a determination that the creation of such entity for such purpose is in the best interest of the Trust. 7.9 Independent Counsel. In the event of a dispute between the Trust and the Advisor or its Affiliates, or should it be necessary for the Trust to prepare and negotiate contracts and agreements between the Trust and the Advisor or its Affiliates which in the good faith judgment of a majority of the Independent Trustees require the advice or assistance of separate counsel or accountants from that of the Advisor or its Affiliates, the Trust will retain such separate counsel or accountants for such matters, the choice of which shall be made by a majority of the Independent Trustees. 7.10 Persons Dealing with Trustees, Officers, Employees or Agents. Any act of the Trustees or of the officers, employees or agents of the Trust purporting to be done in their capacity as such, shall, as to any Persons dealing with such Trustees, officers, employees or agents, be conclusively deemed to be within the purposes of this Trust and within the powers of such Trustees or officers, employees or agents. No Person dealing with the Trustees or any of them or with the officers, employees or agents of the Trust shall be bound to see to the application of any funds or property passing into their hands or control. The receipt of the Trustees or any of them, or of authorized officers, employees or agents of the Trust, for moneys or other consideration, shall be binding upon the Trust. 7.11 Reliance. The Trustees and the officers, employees and agents of the Trust may consult with counsel (which may be a firm in which one or more of the Trustees or the officers, -49- employees or agents of the Trust is or are members) and the advice or opinion of such counsel shall be full and complete personal protection to all the Trustees and the officers, employees and agents of the Trust in respect of any action taken or suffered by them in good faith and in reliance on or in accordance with such advice or opinion. In discharging their duties, Trustees or officers, employees or agents of the Trust, when acting in good faith, may rely upon financial statements of the Trust represented to them to fairly present the financial position or results of operations of the Trust by the chief financial officer of the Trust or the officer of the Trust having charge of its books of account, or stated in a written report by an independent certified public accountant fairly to present the financial position or results of operations of the Trust. The Trustees and the officers, employees and agents of the Trust may rely, and shall be personally protected in acting, upon any instrument or other document believed by them to be genuine. ARTICLE VIII DURATION, AMENDMENT AND TERMINATION OF TRUST 8.1 Duration of Trust. The duration of the Trust shall be perpetual; provided, however, the Trust may be terminated at any time by the affirmative vote at a meeting of Shareholders of the holders of Shares representing two-thirds of the total number of Shares then outstanding and entitled to vote thereon. 8.2 Termination of Trust. (a) Upon the termination of the Trust: (i) the Trust shall carry on no business except for the purpose of winding up its affairs; (ii) the Trustees shall proceed to wind up the affairs of the Trust and all the powers of the Trustees under this Declaration shall continue until the affairs of the Trust shall have been wound up, including the power to fulfill or discharge the contracts of the Trust, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part -50- of the remaining Trust Estate to one or more persons at public or private sale (for consideration which may consist in whole or in part of cash, Securities or other property of any kind), discharge or pay its liabilities, and do all other acts appropriate to liquidate its business; and (iii) after paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and refunding agreements, as they deem necessary for their protection, the Trustees may distribute the remaining Trust Estate (in cash or in kind or partly each) among the Shareholders according to their respective rights. (b) After termination of the Trust and distribution of the Trust Estate to the Shareholders as herein provided, the Trustees shall execute and lodge among the records of the Trust an instrument in writing setting forth the fact of such termination and such distribution, a copy of which instrument shall be filed with the Maryland Department of Assessments and Taxation, and the Trustees shall thereupon be discharged from all further liabilities and duties hereunder and the rights and interests of all Shareholders shall thereupon cease. 8.3 Amendment Procedure. This Declaration may be amended (except that the provisions governing the personal liability of the Shareholders, Trustees and of the officers, employees and agents of the Trust and the prohibition of assessments upon Shareholders may not be amended in any respect that could increase the personal liability of such Shareholders, Trustees or officers, employees and agents of the Trust) at a meeting of Shareholders by holders of Shares representing a majority (or, with respect to amendments of Article V, amendments to the provisions of Section 8.1, amendments to this Section 8.3 that would reduce the percentage vote required to approve any amendments to this Declaration, and with respect to amendments inconsistent with Sections 2.1, 6.14 and 6.15, seventy-five percent (75%)) of the total number of votes authorized to be cast in respect of Shares then outstanding and entitled to vote thereon. The approval of a majority of the Trustees (including a -51- majority of the Independent Trustees) shall also be required for any such amendment. Two-thirds (2/3) of the Trustees may, after fifteen (15) days written notice to the Shareholders, also amend this Declaration without the vote or consent of Shareholders if in good faith they deem it necessary to conform this Declaration to the requirements of the REIT Provisions of the Internal Revenue Code, but the Trustees shall not be liable for failing to do so. Actions by the Trustees pursuant to Section 6.1 or pursuant to Section 9.6(a) that result in an amendment to this Declaration shall be effected without vote or consent of Shareholders. 8.4 Amendments Effective. Any amendment pursuant to any Section of this Declaration shall not become effective until it is duly filed with the Maryland Department of Assessments and Taxation. 8.5 Transfer to Successor. The Trustees, with the approval of a majority of the Trustees (including a majority of the Independent Trustees) and the affirmative vote, at a meeting approving a plan for this purpose, of the holders of Shares representing a majority of all votes cast at a meeting at which a quorum is present, may (a) cause the organization of a limited partnership, partnership, corporation, association, trust or other organization to take over the Trust Estate and carry on the affairs of the Trust, (b) merge the Trust into, or sell, convey and transfer the Trust Estate to, any such limited partnership, partnership, corporation, association, trust or organization in exchange for Securities thereof, or beneficial interests therein, and the assumption by such transferee of the liabilities of the Trust and (c) thereupon terminate this Declaration and deliver such shares, Securities or beneficial interests among the Shareholders in accordance with such plan. ARTICLE IX MISCELLANEOUS 9.1 Applicable Law. This Declaration is executed and acknowledged by the Trustees with reference to the statutes and laws of the State of Maryland, and the rights of all parties and the construction and effect of every provision hereof shall be -52- subject to and construed according to the statutes and laws of such State. 9.2 Index and Headings for Reference Only. The index and headings preceding the text, articles and sections hereof have been inserted for convenience and reference only and shall not be construed to affect the meaning, construction or effect of this Declaration. 9.3 Successors in Interest. This Declaration and the Bylaws shall be binding upon and inure to the benefit of the undersigned Trustees and their successors, assigns, heirs, distributees and legal representatives, and every Shareholder and his successors, assigns, heirs, distributees and legal representatives. 9.4 Inspection of Records. Trust records shall be available for inspection by Shareholders at the same time and in the same manner and to the extent that comparable records of a Maryland business corporation would be available for inspection by shareholders under the laws of the State of Maryland. Except as specifically provided for in this Declaration or in Title 8 of the Annotated Code of Maryland, Shareholders shall have no greater right than shareholders of a Maryland business corporation to require financial or other information from the Trust, Trustees or officers of the Trust. Any Federal or state securities administrator or the Maryland Department of Assessments and Taxation shall have the right, at reasonable times during business hours and for proper purposes, to inspect the books and records of the Trust. 9.5 Counterparts. This Declaration may be simultaneously executed in several counterparts, each of which when so executed shall be deemed to be an original, and such counterparts together shall constitute one and the same instrument, which shall be sufficiently evidenced by any such original counterpart. 9.6 Provisions of the Trust in Conflict with Law or Regulations; Severability. (a) The provisions of this Declaration are severable, and if the Trustees shall determine, with the advice of counsel, that any one or more of such provisions (the "Conflicting Provisions") are in conflict with the REIT -53- Provisions of the Internal Revenue Code, the Conflicting Provisions shall be deemed never to have constituted a part of the Declaration; provided, however, that such determination by the Trustees shall not affect or impair any of the remaining provisions of this Declaration or render invalid or improper any action taken or omitted (including but not limited to the election of Trustees) prior to such determination. An amendment in recordable form signed by a majority of the Trustees setting forth any such determination and reciting that it was duly adopted by the Trustees, or a copy of this Declaration, with the Conflicting Provisions removed pursuant to such a determination, in recordable form, signed by a majority of the Trustees, shall be conclusive evidence of such determination when filed with the Maryland Department of Assessments and Taxation. The Trustees shall not be liable for failure to make any determination under this Section 9.6(a). Nothing in this Section 9.6(a) shall in any way limit or affect the right of the Trustees to amend this Declaration as provided in Section 8.3. (b) If any provision of this Declaration shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other provision of this Declaration, and this Declaration shall be carried out as if any such invalid or unenforceable provision were not contained herein. 9.7 Certifications. The following certifications shall be final and conclusive as to any Persons dealing with the Trust: (a) a certification of a vacancy among the Trustees by reason of resignation, removal, increase in the number of Trustees, incapacity, death or otherwise, when made in writing by a majority of the remaining Trustees; (b) a certification as to the individuals holding office as Trustees or officers at any particular time, when made in writing by the secretary of the Trust; (c) a certification that a copy of this Declaration or of the Bylaws is a true and correct copy thereof as then in force, when made in writing by the secretary of the Trust; -54- (d) the certifications referred to in Sections 2.7, 8.4 and 9.6(a); and (e) a certification as to any actions by Trustees, other than the above, when made in writing by the secretary of the Trust or by any Trustee. ------------------------------------------------ These amendments do not affect the total number of common shares of beneficial interest, $.01 par value, ("Common Shares") authorized or issued by the Trust. The amendment and restatement of the Declaration was authorized by the Board of Trustees of the Trust acting at a meeting duly called and held on March 5, 1994 and by the holders of more than two-thirds (2/3) of the issued and outstanding Common Shares, at the annual meeting of the Trust's shareholders duly called and held on May 17, 1994. -55- cuted and delivered as IN WITNESS WHEREOF, this amendment has been executed and delivered as of the First day of July, 1994, by the undersigned Trustees, each of whom acknowledges, under penalties of perjury, that this document is such Trustee's free act and deed, and that, to the best of his knowledge, information and belief, the matters and facts set forth herein are true in all material respects. BY THE TRUSTEES: /s/ John L. Harrington John L. Harrington /s/ Arthur G. Koumantzelis Arthur G. Koumantzelis /s/ Justinian Manning, C.P. Rev. Justinian Manning, C.P. /s/ Gerard M. Martin Gerard M. Martin /s/ Barry M. Portnoy Barry M. Portnoy EX-3.2 4 EXHIBIT 3.2 HEALTH AND RETIREMENT PROPERTIES TRUST BYLAWS Conformed Composite Copy Originally adopted as of October 9, 1986 Amended and Restated as of October 17, 1994 As Further Amended through May 12, 1998 TABLE OF CONTENTS ARTICLE I TRUSTEES Section 1.1 Qualifying Shares Not Required..............................1 Section 1.2 Quorum......................................................1 Section 1.3 Number and Term; Election...................................1 Section 1.4 Place of Meeting............................................1 Section 1.5 Organizational Meeting......................................1 Section 1.6 Regular Meetings............................................1 Section 1.7 Special Meetings............................................1 Section 1.8 Adjourned Meetings..........................................2 Section 1.9 Waiver of Notice............................................2 Section 1.10 Action Without Meeting......................................2 Section 1.11 Telephone Meetings..........................................2 Section 1.12 Committee Rules.............................................2 ARTICLE II OFFICERS Section 2.1 Enumeration..................................................3 Section 2.2 Powers and Duties of the Chairman............................3 Section 2.3 Powers and Duties of the President...........................3 Section 2.4 Powers and Duties of VicePresident...........................3 Section 2.5 Duties of the Secretary......................................3 (a) Minutes...............................................3 (b) Books and Other Records...............................4 (c) Share Register........................................4 (d) General Duties........................................4 Section 2.6 Duties of the Treasurer......................................4 ARTICLE III SHAREHOLDERS Section 3.1 Effect of Quorum.............................................4 Section 3.2 Place of Meeting.............................................4 Section 3.3 Annual Meeting...............................................4 Section 3.4 Special Meetings.............................................4 Section 3.5 Notice of Regular or Special Meetings........................5 Section 3.6 Notice of Adjourned Meetings.................................5 Section 3.7 Proxies......................................................5 Section 3.8 Consent of Absentees.........................................6 Section 3.9 Voting Rights................................................6 Section 3.10 Advance Notice for Nomination of Trustees ...........................................6 Section 3.11 Advance Notice for Transaction of Business ...........................................7 Section 3.12 Record Date.................................................9 Section 3.13 Action Without Meeting......................................9 -ii- ARTICLE IV MISCELLANEOUS Section 4.1 Record Dates and Closing of Transfer Books ..................................10 Section 4.2 Inspection of Bylaws........................................10 Section 4.3 Control Share Acquisition...................................10 ARTICLE V AMENDMENTS Section 5.1 By Trustees.................................................10 ARTICLE VI DEFINITIONS Section 6.1 Definitions.................................................10 ARTICLE VII FISCAL YEAR Section 7.1 Fiscal Year.................................................10 ARTICLE I TRUSTEES Section 1.1 Qualifying Shares Not Required. Trustees need not be Shareholders of Health and Retirement Properties Trust (the "Trust"). Section 1.2 Quorum. A majority of the Trustees shall constitute a quorum subject to the provisions of Section 2.6 of the Trust's Declaration of Trust, as it may be amended from time to time (the "Declaration"). Section 1.3 Number and Term; Election. The number and terms of the Trustees shall be as provided in Section 2.1 of the Declaration. Trustees shall be elected at annual meetings of Shareholders as provided in Section 2.1 of the Declaration. If Trustees are not so elected at an annual meeting or if such meeting is not held, Trustees may be elected at a special meeting of Shareholders. Section 1.4 Place of Meeting. Meetings of the Trustees shall be held at the principal office of the Trust or at such place within or without the State of Maryland as the President shall direct or as is fixed from time to time by resolution of the Trustees. Whenever a place other than the principal office is fixed by the President or by resolution as the place at which future meetings are to be held, written notice thereof shall be sent to all Trustees a reasonable time in advance of any meeting to be held at such place. Section 1.5 Organizational Meeting. Immediately following each Annual Meeting of Shareholders, a regular meeting of the Trustees shall be held for the purpose of organizing, electing officers and transacting other business. Notice of such meetings need not be given. Section 1.6 Regular Meetings. Regular meetings of the Trustees shall be held at the place determined pursuant to Section 1.4 on the dates, if any, established at each organizational meeting of the Trustees and notice of such regular meetings of the Trustees is hereby dispensed with. Section 1.7 Special Meetings. Special meetings of the Trustees may be called at any time by the Chairman or President and shall be called by the Chairman or President upon the written request of three (3) Trustees. Written notice of the time and place of a special meeting shall be given to each Trustee, either personally or by sending a copy thereof by mail or by facsimile or telex, charges prepaid, to the address of the Trustee appearing on the books of the Trust or theretofore given by the Trustee to the Trust for the purpose of notice. In case of personal service, such notice shall be so delivered at least twenty-four (24) hours prior to the time fixed for the meeting. If such notice is mailed, it shall be deposited in the United States mail in the place in which the principal office of the Trust is located at least seventy-two (72) hours prior to the time fixed for the holding of the meeting. If sent by facsimile or telex, it shall be sent at least forty-eight (48) hours prior to the time fixed for the holding of the meeting. If notice is not so given by the Secretary, it may be given in the same manner by the Chairman, President or the Trustees requesting the meeting. Section 1.8 Adjourned Meetings. A quorum of the Trustees may adjourn any Trustees' meeting to meet again at a stated day and hour. In the absence of a quorum, a majority of the Trustees present may adjourn from time to time to meet again at a stated day and hour prior to the time fixed for the next regular meeting of the Trustees. The motion for adjournment shall be lodged with the records of the Trust. Notice of the time and place of an adjourned meeting need not be given to any Trustee present at the adjourned meeting if the time and place is fixed at the meeting adjourned. Section 1.9 Waiver of Notice. The transactions of any meeting of the Trustees, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the Trustees not present signs a written waiver of notice, a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be lodged with the Trust records or made a part of the minutes of the meeting. Section 1.10 Action Without Meeting. Unless specifically otherwise provided in the Declaration, any action required or permitted to be taken by the Trustees may be taken without a meeting if a majority of the Trustees (or a majority of the Independent Trustees as to any action which requires such a majority) shall individually or collectively consent in writing to such action. Such written consent or consents shall be lodged with the records of the Trust and shall have the same force and effect as the affirmative vote of such Trustees at a duly held meeting of the Trustees at which a quorum were present. Section 1.11 Telephone Meetings. The Trustees may meet by means of a telephone conference circuit or similar communications equipment by means of which all persons participating in the meeting shall be able to hear one another and participate therein. Such meeting shall be deemed to have been held at a place designated by the Trustees at the meeting. Participation in a telephone conference meeting shall constitute presence in person at such meeting. Section 1.12 Committee Rules. Unless the Trustees otherwise provide, each committee designated by the Trustees may adopt, amend and repeal rules for the conduct of such committee's business. In the absence of a provision by the Trustees or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such-vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Trustees conduct their business pursuant to Article II of the Declaration and this Article I of these Bylaws. 2 ARTICLE II OFFICERS Section 2.1 Enumeration. The officers of the Trust shall be a President, a Secretary, a Treasurer, and such other officers as are elected by the Trustees including, in their discretion, a Chairman, with such duties as are assigned to them by the Trustees. Officers shall be elected by and shall hold office at the pleasure of the Trustees. Section 2.2 Powers and Duties of the Chairman. The Chairman, if there shall be such an officer, shall, if present, preside at all meetings of the Shareholders and the Trustees and may be the chief executive officer of the Trust if the Trustees so elect. Section 2.3 Powers and Duties of the President. Subject to such supervisory powers, if any, as may be given by the Trustees to the Chairman, the President shall, subject to the control of the Trustees and the supervision of the Chairman, have general supervision, direction and control of the business of the Trust and its employees and shall exercise such general powers of management as are usually vested in the office of president of a corporation. In the absence of the Chairman, or if there be none, he shall preside at all meetings of the Shareholders and/or Trustees and, unless the Chairman has been designated as chief executive officer, shall be chief executive officer of the Trust. He shall be, ex officio, a member of all standing committees. Section 2.4 Powers and Duties of Vice-President. Each Vice-President, if any, designated by the Trustees shall be an administrative officer of the Trust and have such duties as are designated by the President or the Trustees. 3 Section 2.5 Duties of the Secretary. The Secretary shall: (a) Minutes. Keep full and complete minutes of the meetings (or actions in lieu thereof) of the Trustees, any committees of the Trustees and the Shareholders and give notice, as required, of all such meetings; (b) Books and Other Records. Maintain custody of and keep the books of account and other records of the Trust except such as are in custody of the Treasurer; (c) Share Register. Maintain at the principal office of the Trust a share register, showing the ownership and transfers of ownership of all shares of the Trust, unless a transfer agent is employed to maintain and does maintain such a share register; and (d) General Duties. Generally, perform all duties which pertain to his office and which are required by the Trustees. An Assistant Secretary or Secretaries may be appointed to act in the absence of the Secretary. Section 2.6 Duties of the Treasurer. The Treasurer shall perform all duties which pertain to his office and which are required by the Trustees, including without limitation the receipt, deposit and disbursement of funds belonging to the Trust. An Assistant Treasurer or Treasurers may be appointed to act in the absence of the Treasurer. ARTICLE III SHAREHOLDERS Section 3.1 Effect of Quorum. Subject to the provisions of the Declaration, the Shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment notwithstanding the withdrawal of enough Shareholders so that the remaining Shareholders constitute less than a quorum. Section 3.2 Place of Meeting. Meetings of the Shareholders shall be held at the principal office of the Trust or at such place within or without the State of Maryland as is designated by the Trustees or the Chairman or President or by the written consent of a majority of the Shareholders entitled to vote thereat, given either before or after the meeting and filed with the Secretary of the Trust. 4 Section 3.3 Annual Meeting. A regular annual meeting of the Shareholders shall be called by the Chairman or President within six months after the end of each fiscal year, commencing with the fiscal year ending December 31, 1987. Section 3.4 Special Meetings. Special meetings of the Shareholders may be held at any time for any purpose or purposes permitted by the Declaration and shall be called as provided in Section 6.9 of the Declaration. Section 3.5 Notice of Regular or Special Meetings. Written notice specifying the place, day and hour of any regular or special meeting, the purposes of the meeting, and all other matters required by law shall be given to each Shareholder of record entitled to vote, either personally or by sending a copy thereof by mail or telegraph, charges prepaid, to his address appearing on the books of the Trust or theretofore given by him to the Trust for the purpose of notice or, if no address appears or has been given, addressed to the place where the principal office of the Trust is situated. It shall be the duty of the Secretary to give notice of each Annual Meeting of the Shareholders at least fifteen (15) days and not more than sixty (60) days before the date on which it is to be held. Whenever an officer has been duly requested to call a special meeting of Sharehold ers, it shall be his duty to fix the date and hour thereof, which date shall be not less than twenty (20) days and not more than sixty (60) days after the receipt of such request if the request has been delivered in person or after the date of mailing the request, as the case may be, and to give notice of such special meeting within ten (10) days after receipt of such request. If the date of such special meeting is not so fixed and notice thereof given within ten (10) days after the date of receipt of the request, the date and hour of such meeting may be fixed by the Person or Persons calling or requesting the meeting and notice thereof shall be given by such Person or Persons not less than twenty (20) nor more than sixty (60) days before the date on which the meeting is to be held. Section 3.6 Notice of Adjourned Meetings. It shall not be necessary to give notice of the time and place of any adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken, except that when a meeting is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Section 3.7 Proxies. The appointment of a proxy or proxies for any meeting of Shareholders entitled to vote shall be made by an instrument in writing executed by the Shareholder or his duly authorized agent and filed with such officer of the Trust as the Trustees shall have designated for such purpose for verification prior to such meeting. Any proxy relating to the Trust's shares of beneficial interest shall be valid until the expiration date therein or, if no expiration is so indicated, for such period as is permitted pursuant to Maryland law. At a meeting of Shareholders all questions concerning the qualification of voters, the validity of proxies, and the acceptance or rejection of votes, shall be decided by the Secretary of the meeting unless inspectors of election are appointed pursuant to Section 3.10 in which event such inspectors shall pass upon all questions and shall have all other duties specified in said section. Section 3.8 Consent of Absentees. The transactions of any meeting of Shareholders, either annual, special or adjourned, however called and noticed, shall be as valid as though had at a meeting duly held after the regular call and notice if a quorum is present and if, either before or after the meeting, each Shareholder entitled to vote, not present in person or by proxy, signs a written waiver of notice, a consent to the holding of such meeting or an approval of the minutes 5 thereof. All such waivers, consents or approvals shall be lodged with the Trust records or made a part of the minutes of the meeting. Section 3.9 Voting Rights. If no date is fixed for the determination of the Shareholders entitled to vote at any meeting of Shareholders, only Persons in whose names Shares entitled to vote stand on the share records of the Trust at the opening of business on the day of any meeting of Shareholders shall be entitled to vote at such meeting. Section 3.10 Advance Notice for Nomination of Trustees. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Trustees of the Trust. Nominations of persons for election to the Board of Trustees may be made (a) by or at the direction of the Board of Trustees (or any duly authorized committee thereof) or (b) by any Shareholder of the Trust (i) who is a Shareholder of record on the date of the giving of the notice provided for in this Section 3.10 and on the record date for the determination of Shareholders entitled to vote upon such nominations and (ii) who complies with the notice procedures set forth in this Section 3.10. In addition to any other applicable requirements, for a nomination to be made by a Shareholder, such Shareholder must have given timely notice thereof in proper written form to the Secretary of the Trust. To be timely, a Shareholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Trust (a) in the case of an annual meeting, not less than seventy (70) days nor more than one hundred-twenty (120) days prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the meeting is called for a date more than seventy (70) days prior to such anniversary date, notice by the Shareholder in order to be timely must be so received not later than the close of business on the twentieth (20th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of Shareholders called (other than at the request of Shareholders) for the purpose of electing Trustees, not later than the close of business on the twentieth (20th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a Shareholder's notice to the Secretary must set forth (a) as to each person whom the Shareholder proposes to nominate for election as a Trustee (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Trust which are owned beneficially or of record by the person, (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Trustees pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder and 6 (v) the consent of each nominee to serve as a Trustee if so elected; and (b) as to the Share holder giving the notice (i) the name and record address of such Shareholder, (ii) the class or series and number of shares of capital stock of the Trust which are owned beneficially or of record by such Shareholder, (iii) a description of all arrangements or understandings between such Shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such Shareholder, (iv) a representation that such Shareholder intends to appear in person or by proxy at the meeting, if there be a meeting, to nominate the persons named in its notice and (v) any other information relating to such Shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Trustees pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a Trustee if elected. No person shall be eligible for election as a Trustee of the Trust unless nominated in accordance with the procedures set forth in this Section 3.10. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective, and such defective nomination shall be disregarded. Section 3.11 Advance Notice for Transaction of Business. No business may be transacted by the Shareholders at an annual or special meeting, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Trustees (or any duly authorized committee thereof), (b) otherwise properly brought before the Shareholders by or at the direction of the Board of Trustees (or any duly authorized committee thereof) or (c) otherwise properly brought before the Shareholders by any Shareholder of the Trust (i) who is a Shareholder of record on the date of the giving of the notice provided for in this Section 3.11 and on the record date for the determination of Shareholders entitled to vote or express consent therefor and (ii) who complies with the notice procedures set forth in this Section 3.11. In addition to any other applicable requirements, for business to be properly brought before an annual or special meeting by a Shareholder (other than a shareholder proposal included in the Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act), such Shareholder must have given timely notice thereof in proper written form to the Secretary of the Trust. To be timely, a Shareholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Trust not less than seventy (70) days nor more than one hundred-twenty (120) days prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the meeting is called for a date more than seventy (70) days prior to such anniversary date, notice by the Shareholder in order to be timely must be so received not later than the close of business on the twentieth (20th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, 7 whichever first occurs; and (b) in the case of a special meeting of Shareholders called (other than at the request of Shareholders) for the purpose of transacting business, not later than the close of business on the twentieth (20th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a Shareholder's notice to the Secretary must set forth as to each matter such Shareholder proposes to bring before the Shareholders (i) a brief description of the business desired to be brought before the Shareholders and the reasons therefor, (ii) the name and record address of such Shareholder, (iii) the class or series and number of shares of capital stock of the Trust which are owned beneficially or of record by such Shareholder, (iv) a description of all arrangements or understandings between such Shareholder and any other person or persons (including their names) in connection with the proposal of such business by such Shareholder and any material interest of such Shareholder in such business and (v) a representation that such Shareholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted by the Shareholders except business brought before them in accordance with the procedures set forth in this Section 3.11; provided, however, that, once business has been properly brought before an annual or special meeting in accor dance with such procedures, nothing in this Section 3.11 shall be deemed to preclude discussion by any Shareholder of any such business. If the Chairman of the meeting determines that business was not properly brought before the meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting, and such business shall not be transacted. Section 3.12 Record Date. In order to permit the Trustees to appropriately fix a record date for determining the Shareholders entitled to notice of or to vote at any special meeting of Shareholders or to express consent to any proposal without a meeting in accordance with Section 6.12 of the Declaration, any Shareholder requesting the call of a special meeting or proposing to solicit such consents shall give notice in proper written form to the Secretary of the Trust. To be in proper written form, a Shareholder's notice to the Secretary shall set forth, with respect to nominations of persons for election to the Board of Trustees, those matters required by Section 3.10 of these Bylaws, and with respect to transaction of other business, those matters required by Section 3.11 of these Bylaws. Section 3.13 Action Without Meeting. Whenever the Declaration permits an action by Shareholders without a meeting, in order that the Trust's Shareholders shall have an opportunity to receive and consider the information germane to an informed judgment as to whether to give a written consent, any action to be taken by written consent shall not be effective until, and the Shareholders of the Trust shall be able to give or revoke written consents for, at least sixty (60) days from the date of the commencement of a solicitation (as such term is defined in Rule 14a-l(l) promulgated under the Exchange Act) of consents. For purposes of this Section 3.13, a consent solicitation shall be deemed to have commenced 8 when a proxy statement or information statement containing the information required by law is first furnished to the Trust's Shareholders. Consents shall be valid for a maximum of sixty (60) days after the date of the earliest dated consent delivered to the Trust. ARTICLE IV MISCELLANEOUS Section 4.1 Record Dates and Closing of Transfer Books. Pursuant to the Declaration, the Trustees may fix record dates for specified purposes. If a record date is so fixed, only Shareholders of record on the date so fixed shall be entitled to the rights to which the record date pertains. Section 4.2 Inspection of Bylaws. The Trustees shall keep at the principal office for the transaction of business of the Trust the original or a copy of the Bylaws as amended or otherwise altered to date, certified by the Secretary, which shall be open to inspection by the Shareholders at all reasonable times during office hours. Section 4.3 Control Share Acquisition. Until such time as this Section 4.3 shall be repealed or these Bylaws shall be amended to provide otherwise, in each case in accordance with Article V of these Bylaws, the provisions of Subtitle 7 of Title 3 of the Corporations and Associations Article of the Annotated Code of Maryland (the "Code") shall not apply to "control share acquisitions" of the Trust within the meaning of the Code. ARTICLE V AMENDMENTS Section 5.1 By Trustees. Except for any change for which the Declaration or these Bylaws require approval by more than a majority vote, these Bylaws may be amended or repealed or new or additional Bylaws may be adopted by the vote or written consent of a majority of the Trustees. 9 ARTICLE VI DEFINITIONS Section 6.1 Definitions. All terms defined in the Declaration shall have the same meaning when used in these Bylaws. ARTICLE VII FISCAL YEAR Section 7.1 Fiscal Year. The fiscal year of the Trust shall be the calendar year. 10 EX-3.3 5 EXHIBIT 3.3 HEALTH AND RETIREMENT PROPERTIES TRUST ARTICLES SUPPLEMENTARY HEALTH AND RETIREMENT PROPERTIES TRUST, a Maryland real estate investment trust, having its principal office in Baltimore City, Maryland (hereinafter called the "Trust"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Trustees by Article VI, Section 6.1 of the Declaration of Trust of the Trust, as amended and restated on July 1, 1994 (the "Declaration"), the Board of Trustees has duly reclassified 1,000,000 unissued Preferred Shares, par value $.01 per share, of the Trust (from among the 50,000,000 Preferred Shares, par value $.01 per share, of the Trust which are authorized) into 1,000,000 Junior Participating Preferred Shares, par value $.01 per share, of the Trust. SECOND: The terms (including preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption) of the Junior Participating Preferred Shares, par value $.01 per share, are as follows: 1. Designation and Amount. The shares of such series shall be designated as "Junior Participating Preferred Shares" and the number of shares constituting such series shall be 1,000,000. 2. Dividends and Distributions. (a) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Shares ranking prior and superior to the Junior Par ticipating Preferred Shares with respect to dividends (if any), the holders of Junior Participating Preferred Shares shall be entitled to receive, when, as and if declared by the Board out of funds legally available for the purpose, quarterly dividends payable in cash on the 15th day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Junior Participating Preferred Share or fraction thereof, in an amount per share (rounded to the nearest cent) equal to the greater of (X) $5 or (Y) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all 2 cash dividends, plus 100 times the aggregate per share amount (payable in kind) of all noncash dividends or other distributions other than a dividend payable in Common Shares of beneficial interest, par value $.01 per share, of the Trust (the "Common Shares") or a subdivision of the outstanding Common Shares (by re classification or otherwise), declared on the Common Shares, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issu ance of any Junior Participating Preferred Share or fraction thereof. In the event the Trust shall at any time after October 17, 1994 (the "Rights Declaration Date") (i) declare any dividend on Common Shares pay able in Common Shares, (ii) subdivide the outstanding Common Shares or (iii) combine the outstanding Common Shares into a smaller number of shares, then in each such case the amount to which holders of shares of Junior Participating Preferred Shares were entitled immediately prior to such event under clause (Y) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immedi ately prior to such event. (b) The Board shall declare a dividend or distri bution on the Junior Participating Preferred Shares as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Shares (other than a dividend payable in Common Shares); provided that, in the event no dividend or distribution shall have been declared on the Common Shares during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $5 per share on the Junior Participating Preferred Shares shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumu lative on outstanding Junior Participating Preferred Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such Junior Partici pating Preferred Shares unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the 3 date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Junior Participating Preferred Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the Junior Participating Preferred Shares in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of Junior Participating Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not less than 10 and not more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of Junior Participating Preferred Shares shall have the following voting rights: (a) Subject to the provision for adjustment hereinafter set forth, each Junior Participating Pre ferred Share shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the share holders of the Trust. In the event that the Board shall at any time after the Rights Declaration Date (i) declare any dividend on Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares or (iii) combine the outstanding Common Shares into a smaller number of shares, then in each such case the number of votes per share to which holders of Junior Participating Preferred Shares were entitled immediate ly prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. (b) Except as otherwise provided herein or by law, the holders of Junior Participating Preferred Shares and the holders of Common Shares shall vote together as one class on all matters submitted to a vote of shareholders of the Trust. 4 (c) (i) If at any time dividends on any Junior Participating Preferred Shares shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occur rence of such contingency shall mark the beginning of a period (a "Default Period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all Junior Participating Preferred Shares then outstanding shall have been declared and paid or set apart for pay ment. During each Default Period, all holders of Preferred Shares (including holders of the Junior Participating Pre ferred Shares) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, ir respective of series, shall have the right to elect two (2) Trustees. (ii) During any Default Period, such voting right of the holders of Junior Participating Preferred Shares may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(c) or at an annual meeting of shareholders, and thereafter at annual meetings of shareholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Shares, if any, to increase, in certain cases, the authorized number of Trustees shall be exercised unless the holders of ten percent (10%) in number of Preferred Shares outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Shares shall not af fect the exercise by the holders of Preferred Shares of such voting right. At any meeting at which the holders of Preferred Shares shall exercise such voting right initially during an existing Default Period, they shall have the right, voting as a class, to elect Trustees to fill up to two (2) vacancies, if any, in the Board or, if such right is exercised at an annual meeting, to elect two (2) Trustees. The holders of Preferred Shares shall have the right to make such increase in the number of Trustees as shall be necessary to permit the election by them at any special meeting of two 5 (2) Trustees. After the holders of Preferred Shares shall have exercised their right to elect Trustees in any Default Period and during the continuance of such period, the number of Trustees shall not be increased or decreased except by vote of the holders of Preferred Shares as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Junior Participating Preferred Shares, if any. (iii) Unless the holders of Preferred Shares shall, during an existing Default Period, have previ ously exercised their right to elect Trustees, the Board may order, or any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of Preferred Shares outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Shares, which meeting shall thereupon be called by the Board or the Chief Executive Officer of the Trust. The Secretary of the Trust shall give notice of such meeting and of any annual meet ing at which holders of Preferred Shares are entitled to vote pursuant to this paragraph (c)(iii) to each holder of record of Preferred Shares by mailing a copy of such notice to him at his last address as the same appears on the books of the Trust. Such meeting shall be called for a time not earlier than fifteen (15) days and not later than sixty (60) days after such order or request. If such meeting is not called within sixty (60) days after such order or request, such meeting may be called on simi lar notice by any shareholder or shareholders owning in the aggregate not less than ten per cent (10%) of the total number of Preferred Shares outstanding. Notwithstanding the provi sions of this paragraph (c)(iii), no such spe cial meeting shall be called during the period within sixty (60) days immediately preceding the date fixed for the next annual meeting of the shareholders. (iv) In any Default Period, the holders of Common Shares, and (if applicable) other classes of Shares of beneficial interest of the Trust (all Trust shares being referred to as "Shares"), shall continue to be entitled to elect the 6 whole number of Trustees until the holders of Preferred Shares shall have exercised their rights to elect two (2) Trustees voting as a class, after the exercise of which right, (X) the Trustees so elected by the holders of Pre ferred Shares shall continue in office until their successors shall have been elected by such holders or until the expiration of the Default Period, and (Y) any vacancy in the Board shall (except as provided in paragraph (c)(ii) of this Section 3) be filled by vote of a majority of the remaining Trustees thereto fore elected by the holders of the class or classes of Shares which elected the Trustee whose office shall have become vacant. Refer ences in this paragraph (c) to Trustees elected by the holders of a particular class of Shares shall include Trustees elected by such Trustees to fill vacancies as provided in clause (Y) of the foregoing sentence. (v) Immediately upon the expiration of a Default Period, (X) the right of the holders of Pre ferred Shares as a class to elect Trustees shall cease, (Y) the term of any Trustees elected by the holders of Preferred Shares as a class shall terminate, and (Z) the number of Trustees shall be such number as may be provid ed for in the Declaration, any Article Supple mentary or the By-Laws of the Trust, irrespec tive of any increase made pursuant to the pro visions of paragraph (c)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law, or in the Declaration, any Article Supplementary or the By-Laws of the Trust). Any vacancies in the Board effected by the provisions of clauses (Y) and (Z) in the preceding sentence may be filled by a majority of the remaining Trustees. (d) Except as set forth herein, holders of Junior Participating Preferred Shares shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Shares as set forth herein) for taking any trust action. 7 4. Certain Restrictions. (a) Whenever quarterly dividends or other divi dends or distributions payable on the Junior Partici pating Preferred Shares as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on Junior Participating Preferred Shares outstanding shall have been paid in full, the Trust shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any Shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Participating Preferred Shares; (ii) declare or pay dividends on or make any other distributions on any Shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Participating Preferred Shares except dividends paid ratably on the Junior Participating Pre ferred Shares and all such parity Shares on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such Shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration Shares ranking on a parity (ei ther as to dividends or upon liquidation, dis solution or winding up) with the Junior Partic ipating Preferred Shares provided that the Trust may at any time redeem, purchase or oth erwise acquire any such parity Shares in ex change for any Shares ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Junior Participating Pre ferred Shares; (iv) purchase or otherwise acquire for consideration any Junior Participating Preferred Shares, or any Shares ranking on a parity with the Junior Participating Preferred Shares, except pursuant to Section 8 or in accordance with a purchase offer made in writing or by publication (as determined by the Board) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences 8 of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Trust shall not permit any subsidiary of the Trust to purchase or otherwise acquire for con sideration any Shares of the Trust unless the Trust could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any Junior Participating Preferred Shares, purchased or otherwise acquired by the Trust in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued Preferred Shares and may be reissued as part of a new series of Preferred Shares to be created by resolution or resolutions of the Board, subject to the conditions and restrictions on issuance set forth herein. 6. Liquidation, Dissolution or Winding Up. (a) Upon any liquidation (voluntary or other wise), dissolution or winding up of the Trust, no dis tribution shall be made to the holders of Shares rank ing junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Participating Preferred Shares, unless, prior thereto, the holders of Junior Participating Preferred Shares shall have re ceived $100.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Liquidation Preference"). Following the payment of the full amount of the Liquidation Preference, no additional distributions shall be made to the holders of Junior Participating Preferred Shares, unless, prior thereto, the holders of Common Shares shall have re ceived an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph (c) below to re flect such events as stock splits, stock dividends and recapitalization with respect to the Common Shares) (such number in clause (ii) immediately above being referred to as the "Adjustment Number"). Subject to the rights of any other series of Preferred Shares then outstanding, if any, following the payment of the full amount of the Liquidation Preference and the Common Adjustment in respect of all outstanding shares of 9 Junior Participating Preferred Shares and Common Shares, respectively, holders of Junior Participating Preferred Shares and holders of shares of Common Shares shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to one (1) with respect to such Junior Participating Preferred Shares and Common Shares, on a per Share basis, respectively. (b) In the event, however, that there are not sufficient assets available to permit payment in full of the Liquidation Preference and the liquidation preferences of all other series of Preferred Shares, if any, which rank on a parity with the Junior Participat ing Preferred Shares, then such remaining assets shall be distributed ratably to the holders of such parity Shares (including the Junior Participating Preferred Shares) in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment after satisfaction of the liquidation preferences of all series of Preferred Shares, if any, then such remaining assets shall be distributed ratably to the holders of Common Shares. (c) In the event the Trust shall at any time after the Rights Declaration Date (i) declare any dividend on Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares or (iii) combine the outstanding Common Shares into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of shares of Common Shares that were outstanding immediately prior to such event. 7. Consolidation, Merger, etc. In case the Trust shall enter into any consolidation, merger, combination or other trans action in which the Common Shares are exchanged for or changed into other stock or securities, cash or any other property, then in any such case the Junior Participating Preferred Shares shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of shares, securities, cash or any other property (payable in kind), as the case may be, into which or for which each Common Share is changed or exchanged. In the event the Trust shall at any time after the 10 Rights Declaration Date (i) declare any dividend on Common Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares or (iii) combine the outstanding Common Shares into a smaller number of Shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of Junior Participating Preferred Shares shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. 8. Redemption. The Junior Participating Preferred Shares shall not be redeemable. 9. Ranking. The Junior Participating Preferred Shares shall rank junior to all other series of the Trust's Preferred Shares as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide other wise. 10. Amendment. At such time as Junior Participating Pre ferred Shares are outstanding, the Declaration shall not be amended, nor shall an Article Supplemental of the Trust be filed or amended, in any manner which would materially alter or change the powers, preferences or special rights of the Junior Partici pating Preferred Shares so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding Junior Participating Preferred Shares voting sepa rately as a class. 11. Fractional Shares. Junior Participating Preferred Shares may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of a holder of Junior participating Preferred Shares. 11 IN WITNESS WHEREOF, HEALTH AND RETIREMENT PROPERTIES TRUST has caused these Articles Supplementary to be signed in its name and on its behalf by a majority of its entire Board of Trustees and witnessed by its Secretary on November 4, 1994. WITNESS: HEALTH AND RETIREMENT PROPERTIES TRUST /s/ David J. Hegarty By: /s/ John L. Harrington David J. Hegarty John L. Harrington Secretary Trustee By:____________________________ Arthur G. Koumantzelis Trustee By:/s/ Rev. Justinian Manning, C.P. Rev. Justinian Manning, C.P. Trustee By:/s/ Gerard M. Martin Gerard M. Martin Trustee By:/s/ Barry M. Portnoy Barry M. Portnoy Trustee THE UNDERSIGNED, Vice President of HEALTH AND RETIREMENT PROPER TIES TRUST, with respect to the foregoing Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Trust, the foregoing Articles Supplementary to be the act of said Trust and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. /s/ David J. Hegarty David J. Hegarty Vice President EX-3.4 6 EXHIBIT 3.4 HEALTH AND RETIREMENT PROPERTIES TRUST ARTICLES SUPPLEMENTARY TO THIRD AMENDMENT AND RESTATEMENT OF DECLARATION OF TRUST DATED JULY 1, 1994 Health and Retirement Properties Trust, a Maryland real estate investment trust, having its principal office in Baltimore City, Maryland (hereinafter called, the "Trust"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Trustees of the Trust by Article SIXTH of the Third Amendment and Restatement of Declaration of Trust, as amended and as supplemented by the Articles Supplementary (the "Articles Supplementary") creating the series of Junior Participating Preferred Shares and filed with the State Department of Assessments and Taxation of Maryland on November 4, 1994, and as further amended by Articles of Amendment on July 10, 1996 and February 27, 1997 (as amended, the "Declaration of Trust") the Board of Trustees has duly divided and classified 250,000 additional shares of the authorized preferred shares of beneficial interest ("Preferred Shares") of the Trust into the series of such class designated as Junior Participating Preferred Shares, bringing the total number of authorized shares of such series to 1,250,000. SECOND: The terms of the Junior Participating Preferred Shares established by the Board of Trustees are as set forth in the Articles Supplementary in addition to those set forth in Article SIXTH of the Declaration of Trust applicable to all classes of Preferred Shares. IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary to be signed in its name and on its behalf by the undersigned, being at least a majority of the Trustees of the Trust, who executed this instrument as of May 13, 1997. /s/ Bruce M. Gans /s/ Rev. Justinian Manning Bruce M. Gans The Rev. Justinian C. Manning /s/ Gerard M. Martin /s/ Barry M. Portnoy Gerard M. Martin Barry M. Portnoy /s/ Ralph J. Watts Ralph J. Watts COMMONWEALTH OF MASSACHUSETTS) COUNTY OF SUFFOLK) On May 13, 1997 before me Julianne M. Ells, a Notary Public in and for said Commonwealth, personally appeared Bruce M. Gans, the Reverend Justinian C. Manning, Gerard M. Martin, Barry M. Portnoy and Ralph J. Watts, known to me or proved to me on the basis of satisfactory evidence, to be the person whose names are subscribed to the within instrument and acknowledged that each of them executed the same. WITNESS my hand and official seal, Signature: /s/ Julianne M. Ells Notary Public My Commission expires: November 25, 1999 - 2 - EX-3.5 7 EXHIBIT 3.5 HEALTH AND RETIREMENT PROPERTIES TRUST ARTICLES SUPPLEMENTARY TO THIRD AMENDMENT AND RESTATEMENT OF DECLARATION OF TRUST DATED JULY 1, 1994 Health and Retirement Properties Trust, a Maryland real estate investment trust, having its principal office in Baltimore City, Maryland (hereinafter called the "Trust"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Trustees of the Trust by Article SIXTH of the Third Amendment and Restatement of Declaration of Trust, as amended to date (the "Declaration of Trust"), and as supplemented by the Articles Supplementary (the "Articles Supplementary") creating the series of Junior Participating Preferred Shares and filed with the State Department of Assessments and Taxation of Maryland on November 4, 1994, the Board of Trustees has duly divided and classified 250,000 additional shares of the authorized preferred shares of beneficial interest ("Preferred Shares") of the Trust into the series of such class designated as Junior Participating Preferred Shares, bringing the total number of authorized shares of such series to 1,500,000. SECOND: The terms of the Junior Participating Preferred Shares established by the Board of Trustees are as set forth in the Articles Supplementary in addition to those set forth in Article SIXTH of the Declaration of Trust applicable to all classes of Preferred Shares. IN WITNESS WHEREOF, HEALTH AND RETIREMENT PROPERTIES TRUST has caused these presents to be signed in its name and on its behalf by its President and witnessed by its Assistant Secretary on May 22, 1998. WITNESS: HEALTH AND RETIREMENT PROPERTIES TRUST /s/ Alexander A. Notopoulos, Jr. By: /s/ David J. Hegarty Alexander A. Notopoulos, Jr. David J. Hegarty Assistant Secretary President THE UNDERSIGNED, President of HEALTH AND RETIREMENT PROPERTIES TRUST, who executed on behalf of the Trust the Articles Supplementary which this certificate is made a part, hereby acknowledges in the name and on behalf of said Trust the foregoing Articles Supplementary to be the corporate act of said Trust and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. /s/ David J. Hegarty David J. Hegarty EX-8.1 8 Exhibit 8.1 SULLIVAN & WORCESTER LLP One Post Office Square Boston, Massachusetts 02109 May 27, 1998 Health and Retirement Properties Trust 400 Centre Street Newton, Massachusetts 02158 Ladies and Gentlemen: In connection with the registration by Health and Retirement Properties Trust, a Maryland real estate investment trust (the "Company"), of its common shares of beneficial interest, the following opinion is furnished to you to be filed with the Securities and Exchange Commission (the "SEC") as Exhibit 8.1 to the Company's Current Report on Form 8-K dated the date hereof and to be filed on or about the date hereof, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have acted as counsel for the Company in connection with its Registration Statements on Form S-3, File Nos. 333-26887 and 333-52353 (the "Registration Statements") filed under the Securities Act of 1933, as amended (the "Act"), and we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Registration Statements, corporate records, certificates and statements of officers and accountants of the Company and of public officials, and such other documents as we have considered relevant and necessary in order to furnish the opinion hereinafter set forth. Specifically, and without limiting the generality of the foregoing, we have reviewed: (i) the declaration of trust, as amended and restated, and the by-laws of the Company; (ii) the Registration Statements; (iii) the Prospectus dated May 30, 1997 (the "Base Prospectus") relating to the Registration Statements; and (iv) the Prospectus Supplement to the Base Prospectus dated May 27, 1998 (the "Prospectus Supplement" and the Base Prospectus, as so supplemented, the "Prospectus"). We have reviewed the sections in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, filed under the Exchange Act (the "Form 10-K") captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts," as supplemented by the statements in the Prospectus Supplement under the caption "Federal Income Tax and ERISA Considerations." With respect to all questions of fact on which such opinions are based, we have assumed the accuracy and completeness of and Health and Retirement Properties Trust May 27, 1998 Page 2 have relied on the information set forth in the Prospectus and in the documents incorporated therein by reference, and on representations made to us by the officers of the Company. We have not independently verified such information; nothing has come to our attention, however, which would lead us to believe that we are not entitled to rely on such information. The opinion set forth below is based upon the Internal Revenue Code of 1986, as amended, the Treasury Regulations issued thereunder, published administrative interpretations thereof, and judicial decisions with respect thereto, all as of the date hereof (collectively the "Tax Laws"), and upon the Employee Retirement Income Security Act of 1974, as amended, the Department of Labor regulations issued thereunder, published administrative interpretations thereof, and judicial decisions with respect thereto, all as of the date hereof (collectively, the "ERISA Laws"). No assurance can be given that the Tax Laws or the ERISA Laws will not change. In preparing the discussions with respect to the matters in the sections of the Form 10-K captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts," as supplemented by the statements in the Prospectus Supplement under the caption "Federal Income Tax and ERISA Considerations," we have made certain assumptions and expressed certain conditions and qualifications therein, all of which assumptions, conditions and qualifications are incorporated herein by reference. Based upon and subject to the foregoing, we are of the opinion that the discussions in the sections of the Form 10-K captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement Accounts," as supplemented by the statements in the Prospectus Supplement under the caption "Federal Income Tax and ERISA Considerations," in all material respects are accurate and fairly summarize the Tax Laws issues and ERISA Laws issues addressed therein, and hereby confirm that the opinions of counsel referred to in said sections represent our opinions on the subject matter thereof. We hereby consent to the incorporation of this opinion by reference as an exhibit to the Registration Statements and to the reference to our firm in the Prospectus. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Act or under the rules and regulations of the SEC promulgated thereunder. Very truly yours, /s/ Sullivan & Worcester LLP SULLIVAN & WORCESTER LLP -----END PRIVACY-ENHANCED MESSAGE-----