-----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, EXCA2T5rr8WsYCWqnHChA7LtfzYzCr9XkxTotqkLwLjl5L6fhpzoT4vAOdpfOliP Sl/8hcGtf9qqG/0pj0wnKQ== 0000950131-01-501922.txt : 20010620 0000950131-01-501922.hdr.sgml : 20010620 ACCESSION NUMBER: 0000950131-01-501922 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010503 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010619 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARCHSTONE COMMUNITIES TRUST/ CENTRAL INDEX KEY: 0000080737 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 746056896 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-10272 FILM NUMBER: 1663024 BUSINESS ADDRESS: STREET 1: 7777 MARKET CENTER AVE STREET 2: SUITE 100 CITY: EL PASO STATE: TX ZIP: 79912 BUSINESS PHONE: 3037085959 MAIL ADDRESS: STREET 1: 7670 SOUTH CHESTER ST CITY: ENGLEWOOD STATE: CO ZIP: 80012 FORMER COMPANY: FORMER CONFORMED NAME: SECURITY CAPITAL PACIFIC TRUST DATE OF NAME CHANGE: 19950417 FORMER COMPANY: FORMER CONFORMED NAME: PROPERTY TRUST OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EL PASO REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19700108 8-K 1 d8k.txt FORM 8-K ================================================================================ 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 3, 2001 ----------- ARCHSTONE COMMUNITIES TRUST ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Maryland ---------------------------------------------- (State or Other Jurisdiction of Incorporation) 1-10272 74-6056896 -------------------------- ----------------------------------- (Commission File Number) (I.R.S. Employer Identification No.) 7670 South Chester Street, Englewood, CO 80112 ---------------------------------------- --------- (Address of Principal Executive Offices) (Zip Code) (303) 708-5959 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) ================================================================================ Item 5. Other Events Merger Agreement - ---------------- On May 3, 2001, Archstone Communities Trust, a Maryland real estate investment trust ("Archstone"), New Garden Residential Trust, a Maryland real estate investment trust ("New Archstone"), Charles E. Smith Residential Realty, Inc., a Maryland corporation ("Smith Residential") and Charles E. Smith Residential Realty, L.P., a Delaware limited partnership ("Smith Partnership"), entered into an Agreement and Plan of Merger (the "Merger Agreement") providing for a business combination among Archstone, New Archstone, Smith Residential and Smith Partnership. Under the Merger Agreement, Archstone will be reorganized into an umbrella partnership real estate investment trust or "UPREIT" structure. Each existing trustee of Archstone will become a trustee of New Archstone. To accomplish this reorganization, through a series of transactions, New Archstone will become a holding company of Archstone (or its successor in the reorganization, which entity for purposes of this report will be called Archstone, unless the context requires otherwise) with the holders of preferred and common equity securities of Archstone receiving securities of New Archstone in the same number and of the same series as the securities of Archstone outstanding immediately prior to this first step merger. Following this reorganization, Archstone will elect to be treated as a partnership for federal income tax purposes and all of New Archstone's properties, property interests, and business assets will be owned by, and its operations conducted through, Archstone. After the reorganization of Archstone into an UPREIT structure, the second step of the transaction contemplates both the merger of Smith Residential with and into New Archstone and the merger of Smith Partnership with and into Archstone. Both New Archstone and Archstone will survive these mergers. Following the merger with Smith Residential, New Archstone shall be named "Archstone-Smith Trust" and Archstone shall be named "Archstone-Smith Operating Trust." Pursuant to the Merger Agreement, upon consummation of the transactions: - each common share of Smith Residential will be converted into 1.975 common shares of New Archstone (the 1.975 exchange ratio is fixed and not subject to adjustment); - preferred shares of Smith Residential will be converted into a corresponding series of preferred shares of New Archstone on a share- for-share basis; - partners of Smith Partnership will receive 1.975 shares of Archstone for each Smith Partnership common unit held (each Archstone common share so issued will be redeemable at the option of New Archstone for cash or a common share); and - each outstanding option of Smith Residential will be converted into a corresponding option of New Archstone, such number of options to be multiplied by 1.975 (rounded down to the nearest whole number) and the exercise price of such options to be divided by 1.975 (rounded up to the nearest whole cent), and each such option may be tendered to Archstone for purchase as described below. As soon as practicable and subject to applicable law, Archstone will offer to purchase, subject to consummation of the transactions contemplated by the Merger Agreement, all outstanding qualified or nonqualified options to purchase shares of Smith Residential common stock (which options will become options to acquire common shares of New Archstone pursuant to the terms of the Merger Agreement) ("Smith Options"). The amount paid for the purchased Smith Options shall be cash equal to the product of (i) the excess, if any, of (A) $49.48 over (B) the exercise price of such Smith Option and (ii) the number of shares of Smith Residential common stock subject thereto. This offer will expire at 11:59 pm (Mountain time) on the end of the second complete business day following the effective time of the merger. If the holder of any Smith Option tenders such option prior to the end of the second business day following the effective time of the final merger, then within seven business days following the effective time, Archstone will, subject to reduction for required withholding taxes, pay to each such selling former holder of Smith Options the purchase price thereof. -1- The Merger Agreement includes customary representations, warranties and covenants for each of Archstone, New Archstone, Smith Residential and Smith Partnership. No fractional shares will be issued in either the Archstone reorganization or in the merger with Smith Residential, rather cash will be paid in lieu of the issuance of a fractional share. The reorganization of Archstone into an UPREIT structure and the merger of Smith Residential with and into New Archstone are intended to be reorganizations that are tax free, except to the extent that a holder receives cash in lieu of a fractional share. The transactions described above will require the approval of a majority of Archstone's outstanding common shares, two-thirds of the outstanding common shares of Smith Residential and a majority in percentage interest of the limited partners of Smith Partnership not owned by Smith Residential, and a majority in percentage interest of the limited partners of Smith Partnership (including those owned by Smith Residential). The transactions are also subject to the receipt of regulatory approvals as well as other customary closing conditions. Under the Merger Agreement, the third quarter dividend of Smith Residential will not change from its current quarterly dividend of $0.585 per shares and the second and third quarter dividends of Archstone will not change from its current quarterly dividend of $0.41 per share. The Merger Agreement contemplates that Smith Residential will make a preclosing dividend if, and to the extent, necessary to avoid jeopardizing its REIT status and the payment of federal income taxes. If Smith Residential must pay a special preclosing dividend, Archstone will make a corresponding distribution to its shareholders. The parties anticipate that the mergers will close during the third quarter of 2001. Shareholders' Agreement - ----------------------- In connection with the closing of the mergers, New Archstone and Archstone will enter into a Shareholders' Agreement the ("Shareholders' Agreement") with Robert H. Smith ("Smith"), the Chairman of the Board of Smith Residential, and Robert P. Kogod ("Kogod"), the Chairman of the Executive Committee of the Board of Smith Residential, which provides for, among other things, the appointment of Messrs. Smith and Kogod to New Archstone's Board of Trustees, to serve until 2003 and 2002, respectively. Messrs. Smith or Kogod (or their replacement nominee) will have the right to be nominated to serve on the Board of Trustees of New Archstone for a period of ten (10) years. Ernest A. Gerardi, the President and Chief Executive Officer of Smith Residential will be appointed for a single, three year term. Pursuant to the Shareholders' Agreement, Messrs. Smith and Kogod will agree not to sell any common shares or units beneficially owned by them after the merger for a period of three years. This restriction will not apply to the sale of up to an aggregate of 400,000 shares between the first and second anniversaries of the merger and up to an aggregate of 800,000 shares between the first and third anniversaries of the merger. The Shareholders' Agreement provides that New Archstone will create a separate operating division (similar to Archstone's current East and West Regions) and all of New Archstone's high-rise business will be operated under the name "Charles E. Smith Residential." For a period of 15 years, New Archstone will not directly or indirectly transfer any interest in certain identified properties currently owned by Smith Partnership located in the Crystal City area of Arlington, Virginia, without the prior written consent of Messrs. Smith and Kogod, except in the case of sale of all of the identified Crystal City properties in a single transaction. In addition, the Charles E. Smith Residential division will maintain its headquarters in the Crystal City area of Arlington, Virginia for a period of 15 years unless otherwise agreed to by Messrs. Smith and Kogod. The Charles E. Smith Residential division will be operated under the direction of a President - Charles E. Smith Residential Division. The initial person to serve as president will be W.D. Minami (currently the Executive Vice President, Chief Operating Officer and Chief Financial Officer of Smith Residential) who will report directly to R. Scot Sellers, Archstone's and New Archstone's Chief Executive Officer. -2- The Shareholders' Agreement will terminate (i) with respect to Mr. Smith, at such time as Mr. Smith and his family beneficially own less than 1,000,000 common shares of New Archstone, and (ii) with respect to Mr. Kogod, at such time as Mr. Kogod and his family beneficially own less than 1,000,000 common shares of New Archstone. Tax Protection Agreements - ------------------------- Archstone will enter into a Tax Protection Agreement pursuant to which Archstone will agree, for the benefit of the limited partners in Smith Partnership, that until January 1, 2022 it will not dispose of any properties acquired from the Smith Partnership if the disposition would cause a former partner of the Smith Partnership to recognize any of the gain that would have been recognized for federal income tax purposes if there was a fully taxable disposition of the properties at the time of the merger. This agreement does not restrict Archstone from disposing of any property in a like-kind exchange transaction under Section 1031 of the Internal Revenue Code that does not result in the recognition of any income or gain to a former partner of the Smith Partnership. In addition, subject to certain exceptions (including existing required amortization), Archstone will agree that it will not repay or prepay any of the existing nonrecourse debt that is secured by the Smith Partnership properties until January 1, 2022. In the event Archstone disposes of such properties or repays or prepays such debt, Archstone would be required to reimburse the adversely affected former Smith Partnership partners for the resulting taxes on a "fully grossed up" basis. Voting Agreements - ----------------- In connection with the execution of the Merger Agreement, the directors of Smith Residential, controlling in the aggregate approximately 1.1% of the outstanding shares of Smith Residential common stock and approximately 6.0% of the outstanding Smith Partnership limited partnership interests (other than preferred units), have agreed, among other things, to vote their shares of Smith Residential common stock and Smith Partnership partnership interests to approve the mergers, and the trustees of Archstone, controlling in the aggregate approximately 0.4% of the outstanding Archstone common shares have agreed, among other things, to vote their Archstone common shares to approve the mergers. Other Matters - ------------- The foregoing description is qualified in its entirety by reference to the text of the Merger Agreement and the exhibits thereto, copies of which are filed as exhibits 2.1, 2.1(a), 2.1(b), 2.1(c), 2.1(d), 2.1(e) and 2.1(f) to this current report on Form 8-K and the voting agreements, forms of which are filed as exhibits 99.1 and 99.2 to this current report on Form 8-K. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Businesses Acquired. None (b) Pro Forma Financial Statements. None (c) Exhibits. Exhibit No. Document Description - ----------- -------------------- 2.1 Amended and Restated Agreement and Plan of Merger among Archstone Communities Trust, New Garden Residential Trust, Charles E. Smith Residential Realty, Inc. and Charles E. Smith Residential Realty, L.P. dated as of May 3, 2001 and the exhibits thereto
-3- Exhibit No. Document Description - ----------- -------------------- 2.1(a) Exhibit A - Form of Shareholders' Agreement to be entered into by and among Archstone Communities Trust, New Garden Residential Trust, Robert H. Smith and Robert P. Kogod 2.1(b) Exhibit B - Form of Amended and Restated Declaration of Trust of Archstone-Smith Operating Trust 2.1(c) Exhibit C - Form of Amended and Restated Bylaws of Archstone-Smith Operating Trust 2.1(d) Exhibit D - Form of Amended and Restated Declaration of Trust of Archstone-Smith Trust 2.1(e) Exhibit E - Form of Amended and Restated Bylaws of Archstone-Smith Trust 2.1(f) Exhibit F - Form of Proposed Charter Amendments to the Archstone Communities Trust Amended and Restated Declaration Trust, as amended 99.1 Form of Voting Agreement, dated as of May 3, 2001, by and between Archstone Communities Trust and each director of Charles E. Smith Residential Realty, Inc. and a schedule setting forth the name of each director and the number of shares of common stock of Charles E. Smith Residential Realty, Inc. and the limited partnership interests of Charles E. Smith Residential Realty, L.P. owned by each 99.2 Form of Voting Agreement, dated as of May 3, 2001, by and between Charles E. Smith Residential Realty, Inc. and each trustee of Archstone Communities Trust and a schedule setting forth the name of each trustee and the number of common shares of Archstone Communities Trust owned by each -4- 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 hereunto duly authorized. ARCHSTONE COMMUNITIES TRUST Dated: June 19, 2001 By: /s/ Caroline Brower --------------------------- Caroline Brower Senior Vice President and General Counsel -5- EXHIBIT INDEX 2.1 Amended and Restated Agreement and Plan of Merger among Archstone Communities Trust, New Garden Residential Trust, Charles E. Smith Residential Realty, Inc. and Charles E. Smith Residential Realty, L.P. dated as of May 3, 2001and the exhibits thereto 2.1(a) Exhibit A - Form of Shareholders' Agreement to be entered into by and among Archstone Communities Trust, New Garden Residential Trust, Robert H. Smith and Robert P. Kogod 2.1(b) Exhibit B - Form of Amended and Restated Declaration of Trust of Archstone-Smith Operating Trust 2.1(c) Exhibit C - Form of Amended and Restated Bylaws of Archstone-Smith Operating Trust 2.1(d) Exhibit D - Form of Amended and Restated Declaration of Trust of Archstone-Smith Trust 2.1(e) Exhibit E - Form of Amended and Restated Bylaws of Archstone-Smith Trust 2.1(f) Exhibit F - Form of Proposed Charter Amendments to the Archstone Communities Trust Amended and Restated Declaration of Trust, as amended 99.1 Form of Voting Agreement, dated as of May 3, 2001, by and between Archstone Communities Trust and each director of Charles E. Smith Residential Realty, Inc. and a schedule setting forth the name of each director and the number of shares of common stock of Charles E. Smith Residential Realty, Inc. and the limited partnership interests of Charles E. Smith Residential Realty, L.P. owned by each 99.2 Form of Voting Agreement, dated as of May 3, 2001, by and between Charles E. Smith Residential Realty, Inc. and each trustee of Archstone Communities Trust and a schedule setting forth the name of each trustee and the number of common shares of Archstone Communities Trust owned by each -6- EX-2.1 2 dex21.txt AMENDED AND RESTATED PLAN OF MERGER EXHIBIT 2.1 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER among ARCHSTONE COMMUNITIES TRUST, NEW GARDEN RESIDENTIAL TRUST, CHARLES E. SMITH RESIDENTIAL REALTY, INC. and CHARLES E. SMITH RESIDENTIAL REALTY, L.P. Dated as of May 3, 2001 TABLE OF CONTENTS Page ---- ARTICLE 1 THE ARCHSTONE MERGER AND THE MERGERS.................... 4 1.1 The Primary Archstone Merger.............................. 4 1.2 Alternative Structure of the Archstone Merger............. 6 1.3 The Merger................................................ 10 1.4 The Partnership Merger.................................... 10 1.5 Closings.................................................. 11 1.6 Effective Time............................................ 11 1.7 Effect of Partnership Merger on Smith Agreement of Limited Partnership and Archstone Surviving Subsidiary Declaration of Trust and Bylaws........................... 12 1.8 Effect of Merger on Smith Articles of Incorporation and Bylaws and New Archstone Declaration of Trust and Bylaws................................................ 12 1.9 Trustees of New Archstone................................. 13 1.10 Effect of Archstone Merger and Merger on Capital Stock and Shares of Beneficial Interest......................... 13 1.11 Effect of Partnership Merger on Partnership Interests and Shares of Beneficial Interest......................... 13 1.12 Partnership Merger Consideration; Merger Consideration.... 13 1.13 Partner Approval.......................................... 17 1.14 Appraisal or Dissenters Rights............................ 17 1.15 Exchange of Certificates in Merger; Pre-Closing Dividends; Fractional Shares.............................. 17 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SMITH AND SMITH PARTNERSHIP ......................................... 22 2.1 Organization, Standing and Power.......................... 23 2.2 Smith Subsidiaries........................................ 23 2.3 Capital Structure......................................... 24 2.4 Other Interests........................................... 27 2.5 Authority; Noncontravention; Consents..................... 27 2.6 SEC Documents; Financial Statements, Undisclosed Liabilities............................................... 29 2.7 Absence of Certain Changes or Events...................... 30 2.8 Litigation................................................ 30 2.9 Properties................................................ 31 2.10 Environmental Matters..................................... 33 2.11 Related Party Transactions................................ 35 2.12 Employee Benefits......................................... 35 2.13 Employee Policies......................................... 37 2.14 Taxes..................................................... 37 2.15 No Payments to Employees, Officers or Directors........... 39 2.16 Broker; Schedule of Fees and Expenses..................... 40 2.17 Compliance with Laws...................................... 40 2.18 Contracts; Debt Instruments............................... 40 2.19 Opinion of Financial Advisor.............................. 42 2.20 State Takeover Statutes................................... 42 2.21 Stockholder Rights Plan................................... 42 2.22 Investment Company Act of 1940............................ 42 2.23 Definition of "Knowledge of Smith"........................ 42 2.24 Required Stockholder Approvals and Partner Approvals...... 42 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ARCHSTONE AND NEW ARCHSTONE ............................................. 43 3.1 Organization, Standing and Power of Archstone............. 43 3.2 Archstone Subsidiaries.................................... 44 3.3 Capital Structure......................................... 45 3.4 Other Interests........................................... 46 3.5 Authority; Noncontravention; Consents..................... 47 3.6 SEC Documents; Financial Statements; Undisclosed Liabilities................................... 48 3.7 Absence of Certain Changes or Events...................... 49 3.8 Litigation................................................ 49 3.9 Properties................................................ 50 3.10 Environmental Matters..................................... 52 3.11 Taxes..................................................... 52 3.12 Brokers, Schedule of Fees and Expenses.................... 54 3.13 Compliance with Laws...................................... 55 3.14 Contracts; Debt Instruments............................... 55 3.15 Opinion of Financial Advisor.............................. 55 3.16 State Takeover Statutes................................... 55 3.17 Investment Company Act of 1940............................ 55 3.18 Definition of "Knowledge of Archstone".................... 55 3.19 Required Shareholder Approvals............................ 55 ARTICLE 4 COVENANTS ............................................... 56 4.1 Conduct of Smith's and Smith Partnership's Business Pending Merger............................................ 56 4.2 Conduct of Archstone's Business Pending Merger............ 60 4.3 No Solicitation........................................... 62 4.4 Affiliates................................................ 65 ii 4.5 Other Actions............................................. 66 ARTICLE 5 ADDITIONAL COVENANTS .................................... 66 5.1 Preparation of the Form S-4 and the Proxy Statement; Smith Stockholders Meeting, Smith Partnership Consent Solicitation and Archstone Shareholders Meeting........... 66 5.2 Access to Information; Confidentiality.................... 69 5.3 Notification.............................................. 69 5.4 Tax Matters............................................... 71 5.5 Public Announcements...................................... 71 5.6 Listing................................................... 71 5.7 Transfer and Gains Taxes.................................. 72 5.8 Benefit Plans and Other Employee Arrangements............. 72 5.9 Indemnification........................................... 74 5.10 Declaration of Dividends and Distributions................ 76 5.11 Transfer or Recapitalization of Smith Non-Controlled Subsidiaries.............................................. 77 5.12 Notices................................................... 77 5.13 Resignations.............................................. 77 5.14 Assumption of Existing Tax Protection Agreements.......... 77 5.15 Registration Rights Agreements............................ 78 5.16 Exemption from Liability Under Section 16(b).............. 78 5.17 Restructuring of Assets of Archstone...................... 78 5.18 Stockholder Rights Plan................................... 78 ARTICLE 6 CONDITIONS .............................................. 79 6.1 Conditions to Each Party's Obligation to Effect the Mergers................................................... 79 6.2 Conditions to Obligations of Archstone and New Archstone.. 80 6.3 Conditions to Obligations of Smith and Smith Partnership.. 82 ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER ....................... 84 7.1 Termination............................................... 84 7.2 Certain Fees and Expenses................................. 86 7.3 Effect of Termination..................................... 88 7.4 Amendment................................................. 89 7.5 Extension; Waiver......................................... 89 ARTICLE 8 GENERAL PROVISIONS ...................................... 89 8.1 Nonsurvival of Representations and Warranties.............. 89 iii 8.2 Notices................................................... 89 8.3 Interpretation............................................ 90 8.4 Counterparts.............................................. 90 8.5 Entire Agreement; No Third-Party Beneficiaries............ 91 8.6 Governing Law............................................. 91 8.7 Assignment................................................ 91 8.8 Enforcement............................................... 91 8.9 Severability.............................................. 92 8.10 Exculpation............................................... 92 8.11 Joint and Several Obligations............................. 92 iv Exhibit A Form of Shareholders Agreement Exhibit B Form of Amended and Restated Declaration of Trust of Archstone Surviving Subsidiary Exhibit C Form of Amended and Restated Bylaws of Archstone Surviving Subsidiary Exhibit D Form of Amended and Restated Declaration of Trust of New Archstone Exhibit E Form of Amended and Restated Bylaws of New Archstone Exhibit F Form of Proposed Charter Amendments i INDEX OF DEFINED TERMS 1940 Act .................................................. Section 2.22 ACS Common Shares .................................... Section 1.2(c)(i) ACS Merger .................................................... Recitals ACS Preferred Shares .................................... Section 1.2(c) ACS Series A Preferred Shares ....................... Section 1.2(c)(ii) ACS Series C Preferred Shares ...................... Section 1.2(c)(iii) ACS Series D Preferred Shares ....................... Section 1.2(c)(iv) ACS Series E Preferred Shares ........................ Section 1.2(c)(v) ACS Series F Preferred Shares ....................... Section 1.2(c)(vi) ACS Series G Preferred Shares ...................... Section 1.2(c)(vii) Acquisition Proposal ................................. Section 4.3(a)(i) Agreement ..................................................... Preamble AICPA Statement ......................................... Section 5.1(b) Alternative Archstone Merger .................................. Recitals Archstone ..................................................... Preamble Archstone Bylaws ........................................ Section 3.1(a) Archstone Closing .......................................... Section 1.5 Archstone Closing Date ..................................... Section 1.5 Archstone Common Shares .............................. Section 1.1(a)(i) Archstone Corporate Subsidiary ................................ Recitals Archstone Declaration of Trust ...........................Section 1.1(c) Archstone Disclosure Letter .................................. Article 3 Archstone Existing Preferred Shares ..................... Section 1.1(b) Archstone Financial Statement Date ......................... Section 3.7 Archstone Material Adverse Effect ........................Section 3.1(a) Archstone Merger Sub. ......................................... Recitals Archstone Merger .............................................. Recitals Archstone Non-Controlled Subsidiaries ................... Section 3.2(a) Archstone Options ....................................... Section 3.3(b) Archstone Other Interests .................................. Section 3.4 Archstone Participating Preferred Shares .................Section 3.3(a) Archstone Parties ....................................... Section 3.5(a) Archstone Properties .....................................Section 3.9(a) Archstone REIT ................................................ Recitals Archstone REIT Merger ......................................... Recitals Archstone SEC Documents .................................... Section 3.6 Archstone Series A Preferred Shares ................. Section 1.1(a)(ii) Archstone Series C Preferred Shares ................ Section 1.1(a)(iii) Archstone Series D Preferred Shares ................. Section 1.1(a)(iv) i Archstone Series E Preferred Shares ................. Section 1.1(a)(iv) Archstone Series E Preferred Units ................... Section 1.1(b)(i) Archstone Series F Preferred Shares ................. Section 1.1(a)(vi) Archstone Series F Preferred Units .................. Section 1.1(b)(ii) Archstone Series G Preferred Shares ................ Section 1.1(a)(vii) Archstone Series G Preferred Units ................. Section 1.1(b)(iii) Archstone Shareholder Approvals ......................... Section 3.5(a) Archstone Shareholders Meeting .......................... Section 5.1(c) Archstone Subsidiaries .................................. Section 3.1(a) Archstone Surviving Subsidiary ................................ Recitals Archstone Surviving Subsidiary Bylaws ...................... Section 1.7 Archstone Surviving Subsidiary Class A Shares ....... Section 1.12(a)(i) Archstone Surviving Subsidiary Class A-1 Shares ..... Section 1.12(a)(i) Archstone Surviving Subsidiary Class B Shares ...... Section 1.12(a)(ii) Archstone Surviving Subsidiary Common Shares ......... Section 1.2(e)(1) Archstone Surviving Subsidiary Declaration of Trust......... Section 1.7 Archstone Surviving Subsidiary Series A Preferred Shares ................................ Section 1.2(e)(ii) Archstone Surviving Subsidiary Series C Preferred Shares ............................... Section 1.2(e)(iii) Archstone Surviving Subsidiary Series D Preferred Shares ................................ Section 1.2(e)(iv) Archstone Surviving Subsidiary Series E Preferred Shares ................................. Section 1.2(e)(v) Archstone Surviving Subsidiary Series F Preferred Shares ................................ Section 1.2(e)(vi) Archstone Surviving Subsidiary Series G Preferred Shares ............................... Section 1.2(e)(vii) Archstone Surviving Subsidiary Series H Preferred Shares .............................. Section 1.12(a)(iii) Archstone Surviving Subsidiary Series I Preferred Shares ............................... Section 1.12(a)(iv) Archstone Surviving Subsidiary Series J Preferred Shares ................................ Section 1.12(a)(v) Archstone Surviving Subsidiary Series K Preferred Shares ............................... Section 1.12(a)(vi) Archstone Surviving Subsidiary Series L Preferred Shares .............................. Section 1.12(a)(vii) Archstone Surviving Subsidiary Series M Preferred Shares ..............................Section 1.12(a)(viii) ii Archstone Voting Agreement .................................... Recitals Archstone-Smith Trust ...................................... Section 1.2 Asset Restructuring ....................................... Section 5.17 Base Amount ................................................ Section 7.2 Break-Up Fee Payment ....................................... Section 7.2 Break-Up Fee ............................................... Section 7.2 Certificate .......................................Section 1.12(b)(viii) CESI Voting Stock Owner ....................................... Recitals CESI .......................................................... Recitals CERCLA......................................................Section 2.10 Class A Smith OP Units .............................. Section 1.12(a)(i) Class B Smith OP Units ............................. Section 1.12(a)(ii) Code .......................................................... Recitals Commitment .............................................. Section 4.1(j) Confidentiality Agreement ............................... Section 4.3(b) Corresponding New Archstone Dividends .............. Section 1.15(e)(ii) Counter Proposal ........................................ Section 4.3(c) Delaware Certificate of Merger ................................ Recitals Department ................................................. Section 1.6 DRULPA .................................................. Section 1.4(a) EBI ........................................................ Section 7.2 Effective Time ............................................. Section 1.6 Election ...................................................... Recitals Employee Plan ............................................. Section 2.12 Encumbrances ............................................ Section 2.9(b) Environmental Law ...................................... Section 2.10(a) Environmental Mitigation ................................ Section 2.9(h) Environmental Permits .............................. Section 2.10(b)(iv) ERISA ..................................................... Section 2.12 Exchange Act ............................................... Section 2.6 Exchange Agent ......................................... Section 1.15(b) Exchange Fund .......................................... Section 1.15(c) Executive Committee ........................................ Section 1.9 Form S-4 ................................................ Section 5.1(a) Former Smith Properties ............................ Section 2.10(b)(ii) GAAP ....................................................... Section 2.6 Governmental Entity ..................................... Section 2.5(c) Hazardous Materials .................................... Section 2.10(a) HSR Act ................................................. Section 2.5(c) Indebtedness ........................................... Section 2.18(b) Indemnification Parties ................................. Section 5.9(b) Indemnified Parties ..................................... Section 5.9(a) Indemnifying Parties .................................... Section 5.9(a) IRS .................................................... Section 2.14(b) Joint Proxy Statement ................................... Section 5.1(a) Knowledge of Archstone .................................... Section 3.18 iii Knowledge of Smith ........................................ Section 2.23 Laws .................................................... Section 2.5(c) Liens ................................................... Section 2.2(b) Maximum Amount ............................................. Section 7.2 Merger ........................................................ Recitals Merger Closing ............................................. Section 1.5 Merger Closing Date ........................................ Section 1.5 Merger Consideration ................................... Section 1.12(b) Mergers ....................................................... Recitals NCS Agreements ................................................ Recitals NCS Voting Stock Owners ....................................... Recitals New Archstone ................................................. Preamble New Archstone Bylaws ....................................... Section 1.8 New Archstone Common Shares .......................... Section 1.1(a)(i) New Archstone Declaration of Trust ......................... Section 1.8 New Archstone Existing Preferred Shares.................. Section 1.1(b) New Archstone Preferred Shares .................... Section 1.12(b)(vii) New Archstone Rights Agreement ....................... Section 1.1(a)(i) New Archstone Series A Preferred Shares ............. Section 1.1(a)(ii) New Archstone Series C Preferred Shares ............ Section 1.1(a)(iii) New Archstone Series D Preferred Shares ............. Section 1.1(a)(iv) New Archstone Series E Preferred Shares .............. Section 1.1(a)(v) New Archstone Series F Preferred Shares ............. Section 1.1(a)(vi) New Archstone Series G Preferred Shares ............ Section 1.1(a)(vii) New Archstone Series H Preferred Share ............. Section 1.12(b)(ii) New Archstone Series I Preferred Share ............ Section 1.12(b)(iii) New Archstone Series J Preferred Share ............. Section 1.12(b)(iv) New Archstone Series K Preferred Share .............. Section 1.12(b)(v) New Archstone Series L Preferred Share ............. Section 1.12(b)(vi) New Archstone Series M Preferred Share ............ Section 1.12(b)(vii) NYSE ....................................................... Section 5.6 Original Agreement............................................. Recitals Partnership Articles of Merger ................................ Recitals Partnership Merger Consideration ....................... Section 1.12(a) Partnership Merger ............................................ Recitals Payor ...................................................... Section 7.2 Pension Plan .............................................. Section 2.12 Person .................................................. Section 2.2(a) Primary Archstone Merger ...................................... Recitals Property Restrictions ................................... Section 2.9(b) Proposed Archstone Charter Amendments ..................... Section 3.19 Qualifying Income .......................................... Section 7.2 Recapitalization Agreement .................................... Recitals Recipient .................................................. Section 7.2 REIT ................................................... Section 2.14(b) REIT Articles of Merger ....................................... Recitals Release ................................................ Section 2.10(a) iv Representative ...................................... Section 4.3(a)(ii) Right ................................................ Section 1.1(a)(i) Rule 145 Affiliates ........................................ Section 4.4 SEC ..................................................... Section 2.5(c) Section 16 Information ................................. Section 5.16(b) Securities Act .......................................... Section 2.3(g) Share Exchange ................................................ Recitals Shareholder Approvals ................................... Section 3.5(a) Shareholders Agreement ........................................ Recitals SMCI .......................................................... Recitals SMCI Voting Stock Owner ....................................... Recitals Smith ......................................................... Preamble Smith Acquisition Agreement ................................ Section 7.2 Smith Articles of Incorporation ............................ Section 1.8 Smith Bylaws ............................................... Section 1.8 Smith Common Stock .................................. Section 1.12(b)(i) Smith Disclosure Letter ...................................... Article 2 Smith Dividend ...................................... Section 1.15(e)(i) Smith Financial Statement Date ............................. Section 2.7 Smith Insiders ......................................... Section 5.16(c) Smith Material Adverse Effect .............................. Section 2.1 Smith Non-Controlled Subsidiary ......................... Section 2.2(a) Smith OP Units ..................................... Section 1.12(a)(ii) Smith Other Interests ...................................... Section 2.4 Smith Partner Approvals ................................... Section 1.13 Smith Partnership ............................................. Preamble Smith Partnership Agreement ................................ Section 1.7 Smith Partnership Distribution ...................... Section 1.15(e)(i) Smith Preferred OP Units .................................. Section 1.12 Smith Preferred Stock ............................. Section 1.12(b)(vii) Smith Properties ........................................ Section 2.9(a) Smith Rights .............................................. Section 2.21 Smith Rights Agreement .................................... Section 2.21 Smith SEC Documents ........................................ Section 2.6 Smith Series A Preferred OP Unit .................. Section 1.12(a)(iii) Smith Series A Preferred Share ..................... Section 1.12(b)(ii) Smith Series C Preferred OP Unit ................... Section 1.12(a)(iv) Smith Series C Preferred Share .................... Section 1.12(b)(iii) Smith Series E Preferred OP Unit .................... Section 1.12(a)(v) Smith Series E Preferred Share ..................... Section 1.12(b)(iv) Smith Series F Preferred OP Units .................. Section 1.12(a)(vi) Smith Series F Preferred Shares ..................... Section 1.12(b)(v) Smith Series G Preferred OP Unit .................. Section 1.12(a)(vii) Smith Series G Preferred Share ..................... Section 1.12(b)(vi) Smith Series H Preferred OP Unit ..................Section 1.12(a)(viii) v Smith Series H Preferred Share .................... Section 1.12(b)(vii) Smith Stockholders Meeting .............................. Section 5.1(d) Smith Stock Options ..................................... Section 2.3(b) Smith Stock Rights ...................................... Section 2.3(b) Smith Stockholder Approvals ............................. Section 2.5(a) Smith Subsidiary ....................................... Sectioin 2.2(a) Smith Trustees ............................................. Section 1.9 Smith Voting Agreement ........................................ Recitals Stock Purchase Agreement ...................................... Recitals Subsidiary .............................................. Section 2.2(a) Substituted Option ...................................... Section 5.8(c) Superior Acquisition Proposal ........................... Section 4.3(d) Surviving Entity ........................................ Section 1.4(a) Surviving Trust ............................................ Section 1.3 Survivor Plans .......................................... Section 5.8(a) Takeover Statute .......................................... Section 2.20 Tax Protection Agreements .............................. Section 2.18(i) Taxes .................................................. Section 2.14(a) Title 3 ................................................. Section 1.2(c) Title 8 ................................................. Section 1.1(a) Transfer ............................................. Section 4.3(a)(i) Transfer and Gains Taxes ................................... Section 5.7 Welfare Plan .............................................. Section 2.12 vi AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 3, 2001, by and among ARCHSTONE COMMUNITIES TRUST, a Maryland real estate investment trust ("Archstone"), NEW GARDEN RESIDENTIAL TRUST, a Maryland real estate investment trust ("New Archstone"), CHARLES E. SMITH RESIDENTIAL REALTY, INC., a Maryland corporation ("Smith"), and CHARLES E. SMITH RESIDENTIAL REALTY, L.P., a Delaware limited partnership ("Smith Partnership"). WHEREAS, Archstone, New Archstone, Smith and Smith Partnership are parties to that certain Agreement and Plan of Merger, dated as of May 3, 2001 (the "Original Agreement"), and desire to amend and restate the Original Agreement; WHEREAS, in order to advance the long-term strategic business interests of Archstone and Smith, the Board of Trustees of Archstone and the Board of Directors of Smith deem it advisable and in the best interests of their respective shareholders, upon the terms and subject to the conditions contained herein, that Smith shall merge with and into New Archstone with New Archstone as the surviving entity (the "Merger"); WHEREAS, in order to advance the long-term strategic business interests of Smith Partnership, Smith, as the sole general partner of Smith Partnership, deems it advisable and in the best interests of Smith Partnership limited partners, subject to the conditions and other provisions contained herein, that, immediately after the Merger, Smith Partnership shall merge with and into Archstone Surviving Subsidiary (as defined herein) with Archstone Surviving Subsidiary as the surviving entity (the "Partnership Merger" and, together with the Merger, the "Mergers"); WHEREAS, New Archstone is a wholly owned subsidiary of Archstone; WHEREAS, upon the terms and subject to the conditions set forth herein, prior to the Mergers, New Archstone shall create a wholly owned subsidiary ("Archstone Merger Sub"), and Archstone shall merge with Archstone Merger Sub, with Archstone as the surviving entity, with the shareholders of Archstone becoming the shareholders of New Archstone, and with Archstone becoming a direct, wholly owned subsidiary of New Archstone (the "Primary Archstone Merger"); WHEREAS, upon the terms and subject to the conditions set forth herein, prior to the Mergers, Archstone shall implement an alternative structure rather than the Primary Archstone Merger pursuant to which (a) Archstone would create a wholly owned Maryland corporate subsidiary ("Archstone Corporate Subsidiary"), (b) New Archstone would create a wholly owned Maryland real estate investment trust subsidiary ("Archstone REIT"), (c) Archstone would merge with and into Archstone Corporate Subsidiary with Archstone Corporate Subsidiary as the surviving entity and with the shareholders of Archstone becoming the shareholders of Archstone Corporate Subsidiary (the "ACS Merger"), (d) New Archstone would exchange common shares of beneficial interest and preferred shares of beneficial interest for all of the issued and outstanding shares of common stock and preferred stock of Archstone Corporate Subsidiary with the result being that Archstone Corporate Subsidiary becomes a subsidiary of New Archstone (the "Share Exchange") and (e) Archstone Corporate Subsidiary would merge with and into Archstone REIT with Archstone REIT as the surviving entity and with the shares of stock of Archstone Corporate Subsidiary being extinguished and Archstone REIT issuing shares of beneficial interest to New Archstone (the "Archstone REIT Merger" and, together with the ACS Merger and the Share Exchange, the "Alternative Archstone Merger"), as further described in Section 1.2; WHEREAS, the term "Archstone Merger" as used in this Agreement shall mean (a) the Primary Archstone Merger in the case of a merger effectuated pursuant to Section 1.1 or (b) the Alternative Archstone Merger in the case of the transactions effectuated pursuant to Section 1.2; WHEREAS, the term "Archstone Surviving Subsidiary" shall mean (a) Archstone in the case of a merger effectuated pursuant to Section 1.1 or (b) Archstone REIT in the case of the transactions effectuated pursuant to Section 1.2; WHEREAS, on the business day after the Archstone Merger or as soon thereafter as practicable, it is contemplated that Archstone Surviving Subsidiary shall make a "check-the-box" election pursuant to Treasury Regulation (S) 301.7701-3(c) (the "Election") to be treated for federal income tax purposes as either a domestic eligible entity with a single owner electing to be disregarded as a separate entity or as a partnership, as applicable; WHEREAS, upon the terms and subject to the conditions set forth herein, on the business day after Archstone Surviving Subsidiary makes the Election or as soon thereafter as practicable, New Archstone and Smith shall execute Articles of Merger (the "REIT Articles of Merger") in such form as the parties shall mutually agree and shall file the REIT Articles of Merger in accordance with Maryland law to effectuate the Merger; WHEREAS, upon the terms and subject to the conditions set forth herein, immediately following the effectiveness of the Merger, Archstone Surviving Subsidiary and Smith Partnership shall execute a Certificate of Merger (the "Delaware Certificate of Merger") in such form as the parties shall mutually agree and shall file such Delaware Certificate of Merger in accordance with Delaware law to effectuate the Partnership Merger; WHEREAS, upon the terms and subject to the conditions set forth herein, immediately following the effectiveness of the Merger, Archstone Surviving Subsidiary and Smith Partnership shall execute Articles of Merger (the "Partnership Articles of Merger") in such form as the parties shall mutually agree and shall file the Partnership Articles of Merger in accordance with Maryland law to effectuate the Partnership Merger; WHEREAS, for federal income tax purposes, it is intended that each of the Merger and the Archstone Merger shall qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall constitute separate plans of reorganization under Section 368(a) of the Code; 2 WHEREAS, for federal income tax purposes the following characterization is intended for the Partnership Merger: (a) following the Archstone Merger and the Election and prior to the Partnership Merger, New Archstone will be the owner of all of the assets previously owned by Archstone, subject to all of its liabilities, (b) Smith Partnership will be deemed to have terminated under Section 708(b)(1)(B) of the Code upon consummation of the Merger, and (c) the Partnership Merger will result in a continuation of the "new partnership" deemed to result upon the termination of Smith Partnership and the contribution by New Archstone to this "new partnership" of all of New Archstone's assets (other than the interests of Smith in this "new partnership" acquired in the Merger), subject to all of its liabilities, with this "new partnership" thereafter operating under the name Archstone-Smith Operating Trust; WHEREAS, Archstone, New Archstone, Smith and Smith Partnership desire to make certain representations, warranties, covenants and agreements in connection with the Archstone Merger and the Mergers; WHEREAS, as an inducement to Archstone and New Archstone to enter into this Agreement, (a) Smith Management Construction Partnership (the "SMCI Voting Stock Owner"), as owner of all of the voting capital stock of Smith Management Construction, Inc. ("SMCI"), and Archstone have entered into a Stock Purchase Agreement relating to the voting capital stock of SMCI (the "Stock Purchase Agreement"), pursuant to which the SMCI Voting Stock Owner has agreed to sell to a designee of Archstone, and a designee of Archstone has agreed to acquire from the SMCI Voting Stock Owner, all of the shares of outstanding voting stock of SMCI, and (b) Consolidated Engineering Services Partnership (the "CESI Voting Stock Owner," and together with the SMCI Voting Stock Owner, the "NCS Voting Stock Owners"), Consolidated Engineering Services, Inc. ("CESI") and the various parties named therein have entered into a Recapitalization Agreement relating to a recapitalization of CESI (the "Recapitalization Agreement," and, together with Stock Purchase Agreement, the "NCS Agreements"), pursuant to which the CESI Voting Stock Owner has agreed to vote all of the shares of outstanding voting stock of CESI in favor of a recapitalization of CESI that will vest voting control of CESI in Smith Partnership prior to or upon consummation of the Partnership Merger; WHEREAS, prior to the Merger Closing (as defined herein) and as an inducement to Smith, Archstone and New Archstone to enter into this Agreement and consummate the transactions herein, Archstone, New Archstone and Messrs. Robert H. Smith and Robert P. Kogod, will enter into a Shareholders Agreement in the form attached hereto as Exhibit A (the "Shareholders Agreement"), pursuant to which Messrs. Robert H. Smith and Robert P. Kogod will have certain rights with respect to the continued business and operation of the Surviving Trust and the Surviving Entity (each as defined herein); WHEREAS, as an inducement to Archstone and New Archstone to enter into this Agreement, each director of Smith has entered into a voting agreement (each, a "Smith Voting Agreement"), pursuant to which such person has agreed, among other things, to vote his or her shares of Smith Common Stock and Smith OP Units (each as defined herein) to approve this Agreement, the Mergers and any other matter which requires his or her vote in connection with the transactions contemplated by this Agreement; and 3 WHEREAS, as an inducement to Smith to enter into this Agreement, each trustee of Archstone has entered into a voting agreement (each, an "Archstone Voting Agreement"), pursuant to which such person has agreed, among other things, to vote his or her Archstone Common Shares (as defined herein) to approve this Agreement, the Archstone Merger, the Mergers and any other matter which requires his or her vote in connection with the transactions contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE 1 THE ARCHSTONE MERGER AND THE MERGERS 1.1 The Primary Archstone Merger. (a) Subject to Section 1.2, upon the terms and subject to the conditions of this Agreement, and in accordance with Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended ("Title 8"), and other applicable state law, on the Archstone Closing Date (as defined herein), Archstone Merger Sub shall be merged with Archstone with Archstone as the surviving entity and with New Archstone acquiring all outstanding shares of beneficial interest of Archstone and the holders of shares of beneficial interest in Archstone receiving shares of beneficial interest in New Archstone, as follows: (i) Each common share of beneficial interest, par value $1.00 per share, of Archstone, together with the associated Right (as defined in the Rights Agreement between Archstone and Chemical Bank, dated as of July 21, 1994, as amended) (collectively, the "Archstone Common Shares") issued and outstanding immediately prior to the effective time of the Archstone Merger shall be automatically converted into the right to receive one common share of beneficial interest, par value $.01 per share, of New Archstone, together with a right under the New Archstone Rights Agreement to be adopted by New Archstone prior to the Archstone Closing (collectively, the "New Archstone Common Shares"). The "New Archstone Rights Agreement" shall mean the rights agreement to be adopted by the New Archstone Board of Trustees prior to the Archstone Closing, the form and substance of which is subject to Smith's approval, which approval shall not be unreasonably withheld or delayed. (ii) Each Cumulative Convertible Series A Preferred Share of Beneficial Interest of Archstone ("Archstone Series A Preferred Shares") issued and outstanding immediately prior to the effective time of the Archstone Merger shall be automatically converted into the right to receive one Cumulative Convertible Series A Preferred Share of Beneficial Interest of New Archstone ("New Archstone Series A Preferred Shares"). (iii) Each Series C Cumulative Redeemable Preferred Share of Beneficial Interest of Archstone ("Archstone Series C Preferred Shares") issued and outstanding immediately prior to the effective time of the Archstone Merger shall be automatically converted into the right to receive one Series C Cumulative Redeemable Preferred Share of Beneficial 4 Interest of New Archstone ("New Archstone Series C Preferred Shares"). (iv) Each Series D Cumulative Redeemable Preferred Share of Beneficial Interest of Archstone ("Archstone Series D Preferred Shares") issued and outstanding immediately prior to the effective time of the Archstone Merger shall be automatically converted into the right to receive one Series D Cumulative Redeemable Preferred Share of Beneficial Interest of New Archstone ("New Archstone Series D Preferred Shares"). (v) Each Cumulative Redeemable Perpetual Series E Preferred Share of Beneficial Interest of Archstone ("Archstone Series E Preferred Shares") issued and outstanding immediately prior to the effective time of the Archstone Merger, if any, shall be automatically converted into the right to receive one Cumulative Redeemable Perpetual Series E Preferred Share of Beneficial Interest of New Archstone ("New Archstone Series E Preferred Shares"). (vi) Each Cumulative Redeemable Perpetual Series F Preferred Share of Beneficial Interest of Archstone ("Archstone Series F Preferred Shares") issued and outstanding immediately prior to the effective time of the Archstone Merger, if any, shall be automatically converted into the right to receive one Cumulative Redeemable Perpetual Series F Preferred Share of Beneficial Interest of New Archstone ("New Archstone Series F Preferred Shares"). (vii) Each Cumulative Redeemable Perpetual Series G Preferred Share of Beneficial Interest of Archstone ("Archstone Series G Preferred Shares") issued and outstanding immediately prior to the effective time of the Archstone Merger, if any, shall be automatically converted into the right to receive one Cumulative Redeemable Perpetual Series G Preferred Share of Beneficial Interest of New Archstone ("New Archstone Series G Preferred Shares"). (b) In addition, pursuant to the Archstone Surviving Subsidiary Declaration of Trust and the New Archstone Declaration of Trust (each as defined herein): (i) Each 8.375% Cumulative Redeemable Perpetual Series E Preferred Unit of Archstone Communities Limited Partnership ("Archstone Series E Preferred Units") issued and outstanding immediately prior to the effective time of the Primary Archstone Merger, if any, shall continue to be convertible into one Archstone Series E Preferred Share and each Archstone Series E Preferred Share (whether or not outstanding) shall become convertible into one New Archstone Series E Preferred Share. (ii) Each 8.125% Cumulative Redeemable Perpetual Series F Preferred Unit of Archstone Communities Limited Partnership II ("Archstone Series F Preferred Units") issued and outstanding immediately prior to the effective time of the Primary Archstone Merger, if any, shall continue to be convertible into one Archstone Series F Preferred Share and each Archstone Series F Preferred Share (whether or not outstanding) shall become convertible into one New Archstone Series F Preferred Share. (iii) Each 8.625% Cumulative Redeemable Series G Preferred Unit of 5 Archstone Communities Limited Partnership II ("Archstone Series G Preferred Units") issued and outstanding immediately prior to the effective time of the Primary Archstone Merger, if any, shall continue to be convertible into one Archstone Series G Preferred Share and each Archstone Series G Preferred Share (whether or not outstanding) shall become convertible into one New Archstone Series G Preferred Share. As used herein, "Archstone Existing Preferred Shares" means, collectively, Archstone Series A Preferred Shares, Archstone Series C Preferred Shares, Archstone Series D Preferred Shares, Archstone Series E Preferred Shares, Archstone Series F Preferred Shares and Archstone Series G Preferred Shares and "New Archstone Existing Preferred Shares" means, collectively, New Archstone Series A Preferred Shares, New Archstone Series C Preferred Shares, New Archstone Series D Preferred Shares, New Archstone Series E Preferred Shares, New Archstone Series F Preferred Shares and New Archstone Series G Preferred Shares. (c) Upon the terms and subject to the conditions of this Agreement, and in accordance with Title 8 and other applicable state law, upon the Primary Archstone Merger, New Archstone shall receive securities in Archstone in the same number and of the same class or series as the securities of Archstone outstanding immediately prior to the effective time of the Archstone Merger, with the rights, privileges, and preferences set forth in the Archstone Declaration of Trust in effect on the date hereof (the "Archstone Declaration of Trust"). (d) For federal income tax purposes, it is intended that the Primary Archstone Merger shall qualify as reorganization under Section 368 (a)(1)(F) of the Code. 1.2 Alternative Structure of the Archstone Merger. (a) In the event that (i) (A) the Proposed Archstone Charter Amendments (as defined herein) are disapproved at the duly convened Archstone Shareholders Meeting (as defined herein), or otherwise are not approved by holders of a majority of the Archstone Common Shares entitled to vote within 110 days after the matter is submitted for their approval (but in no event later than March 1, 2002) or (B) the holders of a majority of the Archstone Common Shares entitled to vote approve the Proposed Archstone Charter Amendments but the Primary Archstone Merger shall not have been consummated within sixty (60) days after the receipt of such approval, and (ii) the holders of a majority of the Archstone Common Shares entitled to vote approve the Archstone Merger, then the Archstone Merger shall be effectuated through the Alternative Archstone Merger as set forth in this Section 1.2. (b) Archstone shall form Archstone Corporate Subsidiary and New Archstone shall form Archstone REIT. (c) Upon the terms and subject to the conditions of this Agreement and in accordance with Title 3 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended ("Title 3"), and Title 8, on the Archstone Closing Date, Archstone shall merge with and into Archstone Corporate Subsidiary with Archstone Corporate Subsidiary as the surviving entity and the holders of shares of beneficial interest in Archstone receiving shares of stock in Archstone Corporate Subsidiary, as follows: 6 (i) Each Archstone Common Share issued and outstanding immediately prior to the effective time of the ACS Merger shall be automatically converted into the right to receive one share of common stock, par value $.01 per share, of Archstone Corporate Subsidiary ("ACS Common Shares"). The ACS Common Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those of the Archstone Common Shares outstanding on the date hereof except that the ACS Common Shares shall not have an associated right similar to the Right. (ii) Each Archstone Series A Preferred Share issued and outstanding immediately prior to the effective time of the ACS Merger shall be automatically converted into the right to receive one share of Cumulative Convertible Series A Preferred Stock of Archstone Corporate Subsidiary ("ACS Series A Preferred Shares"). The ACS Series A Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those of the Archstone Series A Preferred Shares outstanding on the date hereof. (iii) Each Archstone Series C Preferred Share issued and outstanding immediately prior to the effective time of the ACS Merger shall be automatically converted into the right to receive one share of Series C Cumulative Redeemable Preferred Stock of Archstone Corporate Subsidiary ("ACS Series C Preferred Shares"). The ACS Series C Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those of the Archstone Series C Preferred Shares outstanding on the date hereof. (iv) Each Archstone Series D Preferred Share issued and outstanding immediately prior to the effective time of the ACS Merger shall be automatically converted into the right to receive one share of Series D Cumulative Redeemable Preferred Stock of Archstone Corporate Subsidiary ("ACS Series D Preferred Shares"). The ACS Series D Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those of the Archstone Series D Preferred Shares outstanding on the date hereof. (v) Each Archstone Series E Preferred Share issued and outstanding immediately prior to the effective time of the ACS Merger, if any, shall be automatically converted into the right to receive one share of Cumulative Redeemable Perpetual Series E Preferred Stock of Archstone Corporate Subsidiary ("ACS Series E Preferred Shares"). The ACS Series E Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those of the Archstone Series E Preferred Shares outstanding on the date hereof. Each Archstone Series E Preferred Unit issued and outstanding immediately prior to the effective time of the ACS Merger shall become convertible into one ACS Series E Preferred Share. (vi) Each Archstone Series F Preferred Share issued and outstanding immediately prior to the effective time of the ACS Merger, if any, shall be automatically 7 converted into the right to receive one share of Cumulative Redeemable Perpetual Series F Preferred Stock of Archstone Corporate Subsidiary ("ACS Series F Preferred Shares"). The ACS Series F Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those of the Archstone Series F Preferred Shares outstanding on the date hereof. Each Archstone Series F Preferred Unit issued and outstanding immediately prior to the effective time of the ACS Merger shall become convertible into one ACS Series F Preferred Share. (vii) Each Archstone Series G Preferred Share issued and outstanding immediately prior to the effective time of the ACS Merger, if any, shall be automatically converted into the right to receive one share of Cumulative Redeemable Perpetual Series G Preferred Stock of Archstone Corporate Subsidiary ("ACS Series G Preferred Shares"). The ACS Series G Preferred Shares shall have preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to those of the Archstone Series G Preferred Shares outstanding on the date hereof. Each Archstone Series G Preferred Unit issued and outstanding immediately prior to the effective time of the ACS Merger shall become convertible into one ACS Series G Preferred Share. As used herein, "ACS Preferred Shares" means, collectively, ACS Series A Preferred Shares, ACS Series C Preferred Shares, ACS Series D Preferred Shares, ACS Series E Preferred Shares, ACS Series F Preferred Shares and ACS Series G Preferred Shares. (d) Upon the terms and subject to the conditions of this Agreement, and in accordance with applicable state laws, Archstone Corporate Subsidiary and New Archstone shall then enter into a share exchange in accordance with Title 3 and other applicable state law, pursuant to which New Archstone shall issue shares of beneficial interest in New Archstone to the holders of ACS Common Shares and ACS Preferred Shares, as follows: (i) Each ACS Common Share issued and outstanding immediately prior to the effective time of the Share Exchange shall be exchanged for one New Archstone Common Share. (ii) Each ACS Series A Preferred Share issued and outstanding immediately prior to the effective time of the Share Exchange, if any, shall be exchanged for one New Archstone Series A Preferred Share. (iii) Each ACS Series C Preferred Share issued and outstanding immediately prior to the effective time of the Share Exchange shall be exchanged for one New Archstone Series C Preferred Share. (iv) Each ACS Series D Preferred Share issued and outstanding immediately prior to the effective time of the Share Exchange shall be exchanged for one New Archstone Series D Preferred Share. 8 (v) Each ACS Series E Preferred Share issued and outstanding immediately prior to the effective time of the Share Exchange, if any, shall be exchanged for one New Archstone Series E Preferred Share. (vi) Each ACS Series F Preferred Share issued and outstanding immediately prior to the effective time of the Share Exchange shall be exchanged for one New Archstone Series F Preferred Share. (vii) Each ACS Series G Preferred Share issued and outstanding immediately prior to the effective time of the Share Exchange shall be exchanged for one New Archstone Series G Preferred Share. (e) Upon the terms and subject to the conditions of this Agreement, and in accordance with Title 3 and Title 8, Archstone Corporate Subsidiary shall then merge with and into Archstone REIT, with Archstone REIT as the surviving entity, with the ACS Common Shares and the ACS Preferred Shares being extinguished and with Archstone REIT issuing the following shares of beneficial interest to New Archstone: (i) a number of Common Shares of Beneficial Interest, par value $0.01 per share, of Archstone REIT ("Archstone Surviving Subsidiary Common Shares") so that the number of Archstone Surviving Subsidiary Common Shares issued and outstanding immediately after the Archstone REIT Merger is equal the number of ACS Common Shares issued and outstanding immediately prior to the Archstone REIT Merger; (ii) a number of Cumulative Convertible Series A Preferred Shares of Beneficial Interest of Archstone REIT ("Archstone Surviving Subsidiary Series A Preferred Shares") equal to the number of ACS Series A Preferred Shares being cancelled; (iii) a number of Series C Cumulative Redeemable Preferred Shares of Beneficial Interest of Archstone REIT ("Archstone Surviving Subsidiary Series C Preferred Shares") equal to the number of ACS Series C Preferred Shares being cancelled; (iv) a number of Series D Cumulative Redeemable Preferred Shares of Beneficial Interest of Archstone REIT ("Archstone Surviving Subsidiary Series D Preferred Shares") equal to the number of ACS Series D Preferred Shares being cancelled; (v) a number of Cumulative Redeemable Perpetual Series E Preferred Shares of Beneficial Interest of Archstone REIT ("Archstone Surviving Subsidiary Series E Preferred Shares") equal to the number of ACS Series E Preferred Shares being cancelled, if any; (vi) a number of Cumulative Redeemable Perpetual Series F Preferred Shares of Beneficial Interest of Archstone REIT ("Archstone Surviving Subsidiary Series F Preferred Shares") equal to the number of ACS Series F Preferred Shares being cancelled, if any; and (vii) a number of Cumulative Redeemable Perpetual Series G Preferred Shares of Beneficial Interest of Archstone REIT ("Archstone Surviving Subsidiary Series G 9 Preferred Shares") equal to the number of ACS Series G Preferred Shares being cancelled, if any; (f) In addition, pursuant to the Archstone Surviving Subsidiary Declaration of Trust and the New Archstone Declaration of Trust: (i) Each Archstone Series E Preferred Unit issued and outstanding immediately prior to the effective time of the Archstone REIT Merger shall become convertible into one Archstone Surviving Subsidiary Series E Preferred Share and each Archstone Series E Preferred Share (whether or not outstanding) shall become convertible into one New Archstone Series E Preferred Share. (ii) Each Archstone Series F Preferred Unit issued and outstanding immediately prior to the effective time of the Archstone REIT Merger shall become convertible into one Archstone Surviving Subsidiary Series F Preferred Share and each Archstone Series F Preferred Share (whether or not outstanding) shall become convertible into one New Archstone Series F Preferred Share. (iii) Each Archstone Series G Preferred Unit issued and outstanding immediately prior to the effective time of the Archstone REIT Merger shall become convertible into one Archstone Surviving Subsidiary Series G Preferred Share and each Archstone Series G Preferred Share (whether or not outstanding) shall become convertible into one New Archstone Series G Preferred Share. (g) For federal income tax purposes, it is intended that the Alternative Archstone Merger (including the ACS Merger, the Share Exchange and the Archstone REIT Merger) shall qualify as one or more reorganizations under Section 368 (a)(1)(F) of the Code. 1.3 The Merger. (a) Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Title 3 and Title 8, on the business day after Archstone Surviving Subsidiary makes the Election, or as soon thereafter as practicable, Smith shall be merged with and into New Archstone, with New Archstone surviving as a Maryland real estate investment trust (the "Surviving Trust") and the holders of shares of stock in Smith receiving shares of beneficial interest in New Archstone, as set forth in Section 1.12(b). The name of the Surviving Trust shall be "Archstone-Smith Trust." (b) For federal income tax purposes, it is intended that the Merger shall qualify as a reorganization under Section 368 (a)(1)(A) of the Code. 1.4 The Partnership Merger. (a) Upon the terms and subject to the conditions of this Agreement, and in accordance with Title 8 and Title 6, Section 17-211 of the Delaware Revised Uniform Limited Partnership Act, as amended (the "DRULPA"), immediately after the effectiveness of the Merger, Smith Partnership shall be merged with and into Archstone Surviving Subsidiary with Archstone Surviving Subsidiary as the surviving entity (the "Surviving Entity"), and with holders of partnership interests in Smith receiving shares of beneficial interest in Archstone 10 Surviving Subsidiary, as set forth in Section 1.12(a). The name of the Surviving Entity shall be "Archstone-Smith Operating Trust." (b) For federal income tax purposes, it is intended that the Partnership Merger have the characterization set forth in the fourteenth "WHEREAS" clause above. If, notwithstanding such intended characterization, the Partnership Merger is treated as a merger of two partnerships within the meaning of the regulation under Section 708(b)(1)(A) of the Code, pursuant to Treasury Regulation (S) 1.708-1(c)(3), Smith Partnership and Archstone intend that the Partnership Merger be treated as an "assets over" form of merger, with the consequences set forth in Treasury Regulation (S) 1.708-1(c)(3)(i). In addition, if and to the extent that any transaction entered into pursuant to this Agreement or otherwise deemed undertaken in connection with the transactions contemplated by this Agreement is treated for federal income tax purposes as a direct or indirect transfer of cash from Archstone Surviving Subsidiary to a holder of Smith OP Units or Smith Preferred OP Units (as defined herein) that would be characterized as a sale for federal income tax purposes, pursuant to Treasury Regulation (S) 1.708-1(c)(4) such sale shall be treated by all parties as a sale by the former holder of Smith OP Units or Smith Preferred OP Units receiving (or deemed to receive) such cash of Smith OP Units or Smith Preferred OP Units to Archstone Surviving Subsidiary and as a direct purchase by Archstone Surviving Subsidiary of such Smith OP Units or Smith Preferred OP Units from such former holder of Smith OP Units or Smith Preferred OP Units immediately prior to the Partnership Merger (and not as a transfer of cash from Archstone Surviving Subsidiary to Smith Partnership as part of the Partnership Merger). Each holder of Smith OP Units or Smith Preferred OP Units who receives, directly or indirectly, any cash in connection with the Partnership Merger shall be deemed by such holder's act of receiving and accepting such cash, to have agreed to the characterization of such transaction set forth in the immediately preceding sentence for purposes of Treasury Regulation (S) 1.708-1 (c)(4). 1.5 Closings. The closing of the Archstone Merger (the "Archstone Closing") will take place commencing at 9:00 a.m., local time, on the date to be specified by the parties, which (subject to satisfaction or waiver of the conditions set forth in Article 6) shall be no later than the third business day after satisfaction or waiver of each of the conditions set forth in Section 6.1 (the "Archstone Closing Date"), at the offices of Mayer, Brown & Platt, 190 South LaSalle, Chicago, Illinois 60603, unless another date or place is agreed to in writing by the parties. The closing of the Mergers (the "Merger Closing") will take place commencing at 9:00 a.m., local time, on the second business day after the Archstone Merger or as soon thereafter as practicable after satisfaction or waiver of the conditions set forth in Sections 6.1, 6.2 and 6.3 (the "Merger Closing Date"), at the offices of Mayer, Brown & Platt, 190 South LaSalle, Chicago, Illinois 60603, unless another date or place is agreed to in writing by the parties. 1.6 Effective Time. On the Archstone Closing Date, (a) in the case of an Archstone Merger effectuated in the form of the Primary Archstone Merger, Archstone and Archstone Merger Sub shall execute and file all necessary certificates or articles of merger in connection with the Primary Archstone Merger in accordance with Title 8 and other applicable state law and shall make all other filings and recordings required under Title 8 and other applicable state law or (b) in the case of an Archstone Merger effectuated in the form of the Alternative Archstone Merger, (i) Archstone and Archstone Corporate Subsidiary shall execute and file all necessary 11 certificates or articles of merger in connection with the ACS Merger in accordance with Title 3 and Title 8 and shall make all other filings and recordings required under Title 3 and Title 8; (ii) Archstone Corporate Subsidiary and New Archstone shall make all filings and recordings required under Title 3 and Title 8 in connection with the Share Exchange; and (iii) Archstone Corporate Subsidiary and Archstone REIT shall execute and file all necessary certificates or articles of merger in connection with the Archstone REIT Merger in accordance with Title 3 and Title 8 and shall make all other filings and recordings required under Title 3 and Title 8. On the Merger Closing Date, (a) New Archstone and Smith shall execute and file the REIT Articles of Merger, executed in accordance with Title 3 and Title 8 with the State Department of Assessments and Taxation of Maryland (the "Department"), and shall make all other filings and recordings required under Title 3 or Title 8 and (b) Archstone Surviving Subsidiary and Smith Partnership shall then execute and file the Delaware Certificate of Merger, executed in accordance with the DRULPA, with the Office of the Secretary of State of the State of Delaware and execute and file the Partnership Articles of Merger, executed in accordance with Title 8, with the Department, and shall make all other filings and recordings required under the DRULPA or Title 8. The Merger shall become effective upon the acceptance for record by the Department of the REIT Articles of Merger or, if later, the date and time specified in the REIT Articles of Merger. The Partnership Merger shall become effective upon the latest of (i) the filing of the Delaware Certificate of Merger with the Office of the Secretary of State of the State of Delaware, (ii) the acceptance for record by the Department of the Partnership Articles of Merger or (iii) the date and time specified in the Delaware Certificate of Merger or the Partnership Articles of Merger. The time that the Merger and the Partnership Merger shall become effective shall each be referred to as an "Effective Time" and collectively as the "Effective Times." Unless otherwise agreed, the parties shall cause the Effective Times to occur on the Merger Closing Date, with not less than one hour between the Effective Time of the Merger and the Effective Time of the Partnership Merger. 1.7 Effect of Partnership Merger on Smith Agreement of Limited Partnership and Archstone Surviving Subsidiary Declaration of Trust and Bylaws. The Amended and Restated Agreement of Limited Partnership, as amended, of Smith Partnership, as in effect immediately prior to the Effective Time of the Partnership Merger (the "Smith Partnership Agreement"), shall terminate at the Effective Time of the Partnership Merger. The Amended and Restated Declaration of Trust of Archstone Surviving Subsidiary in the form attached hereto as Exhibit B (the "Archstone Surviving Subsidiary Declaration of Trust") and the Amended and Restated Bylaws of Archstone Surviving Subsidiary in the form attached hereto as Exhibit C (the "Archstone Surviving Subsidiary Bylaws"), shall be in effect as of the Effective Time of the Partnership Merger and shall continue in full force and effect after the Partnership Merger until further amended in accordance with applicable Maryland law and the terms thereof. 1.8 Effect of Merger on Smith Articles of Incorporation and Bylaws and New Archstone Declaration of Trust and Bylaws. The Amended and Restated Articles of Incorporation, as amended, of Smith, as in effect immediately prior to the Effective Time of the Merger (the "Smith Articles of Incorporation"), and the Amended and Restated Bylaws, as amended, of Smith, as in effect immediately prior to the Effective Time of the Merger (the "Smith Bylaws"), shall terminate at the Effective Time of the Merger. The Amended and 12 Restated Declaration of Trust of New Archstone in the form attached hereto as Exhibit D (the "New Archstone Declaration of Trust") and the Amended and Restated Bylaws of New Archstone in the form attached hereto as Exhibit E (the "New Archstone Bylaws"), shall be in effect as of the Effective Time of the Merger and shall continue in full force and effect after the Merger until further amended in accordance with applicable Maryland law and the terms thereof. 1.9 Trustees of New Archstone. The trustees of New Archstone following the Merger shall consist of the trustees of New Archstone immediately prior to the Effective Time of the Merger, who shall continue to serve for the balance of their unexpired terms or their earlier death, resignation or removal, together with Robert H. Smith, Robert P. Kogod and Ernest A. Gerardi (collectively, the "Smith Trustees"), each of whom shall, as of the Effective Time of the Merger, become a trustee of New Archstone. Mr. Robert H. Smith's term shall expire in 2003. Mr. Robert P. Kogod's term shall expire in 2002. Mr. Ernest A. Gerardi's term shall expire in 2004. Following their election as trustees, the Smith Trustees shall serve for their designated terms and such subsequent terms as set forth in the Shareholders Agreement, subject to their earlier death, resignation or removal and subject to the rights of the Smith Trustees as set forth in the Shareholders Agreement. As of the Effective Time of the Merger, the number of trustees constituting the executive committee of New Archstone's Board of Trustees (the "Executive Committee") shall be increased in accordance with the terms of the Shareholders Agreement and each of Messrs. Robert H. Smith and Robert P. Kogod shall be appointed as members of the Executive Committee as provided for in the Shareholders Agreement. 1.10 Effect of Archstone Merger and Merger on Capital Stock and Shares of Beneficial Interest. (a) The effect of the Archstone Merger shall be as provided in the applicable certificate or articles of merger in such form as the parties hereto shall mutually agree and as set forth in Section 1.1 (in the case of a merger effectuated in the form of the Primary Archstone Merger) or Section 1.2 (in the case of a merger effectuated in the form of the Alternative Archstone Merger). (b) The effect of the Merger on the shares of stock of Smith shall be as provided in the REIT Articles of Merger and in Section 1.12(b). The Merger shall not change the shares of beneficial interest of New Archstone outstanding immediately prior to the Merger. 1.11 Effect of Partnership Merger on Partnership Interests and Shares of Beneficial Interest. The effect of the Partnership Merger on the partnership interests of Smith Partnership shall be as provided in the Delaware Certificate of Merger, the Partnership Articles of Merger and in Section 1.12(a). The Partnership Merger shall not change the shares of beneficial interest of Archstone Surviving Subsidiary outstanding immediately prior to the Partnership Merger. 1.12 Partnership Merger Consideration; Merger Consideration. (a) Partnership Merger Consideration. The consideration to be paid to holders of Partnership Units (as defined in the Smith Partnership Agreement) and Partnership Interests (as defined in the Smith Partnership Agreement) of Smith Partnership in the Partnership Merger 13 (collectively, the "Partnership Merger Consideration") is as follows: (i) Each Class A Partnership Unit of Smith Partnership ("Class A Smith OP Units"), outstanding immediately prior to the Effective Time of the Partnership Merger shall be converted into the right to receive 1.975 Class A Shares of Beneficial Interest of Archstone Surviving Subsidiary ("Archstone Surviving Subsidiary Class A Shares"). The Archstone Surviving Subsidiary Class A Shares issued to the holders of Class A Smith OP Units (other than New Archstone, as the successor to Smith in the Merger) will be in the Partnership Merger denominated as Class A-1 Shares of Beneficial Interest of Archstone Surviving Subsidiary ("Archstone Surviving Subsidiary Class A-1 Shares"). The Archstone Surviving Subsidiary Class A Shares issued to New Archstone (as the successor to Smith in the Merger) will be denominated as Class A-2 Shares of Beneficial Interest of Archstone Surviving Subsidiary. The holders of the Archstone Surviving Subsidiary Class A-1 Shares issued in the Partnership Merger shall be entitled to redeem such Archstone Surviving Subsidiary Class A-1 Shares immediately following the consummation of the Partnership Merger (and thereafter) pursuant to the terms of the Archstone Surviving Subsidiary Declaration of Trust, except that for purposes of the exchange provisions thereof such Archstone Surviving Subsidiary Class A-1 Shares shall be deemed to have been issued as of the date the related Class A Smith OP Units were issued by Smith Partnership (or if earlier, one year prior to the Effective Time of the Partnership Merger); (ii) Each Class B Partnership Unit of Smith Partnership, if any ("Class B Smith OP Units" and together with the Class A Smith OP Units, the "Smith OP Units"), outstanding immediately prior to the Effective Time of the Partnership Merger shall be converted into the right to receive 1.975 Class B Shares of Beneficial Interest of Archstone Surviving Subsidiary ("Archstone Surviving Subsidiary Class B Shares"); (iii) Each Series A Cumulative Convertible Redeemable Preferred Unit (as defined in the Smith Partnership Agreement) of Smith Partnership ("Smith Series A Preferred OP Unit") outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to receive one Series H Cumulative Convertible Redeemable Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary ("Archstone Surviving Subsidiary Series H Preferred Shares"); (iv) Each Series C Cumulative Redeemable Preferred Unit (as defined in the Smith Partnership Agreement) of Smith Partnership ("Smith Series C Preferred OP Unit") outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to receive one Series I Cumulative Redeemable Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary ("Archstone Surviving Subsidiary Series I Preferred Shares"); (v) Each Series E Cumulative Convertible Redeemable Preferred Unit (as defined in the Smith Partnership Agreement) of Smith Partnership ("Smith Series E Preferred OP Unit") outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to receive one Series J Cumulative Convertible Redeemable 14 Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary ("Archstone Surviving Subsidiary Series J Preferred Shares"); (vi) Each Series F Cumulative Redeemable Preferred Unit (as defined in the Smith Partnership Agreement) of Smith Partnership ("Smith Series F Preferred OP Unit") outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to receive one Series K Cumulative Redeemable Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary ("Archstone Surviving Subsidiary Series K Preferred Shares"); (vii) Each Series G Cumulative Convertible Redeemable Preferred Unit (as defined in the Smith Partnership Agreement) of Smith Partnership ("Smith Series G Preferred OP Unit") outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to receive one Series L Cumulative Convertible Redeemable Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary ("Archstone Surviving Subsidiary Series L Preferred Shares"); and (viii) Each Series H Cumulative Redeemable Preferred Unit (as defined in the Smith Partnership Agreement) of Smith Partnership ("Smith Series H Preferred OP Unit") outstanding immediately prior to the Effective Time of the Partnership Merger, if any, shall be converted into the right to receive one Series M Cumulative Redeemable Preferred Share of Beneficial Interest (as defined in the Archstone Surviving Subsidiary Declaration of Trust) of Archstone Surviving Subsidiary ("Archstone Surviving Subsidiary Series M Preferred Shares"). As used herein, "Smith Preferred OP Units" means, collectively, Smith Series A Preferred OP Units, Smith Series C Preferred OP Units, Smith Series E Preferred OP Units, Smith Series F Preferred OP Units, Smith Series G Preferred OP Units and Smith Series H Preferred OP Units. (b) Merger Consideration. The consideration to be paid to holders of stock of Smith in the Merger (collectively, the "Merger Consideration") is as follows: (i) Each share of common stock, par value $0.01 per share, together with the associated preferred stock purchase right of Smith ("Smith Common Stock"), issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the right to receive 1.975 validly issued, fully paid and nonassessable New Archstone Common Shares together with a right under the New Archstone Rights Agreement. (ii) Each share of Series A Cumulative Convertible Redeemable Preferred Stock, par value $0.01 per share, liquidation preference $27.08 per share, of Smith ("Smith Series A Preferred Share") issued and outstanding immediately prior to the Effective Time of the Merger, if any, shall be converted into the right to receive one Series H Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $27.08 per share, of New Archstone ("New Archstone Series H Preferred Share"). 15 (iii) Each share of Series C Convertible Cumulative Redeemable Preferred Stock, par value $0.01 per share, liquidation preference $100,000 per share, of Smith ("Smith Series C Preferred Share") issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the right to receive one Series I Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $100,000 per share, of New Archstone ("New Archstone Series I Preferred Share"). (iv) Each share of Series E Cumulative Convertible Redeemable Preferred Stock, par value $0.01 per share, liquidation preference $36.50 per share, of Smith ("Smith Series E Preferred Share") issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the right to receive one Series J Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $36.50 per share, of New Archstone ("New Archstone Series J Preferred Share"). (v) Each share of Series F Cumulative Convertible Redeemable Preferred Stock, par value $0.01 per share, liquidation preference $37.50 per share, of Smith ("Smith Series F Preferred Shares") issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the right to receive one Series K Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $37.50 per share, of New Archstone ("New Archstone Series K Preferred Share"). (vi) Each share of Series G Cumulative Convertible Redeemable Preferred Stock, par value $0.01 per share, liquidation preference $39.00 per share, of Smith ("Smith Series G Preferred Share") issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the right to receive one Series L Cumulative Convertible Redeemable Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $39.00 per share, of New Archstone ("New Archstone Series L Preferred Share"). (vii) Each share of Series H Cumulative Convertible Redeemable Preferred Stock, par value $0.01 per share, liquidation preference $25.00 per share, of Smith ("Smith Series H Preferred Share") issued and outstanding immediately prior to the Effective Time of the Merger shall be converted into the right to receive one Series M Preferred Share of Beneficial Interest, $0.01 par value per share, liquidation preference $25.00, of New Archstone ("New Archstone Series M Preferred Share"). As used herein, (i) "Smith Preferred Stock" means, collectively, Smith Series A Preferred Shares, Smith Series C Preferred Shares, Smith Series E Preferred Shares, Smith Series F Preferred Shares, Smith Series G Preferred Shares and Smith Series H Preferred Shares and (ii) "New Archstone Preferred Shares" means, collectively, New Archstone Series H Preferred Shares, New Archstone Series I Preferred Shares, New Archstone Series J Preferred Shares, New Archstone Series K Preferred Shares, New Archstone Series L Preferred Shares and New Archstone Series M Preferred Shares. 16 (viii) All shares of Smith Common Stock, together with the associated Smith Right, when so converted as provided in Section 1.12(b)(i), and all shares of Smith Preferred Stock, when so converted as provided in Sections 1.12(b)(ii)- (vii), shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate (a "Certificate") theretofore representing any such shares shall cease to have any rights with respect thereto, except the right to receive, upon the surrender of such Certificate in accordance with Section 1.15(c), as applicable, (A) any dividends and other distributions in accordance with Section 1.15(d), (B) certificates representing the New Archstone Common Shares into which such shares of Smith Common Stock are converted pursuant to Section 1.12(b)(i), (C) certificates representing the New Archstone Series H Preferred Shares into which Smith Series A Preferred Shares are converted pursuant to Section 1.12(b)(ii), if any, (D) certificates representing the New Archstone Series I Preferred Shares into which Smith Series C Preferred Shares are converted pursuant to Section 1.12(b)(iii), (E) certificates representing the New Archstone Series J Preferred Shares into which Smith Series E Preferred Shares are converted pursuant to Section 1.12(b)(iv), (F) certificates representing the New Archstone Series K Preferred Shares into which Smith Series F Preferred Shares are converted pursuant to Section 1.2(b)(v), (G) certificates representing the New Archstone Series L Preferred Shares into which Smith Series G Preferred Shares are converted pursuant to Section 1.12(b)(vi), (H) certificates representing the New Archstone Series M Preferred Shares into which Smith Series H Preferred Shares are converted pursuant to Section 1.12(b)(vii), and (I) any cash, without interest, in lieu of fractional New Archstone Common Shares to be issued or paid in consideration for Smith Common Stock upon the surrender of such Certificate in accordance with Sections 1.15(d) and 1.15(h). 1.13 Partner Approval. Smith shall (a) seek the requisite approval of the partners of Smith Partnership of this Agreement, the Merger, the withdrawal of Smith as general partner, and the Partnership Merger to the extent required by the Smith Partnership Agreement or applicable law and (b) seek an amendment to Section 11.2 of the Smith Partnership Agreement and any other provisions thereof necessary to effectuate the transactions contemplated by this Agreement (collectively, the "Smith Partner Approvals"). 1.14 Appraisal or Dissenters Rights. The holders of Smith Common Stock, Smith Preferred Stock, Smith OP Units, Smith Preferred OP Units, Archstone Common Shares, Archstone Existing Preferred Shares, New Archstone Common Shares, New Archstone Existing Preferred Shares, ACS Common Shares, ACS Preferred Shares, Archstone Surviving Subsidiary Common Shares or Archstone Surviving Subsidiary Preferred Shares are not entitled under applicable law to appraisal, dissenters or similar rights as a result of the Archstone Merger or the Mergers. 1.15 Exchange of Certificates in Merger; Pre-Closing Dividends; Fractional Shares. (a) Archstone Merger. Each of the shares of beneficial interest of New Archstone issued and outstanding immediately prior to the Effective Time of the Merger shall remain outstanding. Each certificate previously representing shares of beneficial interest of Archstone shall, after the Archstone Merger, represent shares of beneficial interest of New Archstone. 17 (b) Exchange Agent. Prior to the Effective Time of the Merger, New Archstone shall appoint Chase Mellon Shareholder Services, LLC as the exchange agent, or another bank or trust company reasonably acceptable to Smith, to act as exchange agent (the "Exchange Agent") for the exchange of the Merger Consideration upon surrender of certificates representing issued and outstanding shares of Smith Common Stock and each series of Smith Preferred Stock. (c) New Archstone to Provide Merger Consideration; Smith to Provide Funds for Smith Dividend. New Archstone shall provide to the Exchange Agent on or before the Effective Time of the Merger, for the benefit of the holders of Smith Common Stock and each series of Smith Preferred Stock, the Merger Consideration issuable in exchange for the issued and outstanding Smith Common Stock and each series of Smith Preferred Stock pursuant to Section 1.12, together with any cash required to make payments in lieu of any fractional shares pursuant to Section 1.15(h) (the "Exchange Fund"). The Exchange Agent (or other depository acting for the benefit of the Exchange Agent) shall invest any cash included in the Exchange Fund as directed by New Archstone, on a daily basis. Any interest or other income resulting from such investments shall be paid to New Archstone. Smith shall provide to the Exchange Agent not later than one business day prior to the Effective Time of the Merger, for the benefit of the holders of Smith Common Stock and each series of Smith Preferred Stock, cash payable in respect of any dividends required pursuant to Section 1.15(e)(i). Such cash shall be invested in accordance with written directions delivered by Smith to the Exchange Agent or other depository not later than one business day prior to the Effective Time of the Merger, with any interest or other income earned on such investments to be paid to New Archstone as the successor to Smith in the Merger. (d) Exchange Procedure. New Archstone shall use commercially reasonable efforts to cause the Exchange Agent, no later than the fifth business day after the Merger Closing Date, to mail to each holder of record of a Certificate or Certificates which immediately prior to the Effective Time of the Merger represented outstanding shares of Smith Common Stock or any series of Smith Preferred Stock whose shares were converted into the right to receive the Merger Consideration pursuant to Section 1.12(b), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in a form and have such other provisions as Archstone may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration together with any dividends or distributions to which such holder is entitled pursuant to Section 1.15(e) and cash, if any, payable in lieu of fractional shares pursuant to Section 1.15(h). Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, (i) the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration into which the shares of Smith Common Stock or a series of Smith Preferred Stock, as applicable, theretofore represented by such Certificate shall have been converted pursuant to Section 1.12(b), together with any dividends or other distributions to which such holder is entitled pursuant to Section 1.15(e) and cash, if any, payable in lieu of fractional shares pursuant to Section 1.15(h), (ii) New Archstone shall use commercially reasonable efforts to 18 cause the Exchange Agent to mail (or make available for collection by hand if so elected by the surrendering holder) such amount to such holder within five business days after receipt thereof, and (iii) the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of shares of Smith Common Stock or any series of Smith Preferred Stock which is not registered in the transfer records of Smith, payment may be made to a Person other than the Person in whose name the Certificate so surrendered is registered if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such payment either shall pay any transfer or other taxes required by reason of such payment being made to a Person other than the registered holder of such Certificate or establish to the satisfaction of New Archstone that such tax or taxes have been paid or are not applicable. Until surrendered as contemplated by this Section 1.15, each Certificate shall be deemed at any time after the Effective Time of the Merger to represent only the right to receive upon such surrender the Merger Consideration, without interest, into which the shares of Smith Common Stock or any series of Smith Preferred Stock heretofore represented by such Certificate shall have been converted pursuant to Section 1.12, and any dividends or other distributions to which such holder is entitled pursuant to Section 1.15(e) and any cash payable in lieu of fractional shares pursuant to Section 1.15(h). No interest will be paid or will accrue on the Merger Consideration upon the surrender of any Certificate or on any cash payable pursuant to Section 1.15(e) or Section 1.15(h). New Archstone or the Exchange Agent, as applicable, shall be entitled, in its sole and absolute discretion, to deduct and withhold from the cash, New Archstone Common Shares or New Archstone Preferred Shares, or any combination thereof, that otherwise is payable pursuant to this Agreement to any holder of shares of Smith Common Stock or any series of Smith Preferred Stock such amounts as New Archstone or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code or under any provision of state, local or foreign tax law. For this purpose, any New Archstone Common Shares or New Archstone Preferred Shares deducted and withheld by New Archstone shall be valued at the last trading price of the New Archstone Common Shares or the New Archstone Preferred Shares, as applicable, on the New York Stock Exchange on the effective date of the Merger (or in the event that a series of New Archstone Preferred Shares does not trade on the New York Stock Exchange, at the liquidation preference (excluding unpaid dividends) per New Archstone Preferred Share). To the extent that amounts are so withheld by New Archstone or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Smith Common Stock or a series of Smith Preferred Stock, as applicable, in respect of which such deduction and withholding was made by New Archstone or the Exchange Agent. (e) Record Dates for Final Dividends; Distributions with Respect to Unexchanged Shares. (i) If and to the extent necessary for Smith to satisfy the requirements of Section 857(a)(1) of the Code for the taxable year of Smith ending at the Effective Time of the Merger (and to avoid the payment of any tax with respect to undistributed income or gain), Smith shall declare a dividend (the "Smith Dividend") to holders of shares of Smith Common Stock and each series of Smith Preferred Stock, if and to the extent required by the terms thereof, the record date for which shall be the close of business on the last business day prior to the Effective 19 Time of the Merger, in an amount equal to the minimum dividend sufficient to permit Smith to satisfy such requirements. Any dividends payable hereunder to holders of Smith Common Stock and, if applicable, each series of Smith Preferred Stock shall be paid on the last business day immediately preceding the Closing Date. In the event that Smith is required to declare a Smith Dividend with respect to the Smith Common Stock, Smith Partnership shall simultaneously declare a distribution (the "Smith Partnership Distribution") to holders of Smith OP Units in an amount per unit equal to the Smith Dividend payable per share of Smith Common Stock, together with any distributions required to be paid to holders of Smith Preferred OP Units by reason of the payment of either the Smith Dividend or the Smith Partnership Distribution with respect to Smith OP Units, the record date for which shall be the close of business on the last business day prior to the Effective Time of the Partnership Merger. The distribution payable hereunder to holders of Smith OP Units and, if applicable, Smith Preferred OP Units, shall be paid on the last business day immediately preceding the Closing Date. (ii) If Smith determines that it is necessary to declare the Smith Dividend, Smith shall notify Archstone and New Archstone at least 20 days prior to the date for the Smith Stockholders Meeting (as defined herein), and New Archstone shall be entitled to declare a dividend per share payable to holders of New Archstone Common Shares, the record date for which shall be the close of business on the last business day prior to the Effective Time of the Merger, in an amount per New Archstone Common Share equal to the quotient obtained by dividing (x) the Smith Dividend paid by Smith with respect to each share of Smith Common Stock by (y) 1.975 (the "Corresponding New Archstone Dividends"). If, and to the extent, the terms of any series of New Archstone Existing Preferred Shares require the payment of a dividend by reason of the payment of the Corresponding New Archstone Dividends, New Archstone shall declare and pay any such required dividends and distributions. The Corresponding New Archstone Dividends (and any dividends payable to holders of New Archstone Existing Preferred Shares) shall be in addition to any Additional Corresponding New Archstone Dividends (and any dividends payable to holders of New Archstone Existing Preferred Shares) payable pursuant to Section 5.10. (iii) No dividends or other distributions with respect to New Archstone Common Shares or any series of New Archstone Preferred Shares with a record date after the Effective Time of the Merger shall be paid to the holder of any unsurrendered Certificate with respect to the New Archstone Common Shares or such series of New Archstone Preferred Shares represented thereby, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 1.15(h), in each case until the surrender of such Certificate in accordance with this Section 1.15. Subject to the effect of applicable escheat laws, following surrender of any such Certificate (A) with respect to Certificates that represent the right to receive New Archstone Common Shares, there shall be paid to the holder of such Certificate, without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of any fractional New Archstone Common Shares to which such holder is entitled pursuant to Section 1.15(h) and (ii) (x) at the time of such surrender the amount of dividends or other distributions with a record date after the Effective Time of the Merger theretofore paid with respect to such whole New Archstone Common Shares, without interest, and (y) at the appropriate payment date, the amount of dividends or other distributions with a record date after 20 the Effective Time of the Merger but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such whole New Archstone Common Shares and (B) with respect to Certificates that represent the right to receive any series of New Archstone Preferred Shares, there shall be paid to the holder of such Certificate, without interest, (x) at the time of such surrender the amount of dividends or other distributions with a record date after the Effective Time of the Merger theretofore paid with respect to such New Archstone Preferred Shares and (y) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time of the Merger but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such New Archstone Preferred Shares. (f) No Further Ownership Rights in Smith Common Stock and Smith Preferred Stock. All Merger Consideration paid upon the surrender of Certificates in accordance with the terms of this Section 1.15 (including any cash paid pursuant to Section 1.15(h)) shall be deemed to have been paid in full satisfaction of all rights pertaining to the Smith Common Stock and each series of Smith Preferred Stock, as applicable, theretofore represented by such Certificates; provided, however, that Smith shall transfer to the Exchange Agent cash sufficient to pay any dividends or make any other distributions with a record date prior to the Effective Time of the Merger which may have been declared or made by Smith on such Smith Common Stock or any such series of Smith Preferred Stock in accordance with the terms of this Agreement or prior to the date of this Agreement and which remain unpaid at the Effective Time of the Merger and have not been paid prior to such surrender, and following the Effective Time of the Merger there shall be no further registration of transfers on the stock transfer books of Smith of the Smith Common Stock or any series of Smith Preferred Stock which were outstanding immediately prior to the Effective Time of the Merger. If, after the Effective Time of the Merger, Certificates are presented to New Archstone for any reason, they shall be canceled and exchanged as provided in this Section 1.15. (g) No Liability. None of Smith, Archstone, New Archstone or the Exchange Agent shall be liable to any Person in respect of any Merger Consideration or dividends delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Any portion of the Exchange Fund delivered to the Exchange Agent pursuant to this Agreement that remains unclaimed for 12 months after the Effective Time of the Merger shall be redelivered by the Exchange Agent to New Archstone, upon demand, and any holders of Certificates who have not theretofore complied with Section 1.15(d) shall thereafter look only to New Archstone for delivery of the Merger Consideration, any cash payable in lieu of fractional shares pursuant to Section 1.15(h) and any unpaid dividends, subject to applicable escheat and other similar laws. (h) No Fractional New Archstone Shares, No Fractional Archstone Surviving Subsidiary Shares of Beneficial Interest. (i) No certificates or scrip representing fractional New Archstone Common Shares shall be issued upon the surrender for exchange of Certificates, and such fractional share interests will not entitle the owner thereof to vote, to receive dividends or to any other rights of a shareholder of New Archstone. 21 (ii) No fractional New Archstone Common Shares shall be issued pursuant to this Agreement. In lieu of the issuance of any fractional New Archstone Common Shares pursuant to this Agreement, each holder of Smith Common Stock and each holder of Archstone Common Shares (in the case of the Primary Archstone Merger) or ACS Common Shares (in the case of the Alternative Archstone Merger) shall be paid an amount in cash (without interest), rounded to the nearest cent (with .5 of a cent rounded up), determined by multiplying (i) the average closing price of one Archstone Common Share on the New York Stock Exchange on the twenty trading days immediately preceding the Closing Date by (ii) the fraction of a New Archstone Common Share which such holder would otherwise be entitled to receive under this Section 1.15. (iii) No fractional Archstone Surviving Subsidiary Shares of Beneficial Interest shall be issued pursuant to this Agreement. In lieu of the issuance of any fractional Archstone Surviving Subsidiary Shares of Beneficial Interest pursuant to this Agreement, each holder of Smith OP Units who would receive, based on the exchange ratio specified in Section 1.12(a)(i), a number of Archstone Surviving Subsidiary Shares of Beneficial Interest that is not a whole number shall receive instead a number of Archstone Surviving Subsidiary Shares of Beneficial Interest equal to the whole number that is nearest to the number of Archstone Surviving Subsidiary Shares of Beneficial Interest that otherwise would be paid to such holder of Smith OP Units based on Section 1.12(a)(i) (with .5 of an Archstone Surviving Subsidiary Share of Beneficial Interest rounded up). (i) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by New Archstone or the Exchange Agent, the posting by such Person of a bond in such reasonable amount as New Archstone or the Exchange Agent reasonably may direct (but consistent with the practices New Archstone applies to its own shareholders) as indemnity against any claim that may be made against them with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the cash, New Archstone Common Shares or New Archstone Preferred Shares to which the holders thereof are entitled pursuant to Section 1.12, any cash payable pursuant to Section 1.15(h) to which the holders thereof are entitled and any dividends or other distributions to which the holders thereof are entitled pursuant to Section 1.15(e). (j) Applicability to Partnership Merger. Except for the provisions relating to the Exchange Agent, certificates, the exchange procedure and fractional New Archstone Common Shares (which shall not be applicable), all other provisions of this Section 1.15 shall apply to Smith Partnership, Archstone Surviving Subsidiary, the Smith OP Units and the Smith OP Preferred Units with respect to the Partnership Merger. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SMITH AND SMITH PARTNERSHIP Except as specifically set forth in the Smith SEC Documents (as defined herein) or in the schedule delivered to Archstone prior to the execution hereof and identified by any of the 22 Chairman of the Board, the President and Chief Executive Officer or an Executive Vice President of Smith as the disclosure letter to this Agreement (the "Smith Disclosure Letter"), Smith and Smith Partnership represent and warrant to Archstone and New Archstone as follows: 2.1 Organization, Standing and Power. Smith is a corporation duly incorporated, validly existing and in good standing under the laws of Maryland. Smith has all requisite corporate power and authority to own, operate, lease and encumber its properties and carry on its business as now being conducted. The Smith Articles of Incorporation are in effect, and no dissolution, revocation or forfeiture proceedings regarding Smith have been commenced. Smith is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed, individually or in the aggregate, would not reasonably be expected to have a Smith Material Adverse Effect (as defined herein). As used in this Agreement, a "Smith Material Adverse Effect" means any circumstance, event, occurrence, change or effect that is materially adverse to the business, properties, assets (tangible or intangible), financial condition or results of operations of Smith, Smith Partnership, the Smith Subsidiaries (as defined herein) and the Smith Non-Controlled Subsidiaries (as defined herein), taken as a whole, except, in each case, as a result of (i) changes in general economic conditions nationally or regionally, (ii) changes affecting the real estate industry generally which do not affect Smith or Smith Partnership, as the case may be, materially disproportionately relative to other participants in the real estate industry similarly situated, or (iii) in and of itself and without the occurrence of any other Smith Material Adverse Effect, changes in the trading prices of Smith Common Stock or any series of Smith Preferred Stock. Smith has delivered to Archstone complete and correct copies of the Smith Articles and the Smith Bylaws, in each case, as amended or supplemented to the date of this Agreement. 2.2 Smith Subsidiaries. (a) Schedule 2.2 to the Smith Disclosure Letter sets forth (i) each Smith Subsidiary and each Smith Non-Controlled Subsidiary, (ii) the ownership interest therein of Smith, (iii) if not directly or indirectly wholly owned by Smith, the identity and ownership interest of each of the other owners of such Smith Subsidiary, (iv) each property owned by such Smith Subsidiary, and (v) if such property is not wholly owned by such Smith Subsidiary, the identity and ownership interest of each of the other owners of such property. As used in this Agreement, (i) "Subsidiary" of any Person (as defined herein) means any corporation, partnership, limited liability company, joint venture, trust or other legal entity of which such Person owns (either directly or through or together with another Subsidiary or Subsidiaries of such Person) either (A) a general partner, managing member or other similar interest, or (B)(1) 10% or more of the voting power of the voting capital stock or other voting equity interests, or (2) 10% or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other legal entity; (ii) "Smith Subsidiary" means each Subsidiary of Smith, except for (x) any Smith Non-Controlled Subsidiary, (y) any Subsidiary of any Smith Non-Controlled Subsidiary and (z) any Smith Other Interests (as defined herein); (iii) "Smith Non-Controlled Subsidiary" means either SMCI or CESI; and (iv) "Person" means an individual, corporation, partnership, limited liability company, 23 joint venture, association, trust, unincorporated organization or other entity. Schedule 2.2 of the Smith Disclosure Letter sets forth a true and complete list of the equity securities owned by Smith or any Smith Subsidiary in any corporation, partnership, limited liability company, joint venture or other legal entity, excluding Smith Subsidiaries. (b) Except as set forth in Schedule 2.2 to the Smith Disclosure Letter, (i) all of the outstanding shares of capital stock owned by Smith or any Smith Subsidiary of each Smith Subsidiary and each Smith Non-Controlled Subsidiary that is a corporation have been duly authorized, validly issued and are (A) fully paid and nonassessable and not subject to preemptive or similar rights, and (B) owned free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens") and (ii) all equity interests in each Smith Subsidiary and each Smith Non-Controlled Subsidiary that is a partnership, joint venture, limited liability company or trust which are owned by Smith, by another Smith Subsidiary or by Smith and another Smith Subsidiary are owned free and clear of all Liens. Each Smith Subsidiary and each Smith Non-Controlled Subsidiary that is a corporation is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the requisite corporate power and authority to own, operate, lease and encumber its properties and carry on its business as now being conducted, and each Smith Subsidiary and each Smith Non-Controlled Subsidiary that is a partnership, limited liability company or trust is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now being conducted. Each Smith Subsidiary and each Smith Non- Controlled Subsidiary is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed, individually or in the aggregate, would not reasonably be expected to have a Smith Material Adverse Effect. Complete and correct copies of the forms of the charters, articles of incorporation, bylaws, organization documents and partnership, joint venture and operating agreements of each Smith Subsidiary and each Smith Non-Controlled Subsidiary, as amended to the date of this Agreement, have been previously delivered or made available to Archstone and such forms fairly represent the organizational documents of the Smith Subsidiaries and each Smith Non-Controlled Subsidiary. No effective amendment has been made to the Smith Partnership Agreement since April 7, 2001. 2.3 Capital Structure. (a) The authorized shares of stock of Smith consist of 145,000,000 shares of stock, par value $0.01 per share, 80,000,000 of which are classified as Smith Common Stock, 2,640,325 of which are classified as Series A Preferred Shares, 500 of which are classified as Series C Preferred Shares, 684,931 of which are classified as Series E Preferred Shares, 666,667 of which are classified as Series F Preferred Shares, 641,026 of which are classified as Series G Preferred Shares, 2,200,000 of which are classified as Smith Series H Preferred Shares and 45,000,000 of which are classified as Excess Stock. 22,774,096 Shares of Smith Common Stock are issued and outstanding on April 30, 2001; 2,640,325 Smith Series A Preferred Shares are issued and outstanding on the date of this Agreement; 500 Smith Series C Preferred Shares are issued and outstanding on the date of this Agreement; 684,931 Smith Series E Preferred Shares 24 are issued and outstanding on the date of this Agreement; 666,667 shares of Smith Series F Preferred Shares are issued and outstanding on the date of this Agreement; 641,026 Smith Series G Preferred Shares are issued and outstanding on the date of this Agreement; 2,200,000 Smith Series H Preferred Shares are issued and outstanding on the date of this Agreement; 72,980 shares of Smith Participating Preferred Stock (par value $0.01 per share) have been reserved for issuance pursuant to the Smith Rights Plan and none are outstanding. Since April 30, 2001, no other shares of capital stock of Smith have been issued, except as a result of the conversion of Smith Stock Rights, Smith Preferred Stock or Smith OP Units into Smith Common Stock. (b) Set forth in Schedule 2.3(b) to the Smith Disclosure Letter is a true and complete list of the following: (i) each qualified or nonqualified option to purchase shares of Smith Common Stock or Smith OP Units granted under Smith First Amended and Restated Employee Stock and Unit Option Plan and Smith Directors Stock Option Plan or any other formal or informal arrangement (collectively, the "Smith Stock Options"); and (ii) except for the Smith Rights and the Smith OP Units, all other warrants or other rights to acquire Smith Common Stock, all stock appreciation rights, restricted stock, dividend equivalents, deferred compensation accounts, performance awards, restricted stock unit awards and other awards which are outstanding on May 2, 2001 ("Smith Stock Rights"). Schedule 2.3(b) to the Smith Disclosure Letter sets forth for each Smith Stock Option and Smith Stock Right as of May 2, 2001, the name of the grantee, the date of the grant, the type of grant, the number of shares of Smith Common Stock subject to each option or other award, the number and type of shares subject to options or awards that are currently exercisable, and the exercise price per share; provided, however, that with respect to such deferred compensation accounts, Schedule 2.3(b) sets forth only the name, the type of grant, and the number of shares of Smith Common Stock subject to such account. Since May 2, 2001, no Smith Stock Rights have been issued. All the option grants are nonqualified under Section 422 of the Code. On the date of this Agreement, except as set forth, as appropriate in this Section 2.3 or excepted therefrom or as set forth in Schedule 2.3(b) or 2.3(d) to the Smith Disclosure Letter, and except for shares reserved for issuance on the exercise of options or upon conversion of Smith OP Units, as described in clause (ii) of Section 2.3(d), no shares of Smith Common Stock or Smith Preferred Stock were outstanding or reserved for issuance. (c) All outstanding shares of Smith Common Stock are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive or similar rights under law or the Smith Articles or Smith Bylaws, or any contract or instrument to which Smith is a party or by which it is bound. There are no bonds, debentures, notes or other indebtedness of Smith having the right to vote (or convertible into, or exchangeable or exercisable for, securities having the right to vote) on any matters on which shareholders of Smith may vote. (d) Except (i) as set forth in this Section 2.3 or in Schedule 2.3(b) or 2.3(d) to the Smith Disclosure Letter, (ii) Smith OP Units, which may be redeemed for cash or, at the election of Smith, converted into shares of Smith Common Stock at a rate of one share of Smith Common Stock for each Smith OP Unit, and (iii) Smith Convertible Preferred Units, as of April 30, 2001 there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is a party or by which such entity is bound, obligating 25 Smith, any Smith Subsidiary or any Smith Non- Controlled Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock, voting securities or other ownership interests of Smith, any Smith Subsidiary or any Smith Non- Controlled Subsidiary or obligating Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking (other than to Smith, a Smith Subsidiary or any Smith Non-Controlled Subsidiary). (e) As of April 30, 2001, (i) 35,981,900 Smith OP Units are validly issued and outstanding, fully paid and nonassessable (except and only to the extent set forth in (A) Section 10.5 of the Smith Partnership Agreement with respect to all Smith OP Units, and (B) Section 4.2 and Section 7.5 of the Smith Partnership Agreement with respect to Smith OP Units owned by Smith) and not subject to preemptive or similar rights under law or the Smith Partnership Agreement, or any contract or instrument to which Smith or Smith Partnership is a party or by which either is bound, of which 22,774,096 Smith OP Units are owned by Smith, (ii) the 2,640,325 Smith Series A Preferred OP Units are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar rights, and are owned by Smith, (iii) the 500 Smith Series C Preferred OP Units are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar rights and are owned by Smith, (iv) the 684,931 Smith Series E Preferred OP Unit are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar rights, and are owned by Smith, (v) the 666,667 Smith Series F Preferred OP Units are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar rights, and are owned by Smith, (vi) the 641,026 Smith Series G Preferred OP Units are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar rights, and are owned by Smith, and (vii) the 4,000,000 Smith Series H Preferred OP Units are validly issued and outstanding, fully paid and nonassessable and not subject to preemptive or similar rights, of which 2,200,000 are owned by Smith. Since April 30, 2001, no Smith OP Units and no Smith Preferred OP Units have been issued other than in connection with the exercise of any Smith Stock Options or conversion of any Smith Preferred Stock. Within ten (10) business days of the date of this Agreement, Smith shall provide Archstone a list setting forth the name of each holder of Smith OP Units and each holder of Smith Preferred OP Units and the number of Smith OP Units or Smith Preferred OP Units owned by each such holder as of the date of this Agreement. Except as provided in the Smith Partnership Agreement or as contemplated by this Agreement, the Smith OP Units are not subject to any restrictions imposed by Smith or Smith Partnership on the transfer, assignment, pledge, distribution, encumbrance or other disposition thereof (either voluntarily or involuntarily and with or without consideration) or on the exercise of the voting rights thereof provided in the Smith Partnership Agreement. Except as provided in the Smith Partnership Agreement, Smith Partnership has not issued or granted and is not a party to any outstanding commitments of any kind relating to, or any presently effective agreements or understandings with respect to, the issuance or sale of interests in Smith Partnership, whether issued or unissued, or securities convertible into or exchangeable or exercisable for interests in Smith Partnership. (f) All dividends on Smith Common Stock and each series of Smith Preferred Stock and all distributions on Smith OP Units and Smith Preferred OP Units, which have been 26 declared and are payable prior to the date of this Agreement, have been paid in full. (g) Set forth on Schedule 2.3(g) to the Smith Disclosure Letter is a list of each registration rights agreement or other agreement with respect to the registration of securities between Smith and/or Smith Partnership, on the one hand, and one or more other parties, on the other hand, which sets forth the rights of any such other party or parties to cause the registration of any securities of Smith and/or Smith Partnership pursuant to the Securities Act of 1933, as amended (the "Securities Act"), except for registration rights agreements or other agreements pursuant to which a registration statement has been filed with the SEC and declared effective by the SEC on or prior to the date hereof. 2.4 Other Interests. Except for interests in the Smith Subsidiaries, the Smith Non-Controlled Subsidiaries and certain other entities which are set forth in Schedule 2.4 to the Smith Disclosure Letter (the "Smith Other Interests"), none of Smith, Smith Partnership, any Smith Subsidiary or any Smith Non- Controlled Subsidiary owns directly or indirectly any interest or investment (whether equity or debt) in excess of $1,000,000 individually, or $10,000,000 in the aggregate, in any corporation, partnership, joint venture, business, trust, limited liability company or other entity (other than investments in short-term investment securities). With respect to the Smith Other Interests, Smith Partnership or a Smith Subsidiary or a Smith Non-Controlled Subsidiary is a partner, member or shareholder in good standing, and except as set forth on Schedule 2.4 owns such interests free and clear of all Liens. None of Smith, Smith Partnership, any Smith Subsidiary is in material breach of any agreement, document or contract which is of a material nature governing its rights in or to the Smith Other Interests, all of which agreements, documents and contracts are (a) listed in Schedule 2.4 to the Smith Disclosure Letter, (b) unmodified except as described therein and (c) to the Knowledge of Smith (as defined herein), in full force and effect. To the Knowledge of Smith, no Smith Non-Controlled Subsidiary is in material breach of any agreement, document or contract which breach is reasonably expected to have a material adverse effect on such Smith Non-Controlled Subsidiary. To the Knowledge of Smith, the other parties to any such agreement, document or contract which is of a material nature are not in material breach of any of their respective obligations under such agreements, documents or contracts. 2.5 Authority; Noncontravention; Consents. (a) Smith has the requisite corporate power and authority to enter into this Agreement and, subject to the requisite Smith stockholder approval of the Merger (collectively, the "Smith Stockholder Approvals") and the Smith Partner Approvals (as defined herein), to consummate the transactions contemplated by this Agreement to which Smith is a party. The execution and delivery of this Agreement by Smith and the consummation by Smith of the transactions contemplated by this Agreement to which Smith is a party have been duly authorized by all necessary action on the part of Smith, except for and subject to the Smith Stockholder Approvals and the Smith Partner Approvals. This Agreement has been duly executed and delivered by Smith and constitutes a valid and binding obligation of Smith, enforceable against Smith in accordance with and subject to its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. 27 (b) Smith Partnership has the requisite partnership power and authority to enter into this Agreement and, subject to the requisite Smith Partner Approvals, to consummate the transactions contemplated by this Agreement to which Smith Partnership is a party. The execution and delivery of this Agreement by Smith Partnership and the consummation by Smith Partnership of the transactions contemplated by this Agreement to which Smith Partnership is a party have been duly authorized by all necessary action on the part of Smith Partnership, except for and subject to the Smith Stockholder Approvals and the Smith Partner Approvals. This Agreement has been duly executed and delivered by Smith Partnership and constitutes a valid and binding obligation of Smith Partnership, enforceable against Smith Partnership in accordance with and subject to its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. (c) Except as set forth in Schedule 2.5(c)(1) to the Smith Disclosure Letter and subject to receipt of the Smith Stockholder Approvals and the Smith Partner Approvals, the execution and delivery of this Agreement by Smith or Smith Partnership do not, and the consummation of the transactions contemplated by this Agreement to which Smith or Smith Partnership is a party and compliance by Smith or Smith Partnership with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary under, (i) the Smith Articles or Smith Bylaws or the comparable charter or organizational documents or partnership, operating, or similar agreement (as the case may be) of any Smith Subsidiary or any Smith Non-Controlled Subsidiary, each as amended or supplemented, (ii) any loan or credit agreement, note, bond, mortgage, indenture, merger or other acquisition agreement, reciprocal easement agreement, lease or other agreement, instrument, permit, concession, franchise or license applicable to Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation (collectively, "Laws") applicable to Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, or their respective properties or assets, other than, in the case of clause (ii) or (iii), any such conflicts, violations, defaults, rights, loss or Liens that individually or in the aggregate would not reasonably be expected to (x) have a Smith Material Adverse Effect or (y) prevent or materially impair the ability of Smith or Smith Partnership to perform any of its obligations hereunder or prevent or materially threaten or impede the consummation of the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign (a "Governmental Entity"), is required by or with respect to Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary in connection with the execution and delivery of this Agreement by Smith and Smith Partnership or the consummation by Smith or any Smith Subsidiary of the transactions contemplated by this Agreement, except for (i) the filing with the Securities and Exchange Commission (the "SEC") of (x) the Joint Proxy Statement (as defined herein), and (y) such reports and filings under the Securities Act and Section 13(a) of the Exchange Act as may be required in connection with this 28 Agreement and the transactions contemplated by this Agreement, (ii) the filing and acceptance for record of the Articles of Merger by the Department, (iii) the filing of the Delaware Certificate of Merger with the Office of the Secretary of State of the State of Delaware, and (iv) such other consents, approvals, orders, authorizations, registrations, declarations and filings (A) as are set forth in Schedule 2.5(c)(2) to the Smith Disclosure Letter, (B) as may be required under (w) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (x) laws requiring transfer, recordation or gains tax filings, (y) federal, state or local environmental laws or (z) the "blue sky" laws of various states, to the extent applicable, or (C) which, if not obtained or made, would not prevent or delay in any material respect the consummation of any of the transactions contemplated by this Agreement or otherwise prevent Smith or Smith Partnership from performing its obligations under this Agreement in any material respect or reasonably be expected to have, individually or in the aggregate, a Smith Material Adverse Effect. 2.6 SEC Documents; Financial Statements, Undisclosed Liabilities. Smith and Smith Partnership have filed all reports, schedules, forms, statements and other documents required to be filed with the SEC since December 31, 1997 through the date hereof (collectively, including all exhibits thereto and any registration statement filed since such date, the "Smith SEC Documents"). All of the Smith SEC Documents (other than preliminary material), as of their respective filing dates, complied in all material respects with all applicable requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in each case, the rules and regulations promulgated thereunder applicable to such Smith SEC Documents. None of the Smith SEC Documents at the time of filing contained, nor will any report, schedule, form, statement or other document filed by Smith or Smith Partnership after the date hereof and prior to the Effective Time of the Merger contain, any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Smith included in the Smith SEC Documents or of Smith Partnership included in the Smith SEC Documents complied, or will comply, as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been or will be prepared in accordance with United States generally accepted accounting principles ("GAAP") (except, in the case of unaudited statements, as permitted by the applicable rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly presented, or will fairly present, in all material respects in accordance with the applicable requirements of GAAP and the applicable rules and regulations of the SEC, the consolidated financial position of Smith and its Subsidiaries or Smith Partnership and its Subsidiaries, as the case may be, in each case, taken as a whole, as of the dates thereof and the consolidated results of operations and cash flows for the periods then ended (except, in the case of unaudited statements, as permitted by Form 10-Q under the Exchange Act). Except as set forth in Schedule 2.6(b) to the Smith Disclosure Letter, Smith has no Subsidiaries which are not consolidated for accounting purposes. Except for liabilities and obligations set forth in the Smith SEC Documents or in Schedule 2.6(c) to the Smith Disclosure Letter, none of Smith, any Smith Subsidiary or any Smith Non- Controlled Subsidiary has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated balance sheet of Smith or in the notes thereto and which, individually or in the 29 aggregate, would reasonably be expected to have a Smith Material Adverse Effect. 2.7 Absence of Certain Changes or Events. Except as disclosed in the Smith SEC Documents or in Schedule 2.7 to the Smith Disclosure Letter, since December 31, 2000 (the "Smith Financial Statement Date"), Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries have conducted their business only in the ordinary course (taking into account prior practices, including the acquisition and disposition of properties and issuance of securities) and there has not been (a) any circumstance, event, occurrence, change or effect that has had a Smith Material Adverse Effect, nor has there been any circumstance, event, occurrence, change or effect that with the passage of time would reasonably be expected to result in a Smith Material Adverse Effect, (b) except for regular quarterly distributions not in excess of $0.585 per share of Smith Common Stock or Smith OP Unit (subject to changes pursuant to Section 5.10 and to any Final Smith Dividend payable pursuant to Section 1.15(e)(i)), and dividends on Smith Preferred Shares in accordance with the terms of the Smith Articles (or, in each case, with respect to the period commencing on the date hereof and ending on the Closing Date, distributions as necessary to maintain REIT (as defined herein) status), in each case with customary record and payment dates, any authorization, declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to the Smith Common Stock, the Smith OP Units or any series of the Smith Preferred OP Units or the Smith Preferred Stock, (c) any split, combination or reclassification of the Smith Common Stock, the Smith OP Units or any series of the Smith Preferred OP Units or the Smith Preferred Stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for, or giving the right to acquire by exchange or exercise, shares of stock of Smith or partnership interests in Smith Partnership or any issuance of an ownership interest in, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, (d) any damage, destruction or loss, whether or not covered by insurance, that has had or would reasonably be expected to have a Smith Material Adverse Effect, (e) any change in accounting methods, principles or practices by Smith or any of its Subsidiaries, Smith Partnership or any of its Subsidiaries or its Non-Controlled Subsidiaries materially affecting its assets, liabilities or business, except insofar as may have been disclosed in Smith SEC Documents or required by a change in GAAP, (f) any amendment in any material respect of any employment, consulting, severance, retention or any other agreement between Smith and any officer or director of Smith, except as otherwise permitted by the terms of this Agreement, or (g) to the Knowledge of Smith, any circumstance, event, occurrence, change or effect that has had a material adverse effect on the Smith Non-Controlled Subsidiaries taken as a whole. 2.8 Litigation. Except as disclosed in the Smith SEC Documents or in Schedule 2.8 to the Smith Disclosure Letter, and other than personal injury and other routine tort litigation arising from the ordinary course of operations of Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries (a) which are covered by insurance, subject to a reasonable deductible or retention limit or (b) for which all material costs and liabilities arising therefrom are reimbursable pursuant to common area maintenance or similar agreements, there is no suit, action or proceeding pending (in which service of process has been received by an employee of Smith, a Smith Subsidiary or a Smith Non-Controlled Subsidiary) or, to the Knowledge of Smith (as defined herein), threatened in writing against or affecting Smith, any Smith Subsidiary or any 30 Smith Non-Controlled Subsidiary that, individually or in the aggregate, would reasonably be expected to (i) have a Smith Material Adverse Effect or (ii) prevent or materially impair the ability of Smith or Smith Partnership to perform any of its obligations hereunder or prevent or materially threaten or impair the consummation of any of the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any court or Governmental Entity or arbitrator outstanding against Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary having, or which, insofar as reasonably can be foreseen, in the future would have, any such effect. Notwithstanding the foregoing, (y) Schedule 2.8 to the Smith Disclosure Letter sets forth each and every material uninsured claim, equal employment opportunity claim and claim relating to sexual harassment and/or discrimination pending or, to the Knowledge of Smith, threatened as of the date hereof, in each case with a brief summary of such claim or threatened claim, and (z) no claim has been made under any directors' and officers' liability insurance policy maintained at any time by Smith, any of the Smith Subsidiaries or any of the Smith Non-Controlled Subsidiaries. 2.9 Properties. (a) Except as provided in Schedule 2.2 or Schedule 2.9(a) to the Smith Disclosure Letter, Smith, the Smith Subsidiary or the Smith Non-Controlled Subsidiary set forth on Schedule 2.2 to the Smith Disclosure Letter owns fee simple title to or holds a leasehold interest in each of the real properties identified in Schedule 2.9(a) to the Smith Disclosure Letter (the "Smith Properties"), which are all of the real estate properties owned or leased by them. Schedule 2.9(a) to the Smith Disclosure Letter further identifies which of the Smith Properties are owned in fee simple by Smith or the Smith Non- Controlled Subsidiary and which of the Smith Properties are subject to a ground lease. Except as set forth in Schedule 2.2 or Schedule 2.9(a) to the Smith Disclosure Letter, no other Person has any ownership interest in any of the Smith Properties and any such ownership interest so scheduled could not reasonably be expected to have a Smith Material Adverse Effect. Except as set forth in Schedule 2.9(a) and Schedule 2.18(i) to the Smith Disclosure Letter, none of the Smith Properties is subject to any restriction on the sale or other disposition thereof or on the financing or release of financing thereon. (b) The Smith Properties are not subject to any liens, mortgages or deeds of trust, claims against title, charges which are liens, security interests or other encumbrances on title ("Encumbrances"), or to any rights of way, agreements, laws, ordinances and regulations affecting building use or occupancy, or reservations of an interest in title (collectively, "Property Restrictions"), which reasonably could be expected to cause a Smith Material Adverse Effect. (c) Schedule 2.9(c) to the Smith Disclosure Letter lists each of the Smith Properties which are under development as of the date of this Agreement (including development properties partially owned through joint ventures) and describes the status of such development as of the date hereof. (d) Valid policies of title insurance have been issued insuring the applicable Smith Subsidiary's or Smith Non-Controlled Subsidiary's (as the case may be) fee simple title or leasehold estate, as the case may be, to the Smith Properties owned by it in amounts approximately equal to the purchase price therefor paid by such Smith Subsidiary or such 31 Smith Non-Controlled Subsidiary, except where the failure to obtain such policies of title insurance would not reasonably be expected to have a Smith Material Adverse Effect. Such policies are, at the date hereof, in full force and effect. No material claim has been made against any such policy. (e) With respect to any Smith Property with Five Hundred (500) units or more, Smith has no Knowledge: (i) that it has failed to obtain a certificate, permit or license from any governmental authority having jurisdiction over such Smith Property where such failure would reasonably be expected to have a material adverse effect on such Smith Property or of any pending threat of modification or cancellation of any of the same which would reasonably be expected to have a material adverse effect on such Smith Property; (ii) of any written notice of any violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting such Smith Property issued by any governmental authority which would reasonably be expected to have a material adverse effect on such Smith Property; or (iii) that it has received written or published notice to the effect that (a) any condemnation or involuntary rezoning proceedings are pending or threatened with respect to such Smith Property or (b) any zoning, building or similar law, code, ordinance, order or regulation is or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of such Smith Property or by the continued maintenance, operation or use of the parking areas other than such notices, which, in the aggregate, would not reasonably be expected to have a material adverse effect on such Smith Property. (f) With respect to Smith Properties with less than Five Hundred (500) units, Smith has no Knowledge: (i) that it has failed to obtain certificates, permits or licenses from any governmental authority having jurisdiction over any such Smith Properties, the absence of which, in the aggregate, would reasonably be expected to have a Smith Material Adverse Effect or of any pending threat of modification or cancellation of any of the same which, in the aggregate, would reasonably be expected to have a Smith Material Adverse Effect; (ii) of any written notices of any violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting such Smith Properties issued by any governmental authority which, in the aggregate, would reasonably be expected to have a Smith Material Adverse Effect; or (iii) that it has received written or published notice to the effect that (a) any condemnation or involuntary rezoning proceedings are pending or threatened with respect to any of such Smith Property or (b) any zoning, building or similar law, code, ordinance, order or regulation is or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of such Smith Properties or by the continued maintenance, 32 operation or use of the parking areas other than such notices, which, in the aggregate, would not reasonably be expected to have a Smith Material Adverse Effect. (g) Except as set forth in Schedule 2.9(g) to the Smith Disclosure Letter, Smith has no Knowledge (i) of any structural defects relating to Smith Properties, Smith Properties whose building systems are not in working order, physical damage to any Smith Property for which there is not insurance in effect covering the cost of the restoration and the loss of revenue (subject to a reasonable deduction or retention limit), except such structural defects, building systems not in working order and physical damage, which, in the aggregate, would not reasonably be expected to have a Smith Material Adverse Effect. (h) Except as set forth in Schedule 2.9(h) to the Smith Disclosure Letter, (i) all work required to be performed, payments required to be made and actions required to be taken prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site approval, zoning reclassification or other similar action relating to any Smith Property (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation (as defined herein)) have been performed, paid or taken, as the case may be, and (ii) Smith has no Knowledge of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, in each of case (i) and (ii) except as set forth in development or operating budgets for such Smith Properties delivered to Archstone prior to the date hereof and other than those which would not reasonably be expected to have a Smith Material Adverse Effect. As used in this Agreement, "Environmental Mitigation" means investigation, clean-up, removal action, remedial action, restoration, repair, response action, corrective action, monitoring, sampling and analysis, installation, reclamation, closure or post-closure in response to any actual or suspected environmental condition or Hazardous Materials. (i) Insurance summaries previously provided by Smith to Archstone contain a true and complete list, by type of insurance, carrier, coverages (including limits) and term, of all material policies of casualty, liability, group health, workers compensation, directors and officers and other types of insurance (except title insurance) carried by Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary. All such policies are in full force and effect and none of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has received from any insurance company notice of any material defects or deficiencies affecting the insurability of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, or any of their respective assets thereunder. 2.10 Environmental Matters. (a) "Environmental Law" shall mean all applicable Laws, including any plans, other criteria, or guidelines promulgated pursuant to such Laws, relating to noise control, or the protection of human health, safety and natural resources, animal health or welfare or the environment, including, without limitation, Laws relating to the use, manufacturing, production, generation, installation, recycling, reuse, sale, storage, handling, transport, treatment, release, threatened release or disposal of any Hazardous Materials (including the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C. (S)9601 et seq. 33 ("CERCLA")). "Hazardous Materials" shall mean substances, wastes, radiation or materials (whether solids, liquids or gases) (i) which are hazardous, toxic, infectious, explosive, radioactive, carcinogenic, or mutagenic, (ii) which are listed, regulated or defined under any Environmental Law, and shall include "hazardous wastes," "hazardous substances," "hazardous materials," "pollutants," "contaminants," "toxic substances" "radioactive materials" or "solid wastes," (iii) the presence of which on property cause or threaten to cause a nuisance pursuant to applicable statutory or common law upon the property or to adjacent properties, (iv) which contain without limitation polychlorinated biphenyls (PCBs), asbestos or asbestos-containing materials, lead-based paints, urea-formaldehyde foam insulation, or petroleum or petroleum products (including, without limitation, crude oil or any fraction thereof) or (v) which pose a hazard to human health, safety, natural resources, industrial hygiene, or the environment, or an impediment to working conditions. "Release" shall have the meaning set forth in Section 101 of CERCLA, without regard to the exclusions set forth therein. (b) Except as disclosed in the Smith SEC Documents and except as set forth on Schedule 2.10 to the Smith Disclosure Letter, (i) none of Smith, any of the Smith Subsidiaries or any of the Smith Non-Controlled Subsidiaries or, to Smith's Knowledge, any other Person has caused or permitted the presence of any Hazardous Materials at, on or under any of the Smith Properties and none of Smith, any of the Smith Subsidiaries or any of the Smith Non-Controlled Subsidiaries has any Knowledge of the presence of any Hazardous Materials at, on or under any of the Smith Properties, in each of the foregoing cases, such that the presence of such Hazardous Materials (including the presence of asbestos in any buildings or improvements at the Smith Properties) would, individually or in the aggregate, reasonably be expected to have a Smith Material Adverse Effect; (ii) except as authorized by the Environmental Permits, there have been no Releases of Hazardous Materials at, on, under or from (A) the Smith Properties or (B) any real property previously owned, operated or leased by Smith, the Smith Subsidiaries, or the Smith Non-Controlled Subsidiaries (the "Former Smith Properties") during the period of such ownership, operation or tenancy which would, individually or in the aggregate, reasonably be expected to have a Smith Material Adverse Effect; (iii) (y) Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries have not failed to comply with any Environmental Law, and (z) none of Smith, any of the Smith Subsidiaries or any of the Smith Non-Controlled Subsidiaries has any liability under the Environmental Laws, except in each of cases (y) and (z) to the extent that any such failure to comply or any such liability, individually or in the aggregate, would not reasonably be expected to have a Smith Material Adverse Effect; and (iv) Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries have been duly issued, and currently have and will maintain through the Closing Date, all permits, licenses, certificates and approvals required under any Environmental Law (collectively, the "Environmental Permits") necessary to operate their businesses as currently operated except where the failure to obtain and maintain such Environmental Permit would not, 34 individually or in the aggregate, reasonably be expected to have a Smith Material Adverse Effect. Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries have timely filed applications for all Environmental Permits. 2.11 Related Party Transactions. Set forth in Schedule 2.11 to the Smith Disclosure Letter is a list of all material arrangements, agreements and contracts entered into by Smith, any Smith Subsidiary and any Smith Non- Controlled Subsidiary which are in effect and which are with any Person who is an officer, director or Affiliate (as defined herein) of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, any relative of any of the foregoing or any entity of which any of the foregoing is an Affiliate. True, correct and complete copies of such documents have previously been delivered or made available to Archstone. As used in this Agreement, the term "Affiliate" shall have the same meaning as such term is defined in Rule 405 promulgated under the Securities Act. 2.12 Employee Benefits. As used herein, the term "Employee Plan" includes any pension, retirement, savings, disability, medical, dental, health, life, death benefit, group insurance, profit sharing, deferred compensation, stock option, bonus, incentive, vacation pay, tuition reimbursement, severance pay, or other employee benefit plan, trust, agreement, contract, agreement, policy or commitment (including, without limitation, any pension plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder ("ERISA") ("Pension Plan"), and any welfare plan as defined in Section 3(l) of ERISA ("Welfare Plan")), whether any of the foregoing is funded, insured or self-funded, written or oral, (i) sponsored or maintained by Smith or any of its Controlled Group Members (as defined below), (ii) to which Smith or any of its Controlled Group Members is a party or by which Smith or any of its Controlled Group Members (or any of the rights, properties or assets thereof) is bound, or (iii) with respect to which Smith or any of its Controlled Group Members may otherwise have any liability or contingent liability (whether or not Smith or any of its Controlled Group Members still maintains such Employee Plan). Each Employee Plan is listed on Schedule 2.12 to the Smith Disclosure Letter. For purposes of this Agreement, "Controlled Group Member" means, with respect to any Person, any corporation or trade or business which, together with such Person, is a member of a controlled group of corporations or a group of trades or businesses under common control within the meaning of Section 414 of the Code. Except as disclosed in Schedule 2.12 to the Smith Disclosure Letter, with respect to the Employee Plans: (a) None of Smith or any of its Controlled Group Members has any continuing liability under any Welfare Plan which provides for continuing benefits or coverage for any employee, former employee or any beneficiary of an employee or former employee after such employee's or former employee's termination of employment, except as may be required by Section 4980B of the Code or Section 601 (et seq.) of ERISA, or under any applicable state law, and at the expense of the employee, former employee or beneficiary. (b) Each Employee Plan complies in all material respects with the applicable requirements of the Code, ERISA and any other applicable law governing such Employee Plan, and each Employee Plan has at all times been properly administered in all material respects in accordance with all such requirements of law, and in accordance with its terms and the terms of 35 any applicable collective bargaining agreement to the extent consistent with all such requirements of law. Each Pension Plan which is intended to be qualified is qualified under Section 401(a) of the Code, has received a favorable determination letter from the IRS stating that such Plan meets the requirements of Section 401(a) of the Code and that the trust associated with such Plan is tax-exempt under Section 501(a) of the Code and which covers all material amendments to such plan for which the remedial amendment period (within the meaning of Section 401(b) of the Code and applicable regulations) has expired and, to the Knowledge of Smith, no event has occurred which would jeopardize the qualified status of any such plan or the tax exempt status of any such trust under Sections 401(a) and Section 501(a) of the Code, respectively. No lawsuits, claims (other than routine claims for benefits) or formal complaints to, or by, any Person or governmental entity have been filed, are pending or, to the Knowledge of Smith, threatened with respect to any Employee Plan and, to the Knowledge of Smith, there is no fact or contemplated event which would reasonably be expected to give rise to any such lawsuit, claim (other than routine claims for benefits) or complaint with respect thereto. Without limiting the foregoing, the following are true with respect to each Employee Plan: (i) Smith and all of its Controlled Group Members have complied in all material respects with the reporting and disclosure requirements of ERISA, the Code, or both, with respect to each Employee Plan and none of Smith or any of its Controlled Group Members has incurred any material liability in connection with such reporting or disclosure; (ii) all contributions and payments with respect to Employee Plans that are required to be made by Smith or any of its Controlled Group Members with respect to periods ending on or before the Closing Date (including periods from the first day of the current plan or policy year to the Closing Date) have been, or will be, made or accrued before the Closing Date in accordance with the appropriate plan document, actuarial report, collective bargaining agreements or insurance contracts or arrangements or as otherwise required by ERISA or the Code or other applicable law; and (iii) with respect to each such Employee Plan, to the extent applicable, Smith has delivered to or has made available to Archstone true and complete copies of (A) plan documents, or any and all other documents that establish the existence of the plan, trust, arrangement, contract, policy or commitment and all amendments thereto, (B) the most recent determination letter received from the IRS, (C) the three most recent Form 5500 Annual Reports (and all schedules and reports relating thereto) and actuarial reports and (D) all related trust agreements, insurance contract or other funding agreements that implement each such Employee Plan. (c) With respect to each Employee Plan, to the Knowledge of Smith, there has not occurred, and no Person is contractually bound to enter into, any "prohibited transaction" within the meaning of Section 4975(c) of the Code or Section 406 of ERISA, which transaction is not exempt under Section 4975(d) of the Code or Section 408 of ERISA and which could subject Smith or any Controlled Group Member to material liability. (d) None of Smith or any Controlled Group Member has maintained or been obligated to contribute to any Employee Plan subject to Code Section 412 or Title IV of ERISA 36 and, except for multiemployer plans (within the meaning of section 3(37) of ERISA), none of the Employee Plans is subject to Title IV of ERISA. With respect to each Employee Plan which is a multiemployer plan, all contributions have been made as required by the terms of the plan, the terms of any collective bargaining agreement and applicable law, none of Smith or any of its Controlled Group Members has withdrawn, partially withdrawn or received any notice of any claim or demand for withdrawal liability or partial withdrawal liability, and none of Smith or any of its Controlled Group Members has received any notice that any such plan is in reorganization, that increased contributions may be required to avoid a reduction in plan benefits or the imposition of any excess tax, that any such plan is or has been funded at a rate less than required under Section 412 of the Code or that any such plan is or may become insolvent. (e) With respect to each Pension Plan maintained by Smith or any Controlled Group Member, such Plan provides the Plan Sponsor with the authority to amend or terminate the Plan at any time, subject to applicable requirements of ERISA and the Code and other requirements of applicable law. (f) There have been no acts or omissions by Smith or any of its Controlled Group Members which have given rise to or are reasonably likely to give rise to fines, penalties, taxes or related charges under Section 502 of ERISA or Chapters 43, 47, 68 or 100 of the Code for which Smith or any of its Controlled Group Members may be liable. (g) None of the assets of any Employee Plan are invested in employer securities or employer real property. 2.13 Employee Policies. Except as set forth in Schedule 2.13 to the Smith Disclosure Letter, the employee handbooks of Smith, the Smith Subsidiaries and the Smith Non-Controlled Entities currently in effect have been delivered or made available to Archstone and fairly and accurately summarize in all material respects all material employee policies, vacation policies and payroll policies. 2.14 Taxes. (a) Each of Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries (A) has filed all Tax returns and reports required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Entity having authority to do so) and all such returns and reports are accurate and complete in all material respects, (B) has paid (or Smith has paid on its behalf) all Taxes (as defined herein) shown on such returns and reports as required to be paid by it, and (C) has complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441, 1442, 1445, 1446, 3121, and 3402 of the Code or similar provisions under any foreign laws) and has, within the time period prescribed by law, withheld and paid over to the proper governmental entities all amounts required to be so withheld and paid over under applicable laws and regulations, except, with respect to all of the foregoing, where the failure to file such tax returns and reports or failure to pay such Taxes or failure to comply with such withholding requirements would not reasonably be expected to have a Smith Material Adverse Effect. The most recent audited financial statements contained in the 37 Smith SEC Documents reflect an adequate reserve for all material Taxes payable by Smith, the Smith Subsidiaries and the Smith Non- Controlled Subsidiaries for all taxable periods and portions thereof through the date of such financial statements. Since the Smith Financial Statement Date, to Smith's Knowledge, Smith has incurred no liability for Taxes under Sections 857(b), 860(c) or 4981 of the Code, including without limitation any Tax arising from a prohibited transaction described in Section 857(b)(6) of the Code, and none of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has incurred any material liability for Taxes other than in the ordinary course of business. Except as set forth on Schedule 2.14(a) of the Smith Disclosure Letter, no event has occurred, and no condition or circumstance exists, which presents a material risk that any material Tax described in the preceding sentences will be imposed upon Smith, any Smith Subsidiary, or any Smith Non- Controlled Subsidiary. None of Smith, any Smith Subsidiary or any Smith Non- Controlled Subsidiary is the subject of any audit, examination, or other proceeding in respect of federal income Taxes; to Smith's Knowledge, no audit, examination or other proceeding in respect of federal income Taxes involving any of Smith, any Smith Subsidiary, or Smith Non-Controlled Subsidiary is being considered by any Tax authority; and except as set forth on Schedule 2.14(a) of the Smith Disclosure Letter, no audit, examination or other proceeding in respect of federal income taxes involving any of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has occurred since December 31, 1995. To the Knowledge of Smith, no deficiencies for any Taxes have been proposed, asserted or assessed against Smith, any Smith Subsidiary or any Smith Non- Controlled Subsidiary, and no requests for waivers of the time to assess any such Taxes are pending. As used in this Agreement, "Taxes" shall include all taxes, charges, fees, levies and other assessments, including, without limitation, income, gross receipts, excise, property, sales, withholding (including, without limitation, dividend withholding and withholding required pursuant to Sections 1445 and 1446 of the Code), social security, occupation, use, service, license, payroll, franchise, transfer and recording taxes, fees and charges, including estimated taxes, imposed by the United States or any taxing authority (domestic or foreign), whether computed on a separate, consolidated, unitary, combined or any other basis, and any interest, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to any such taxes, charges, fees, levies or other assessments. (b) Smith (i) for all taxable years for which the Internal Revenue Service ("IRS") could assert a tax liability, has been subject to taxation as a real estate investment trust (a "REIT") within the meaning of Section 856 of the Code and has satisfied all requirements to qualify as a REIT for all such years, (ii) has operated since December 31, 2000 to the date of this representation, and intends to continue to operate, in such a manner as to qualify as a REIT for the taxable year ending on the earlier of December 31, 2001 or the Closing Date and, if later, for the taxable year of Smith ending on the Closing Date, and (iii) has not taken or omitted to take any action which would reasonably be expected to result in a challenge to its status as a REIT and, to Smith's Knowledge, no such challenge is pending or threatened. Each Smith Subsidiary which is a partnership, joint venture or limited liability company, at all times since it became a Smith Subsidiary, (A) (i) has been treated for federal income tax purposes as a partnership or as an entity that is disregarded for federal income tax purposes and not as a corporation or as an association taxable as a corporation and (ii) has not owned any assets (including, without limitation, securities) that would cause Smith to violate Section 856(c)(4) of the Code or (B)(i) 38 has been treated for federal income tax purposes as a corporation and that qualifies as a REIT within the meaning of Section 856 of the Code, a qualified REIT subsidiary under Section 856(i) of the Code, or a taxable REIT subsidiary under Section 856(l) of the Code. Smith Partnership is not a publicly traded partnership within the meaning of Section 7704(b) of the Code that is taxable as a corporation pursuant to Section 7704(a) of the Code. Each Smith Subsidiary which is a corporation has been since it became a Smith Subsidiary and each other issuer of securities in which Smith holds securities (within the meaning of Section 856(c) of the Code but excluding "straight debt" of issuers described in Section 856(c)(7)) having a value of more than 10 percent of the total value of the outstanding securities of such issuer is a REIT within the meaning of Section 856 of the Code, a qualified REIT subsidiary under Section 856(i) of the Code or a taxable REIT subsidiary under Section 856(l) of the Code. Except as set forth in Schedule 2.14(b) of the Smith Disclosure Letter, neither Smith nor any Smith Subsidiary holds any asset (x) the disposition of which would be subject to rules similar to Section 1374 of the Code as a result of an election under IRS Notice 88-19 or Temporary Treas. Reg. (S)1.337(d)-5T or (y) which is subject to a consent filed pursuant to Section 341(f) of the Code and the regulations thereunder. (c) To Smith's knowledge, as of the date hereof, Smith is a "domestically-controlled" REIT within the meaning of Section 897(h) of the Code. (d) There are no liens for Taxes upon the assets of Smith, the Smith Subsidiaries or the Smith Non-Controlled Subsidiaries, other than liens for Taxes not yet due and payable. (e) Neither Smith nor any Smith Subsidiary is a party to any Tax allocation or sharing agreement. (f) Except as set forth in Section 2.18(i), Smith does not have any liability for the Taxes of any person other than Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries, and the Smith Subsidiaries do not have any liability for the Taxes of any person other than Smith, the Smith Subsidiaries, the Smith Non-Controlled Subsidiaries and the Subsidiaries thereof (A) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), (B) as a transferee or successor, (C) by contract, or (D) otherwise. (g) Smith and the Smith Subsidiaries have disclosed to the IRS all positions taken on its federal income Tax returns which could reasonably be expected to give rise to a substantial understatement of Tax under Section 6662 of the Code. 2.15 No Payments to Employees, Officers or Directors. Schedule 2.15 to the Smith Disclosure Letter contains a true and complete list of all arrangements, agreements or plans pursuant to which cash and non-cash payments which will become payable to each employee, officer or director of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary as a result of the Merger or a termination of service subsequent to the consummation of the Merger. Except as described in Schedule 2.15 to the Smith Disclosure Letter, or as otherwise provided for in this Agreement, there is no employment or severance contract, or other agreement requiring payments, cancellation of indebtedness or other obligation to be made on a change of control or 39 otherwise as a result of the consummation of any of the transactions contemplated by this Agreement or as a result of a termination of service subsequent to the consummation of any of the transactions contemplated by this Agreement, with respect to any employee, officer or director of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary. Except as described in Schedule 2.15 of the Smith Disclosure Letter, there is no agreement or arrangement with any employee, officer, director or other service provider under which Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has agreed to pay any tax that might be owed under Section 4999 of the Code with respect to payments to such individuals. 2.16 Broker; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other Person, other than Goldman, Sachs & Co., the fees and expenses of which are described in the engagement letter dated April 5, 2001, between Goldman, Sachs & Co. and Smith, a true, correct and complete copy of which has previously been given to Archstone, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Smith or any Smith Subsidiary. 2.17 Compliance with Laws. None of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has violated or failed to comply with any statute, law, ordinance, regulation, rule, judgment, decree or order of any Governmental Entity applicable to its business, properties or operations, except in each case to the extent that such violation or failure would not reasonably be expected to have a Smith Material Adverse Effect. 2.18 Contracts; Debt Instruments. (a) None of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice or both would cause such a violation of or default under) any material loan or credit agreement, note, bond, mortgage, indenture, lease, permit, concession, franchise, license or any other material contract, agreement, arrangement or understanding, to which it is a party or by which it or any of its properties or assets is bound, nor to the Knowledge of Smith does such a violation or default exist, except in each case to the extent that such violation or default, individually or in the aggregate, would not reasonably be expected to have a Smith Material Adverse Effect. (b) Schedule 2.l8(b) to the Smith Disclosure Letter sets forth a list of each material loan or credit agreement, note, bond, mortgage, indenture and any other agreement or instrument pursuant to which any Indebtedness (as defined herein) of Smith, the Smith Subsidiaries and any Smith Non-Controlled Subsidiary, other than Indebtedness payable to Smith, a Smith Subsidiary or a Smith Non-Controlled Subsidiary, is outstanding or may be incurred. For purposes of this Section 2.18, "Indebtedness" shall mean (i) indebtedness for borrowed money, whether secured or unsecured, (ii) obligations under conditional sale or other title retention agreements relating to property purchased by such Person, (iii) capitalized lease obligations, (iv) obligations under interest rate cap, swap, collar or similar transaction or currency hedging transactions (valued at the termination value thereof) and (v) guarantees of any such indebtedness of any other Person. Except as set forth in Schedule 2.18(c), none of Smith, any 40 Smith Subsidiary or any Smith Non-Controlled Subsidiary has any derivative instruments outstanding. (c) To the extent not set forth in response to the requirements of Section 2.18(b), Schedule 2.18(c) to the Smith Disclosure Letter sets forth each interest rate cap, interest rate collar, interest rate swap, currency hedging transaction, and any other agreement relating to a similar transaction to which Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is a party or an obligor with respect thereto. (d) Except with respect to the agreements set forth in Schedule 2.18(b) or Schedule 2.18(i) of the Smith Disclosure Letter, none of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is a party to any agreement which would restrict any of them from prepaying any of their Indebtedness without penalty or premium at any time or which requires any of them to maintain any amount of Indebtedness with respect to any of the Smith Properties. (e) Except as set forth in Schedule 2.18(e) of the Smith Disclosure Letter, none of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is a party to any agreement relating to the management of any Smith Property by any Person other than Smith, a Smith Subsidiary or a Smith Non- Controlled Subsidiary. (f) Smith has delivered to Archstone prior to the date of this Agreement a true and complete capital budget for the year 2001 relating to budgeted capital improvements and development and the operating budget for the year 2001, each of which was prepared based on assumptions which management believed were reasonable. (g) Schedule 2.18(g) to the Smith Disclosure Letter lists all agreements entered into by Smith, any Smith Subsidiary or any Smith Non- Controlled Subsidiary providing for the sale of, or option to sell, any Smith Properties or the purchase of, or option to purchase, by Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, on the one hand, or the other party thereto, on the other hand, any real estate not yet consummated as of the date hereof. (h) Except as set forth in Schedule 2.18(h) to the Smith Disclosure Letter, none of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has any pending claims or, to the knowledge of Smith, any threatened claims regarding material continuing contractual liability (A) for indemnification under any agreement relating to the sale of real estate previously owned, whether directly or indirectly, by Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary or (B) to pay any additional purchase price for any of the Smith Properties. (i) None of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary has entered into or is subject, directly or indirectly, to any "Tax Protection Agreements," except as set forth in Schedule 2.18(i) to the Smith Disclosure Letter (true and correct copies of which have been made available to Archstone). As used herein, a Tax Protection Agreement is an agreement, oral or written, (A) that has as one of its purposes to permit a Person to take the position that such Person could defer federal taxable income that 41 otherwise might have been recognized upon a transfer of property to the Smith Partnership or any other Smith Subsidiary that is treated as a partnership for federal income tax purposes, and that (i) prohibits or restricts in any manner the disposition of any assets of Smith, any Smith Subsidiary or any Smith Non- Controlled Subsidiary, (ii) requires that Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary maintain, put in place, or replace, indebtedness, whether or not secured by one or more of the Smith Properties, or (iii) requires that Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary offer to any Person at any time the opportunity to guarantee or otherwise assume, directly or indirectly (including, without limitation, through a "deficit restoration obligation," guarantee (including, without limitation, a "bottom" guarantee), indemnification agreement or other similar arrangement), the risk of loss for federal income tax purposes for indebtedness or other liabilities of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary, (B) that specifies or relates to a method of taking into account book-tax disparities under Section 704(c) of the Code with respect to one or more assets of Smith or a Smith Subsidiary, or (C) that requires a particular method for allocating one or more liabilities of Smith or any Smith Subsidiary under Section 752 of the Code. None of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is in violation of or in default under any Tax Protection Agreement. 2.19 Opinion of Financial Advisor. Smith has received the written opinion of Goldman, Sachs & Co., Smith's financial advisor, dated as of the date of this Agreement, to the effect that, as of such date, the 1.975 New Archstone Common Shares to be received by the holders of Smith Common Stock for each share of Smith Common Stock pursuant to the Merger is fair to such holders from a financial point of view. 2.20 State Takeover Statutes. Smith has taken all action necessary to exempt the transactions contemplated by this Agreement between Archstone and Smith and its Affiliates from the operation of the Maryland Business Combination Act, the Maryland Control Shares Acquisition Act and any other "fair price," "moratorium," "control share acquisition" or any other takeover statute or similar statute enacted under any laws of any state or federal laws of the United States or similar statute or regulation (a "Takeover Statute"). 2.21 Stockholder Rights Plan. The Board of Directors of Smith has resolved to, and Smith shall prior to the Merger, take all action necessary to render the rights (the "Smith Rights") issued pursuant to the terms of that certain Rights Agreement, dated as of December 2, 1998, between Smith and First Union National Bank, as rights agent (the "Smith Rights Agreement"), inapplicable to the Mergers, this Agreement, and the other transactions contemplated hereby. 2.22 Investment Company Act of 1940. None of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiary is, or at the Effective Time of the Merger will be, required to be registered under the Investment Company Act of 1940, as amended (the " 1940 Act"). 2.23 Definition of "Knowledge of Smith". As used in this Agreement, the phrase "Knowledge of Smith" (or words of similar import) means the actual knowledge of those individuals identified in Schedule 2.23 to the Smith Disclosure Letter. 2.24 Required Stockholder Approvals and Partner Approvals. The affirmative vote of 42 the holders of at least two-thirds of the Smith Common Stock outstanding and entitled to vote and voting together as a single class is the only vote of the holders of any class or series of Smith stock necessary or required under this Agreement or under applicable law to approve the Merger and this Agreement. The approval of Smith and the affirmative vote of (a) holders of a majority of the outstanding Smith OP Units and (b) holders of a majority of Smith OP Units held by limited partners other than Smith, voting in accordance with the Smith Partnership Agreement, are the only votes of the holders of any class or series of Smith Partnership's partnership interests necessary or required under this Agreement or under applicable law to approve this Agreement, the Merger, the withdrawal of Smith as general partner and the Partnership Merger (including, without limitation, termination of the Smith Partnership Agreement). ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ARCHSTONE AND NEW ARCHSTONE Except as specifically set forth in the Archstone SEC Documents (as defined herein) or in the schedule delivered to Smith prior to the execution hereof and identified by any of the Chairman and Chief Executive Officer, Chief Financial Officer or a Senior Vice President of Archstone as the disclosure letter to this Agreement (the "Archstone Disclosure Letter"), Archstone and New Archstone represent and warrant to Smith and Smith Partnership as follows: 3.1 Organization, Standing and Power of Archstone. (a) Archstone is a real estate investment trust duly organized, validly existing and in good standing under the laws of Maryland. Archstone has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now being conducted. Archstone is duly qualified or licensed to do business as a foreign entity and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed, individually or in the aggregate, would not reasonably be expected to have an Archstone Material Adverse Effect (as defined herein). As used in this Agreement, an "Archstone Material Adverse Effect" means any circumstance, event, occurrence, change or effect that is materially adverse to the business, properties, assets (tangible or intangible), financial condition or results of operations of Archstone, New Archstone and the Subsidiaries of Archstone (collectively, "Archstone Subsidiaries"), taken as a whole, except, in each case, as a result of (i) changes in general economic conditions nationally or regionally, (ii) changes affecting the real estate industry generally which do not affect Archstone materially disproportionately relative to other participants in the real estate industry similarly situated, or (iii) in and of itself and without the occurrence of any other Archstone Material Adverse Effect, changes in the trading prices of Archstone Common Shares or any series of Archstone Preferred Shares. Archstone has delivered to Smith complete and correct copies of the Archstone Declaration of Trust and the bylaws of Archstone, as amended or supplemented to the date of this Agreement (the "Archstone Bylaws"). 43 (b) New Archstone is a real estate investment trust duly organized, validly existing and in good standing under the laws of Maryland. New Archstone has all requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now being conducted. New Archstone is duly qualified or licensed to do business as a foreign entity and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary. 3.2 Archstone Subsidiaries. (a) Schedule 3.2(a) to the Archstone Disclosure Letter sets forth (i) each Archstone Subsidiary and each entity in which Archstone holds non-voting equity securities (but no voting equity securities) (collectively, the "Archstone Non-Controlled Subsidiaries"), (ii) the ownership interest therein of Archstone, (iii) if not directly or indirectly wholly owned by Archstone, the identity and ownership interest of each of the other owners of such Archstone Subsidiary, (iv) each property owned by such Archstone Subsidiary, and (v) if not wholly owned by such Archstone Subsidiary, the identity and ownership interest of each of the other owners of such property. (b) Except as set forth in Schedule 3.2(b) to the Archstone Disclosure Letter, (i) all of the outstanding shares of capital stock owned by Archstone or an Archstone Subsidiary of each Archstone Subsidiary and each Archstone Non- Controlled Subsidiary that is a corporation have been duly authorized, validly issued and are (A) fully paid and nonassessable and not subject to preemptive or similar rights and (B) owned free and clear of all Liens and (ii) all equity interests in each Archstone Subsidiary that is a partnership, joint venture, limited liability company or trust which are owned by Archstone, by another Archstone Subsidiary or by Archstone and another Archstone Subsidiary are owned free and clear of all Liens. Each Archstone Subsidiary that is a corporation is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the requisite corporate power and authority to own, operate, lease and encumber its properties and carry on its business as now being conducted, and each Archstone Subsidiary that is a partnership, limited liability company or trust is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has the requisite power and authority to own, operate, lease and encumber its properties and carry on its business as now being conducted. Each Archstone Subsidiary is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed, individually or in the aggregate, would not reasonably be expected to have an Archstone Material Adverse Effect. Complete and correct copies of the articles of incorporation, bylaws, organization documents and partnership, joint venture and operating agreements of each Archstone Subsidiary, as amended to the date of this Agreement, have been previously delivered or made available to Smith. 44 3.3 Capital Structure. (a) The authorized shares of beneficial interest of Archstone consist of 250,000,000 shares of beneficial interest, consisting of 232,100,000 Archstone Common Shares, 9,200,000 Archstone Series A Preferred Shares, 4,200,000 Archstone Series B Preferred Shares, 2,000,000 Archstone Series C Preferred Shares, 2,300,000 Archstone Series D Preferred Shares, 1,600,000 Archstone Series E Preferred Shares, 800,000 Archstone Series F Preferred Shares, 600,000 Archstone Series G Preferred Shares and 2,500,000 Junior Participating Preferred Shares of Beneficial Interest, $1.00 par value per share ("Archstone Participating Preferred Shares"), of Archstone. As of May 2, 2001, 120,864,151 Archstone Common Shares were issued and outstanding, 3,237,435 Archstone Series A Preferred Shares were issued and outstanding, 4,200,000 Archstone Series B Preferred Shares were issued and outstanding (all of which will be redeemed prior to May 11, 2001), 2,000,000 Archstone Series C Preferred Shares were issued and outstanding, 2,300,000 Archstone Series D Preferred Shares were issued and outstanding, no Archstone Series E Preferred Shares were issued and outstanding, no Archstone Series F Preferred Shares were issued and outstanding, no Archstone Series G Preferred Shares were issued and outstanding, and no Archstone Participating Preferred Shares were issued and outstanding. (b) Set forth in Schedule 3.3(b) to the Archstone Disclosure Letter is a true and complete list of the following: (i) each qualified or nonqualified option to purchase Archstone's shares of beneficial interest granted under the Archstone 1997 Long-Term Incentive Plan, Archstone 1996 Share Option Plan for Trustees, Archstone 1987 Share Option Plan for Outside Trustees and Archstone Communities Trust Employee Stock Purchase Plan or any other formal or informal arrangement (collectively, the "Archstone Options"); and (ii) except for the Archstone Series A Preferred Shares, Archstone Series E Preferred Units, Archstone Series F Preferred Units, Archstone Series G Preferred Units and the Archstone Participating Preferred Shares, all other warrants or other rights to acquire Archstone's shares of beneficial interest, all share appreciation rights, phantom shares, dividend equivalents, performance units and performance shares which are outstanding on the date of this Agreement. Schedule 3.3(b) to the Archstone Disclosure Letter sets forth the Archstone Options granted to Archstone's Chief Executive Officer and four other most highly compensated officers, the date of each grant, the status of each Archstone Option as qualified or nonqualified under Section 422 of the Code, the number of Archstone Common Shares subject to each Archstone Option, the number and type of Archstone's Common Shares subject to Archstone Options that are currently exercisable, the exercise price per share, and the number and type of such shares subject to share appreciation rights. On the date of this Agreement, except as set forth in this Section 3.3 or excepted therefrom or as set forth in Schedule 3.3(b) or 3.3 (d) to the Archstone Disclosure Letter, no shares of beneficial interest of Archstone were outstanding or reserved for issuance. (c) All outstanding shares of beneficial interest of Archstone are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive or similar rights under law or the Archstone Declaration of Trust or Archstone Bylaws, or any contract or instrument to which Archstone is a party or by which it is bound. There are no bonds, debentures, notes or other indebtedness of Archstone having the right to vote (or convertible into, 45 or exchangeable for, securities having the right to vote) on any matters on which shareholders of Archstone may vote. (d) Except as set forth in this Section 3.3 or in Schedule 3.3(b) or 3.3(d) to the Archstone Disclosure Letter, as of the date of this Agreement, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements (other than this Agreement), arrangements or undertakings of any kind to which Archstone or any Archstone Subsidiary is a party or by which such entity is bound, obligating Archstone or any Archstone Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of beneficial interest, voting securities or other ownership interests of Archstone or any Archstone Subsidiary or obligating Archstone or any Archstone Subsidiary to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking (other than to Archstone or an Archstone Subsidiary). (e) All dividends on Archstone Common Shares and Archstone Existing Preferred Shares, which have been declared prior to the date of this Agreement have been paid in full. (f) The New Archstone Common Shares and the New Archstone Preferred Shares to be issued by New Archstone pursuant to this Agreement have been duly authorized for issuance, and upon issuance will be duly and validly issued, fully paid, nonassessable and not subject to preemptive or similar rights under law. The Archstone Common Shares and Archstone Preferred Shares to be issued by Archstone to holders of Smith OP Units and Smith Preferred Units (other than New Archstone, as the successor to Smith in the Merger) in the Partnership Merger pursuant to this Agreement have been duly authorized for issuance, and upon issuance will be duly and validly issued, fully paid and nonassessable (except and only to the extent set forth in Section 8.5 of Annex A to the Archstone Declaration of Trust and, only in the case of a recipient of Archstone Common Shares who has undertaken a "deficit restoration obligation" pursuant to Section 13.3.B of Annex A of the Archstone Declaration of Trust, to the extent provided in Section 13.3.B, Section 13.3.C and Section 13.3.D thereof) and not subject to preemptive or similar rights under law. The Archstone Common Shares and Archstone Preferred Shares to be issued by Archstone to New Archstone in the Archstone Merger and in the Partnership Merger pursuant to this Agreement have been duly authorized for issuance, and upon issuance will be duly and validly issued, fully paid and nonassessable (except and only to the extent set forth in Sections 2.2, 5.5, 8.5 and 11.3 of Annex A to the Archstone Declaration of Trust) and not subject to preemptive or similar rights under law. 3.4 Other Interests. Except for interests in the Archstone Subsidiaries, Archstone Non-Controlled Subsidiaries and certain other entities as set forth in Schedule 3.2(a), 3.2(b) or 3.4 to the Archstone Disclosure Letter (the "Archstone Other Interests"), neither Archstone nor any of its Subsidiaries owns directly or indirectly any interest or investment (whether equity or debt) in excess of $1,000,000 individually, or $10,000,000 in the aggregate, in any corporation, partnership, joint venture, business, trust or other entity (other than investments in short-term investment securities). With respect to the Archstone Other Interests, Archstone is a partner or shareholder in good standing, and owns such interests free and clear of all Liens. Neither 46 Archstone nor any of the Archstone Subsidiaries is in material breach of any agreement, document or contract which is of a material nature governing its rights in or to the Archstone Other Interests, all of which agreements, documents and contracts are (a) listed in Schedule 3.4 to the Archstone Disclosure Letter, (b) unmodified except as described therein and (c) to the Knowledge of Archstone (as defined herein), in full force and effect. To the Knowledge of Archstone, the other parties to any such agreement, document or contract which is of a material nature are not in breach of any of their respective obligations under such agreements, documents or contracts. 3.5 Authority; Noncontravention; Consents. (a) Each of Archstone and New Archstone (collectively the "Archstone Parties") has the requisite power and authority to enter into this Agreement and, subject to the requisite shareholder approval by the holders of Archstone Common Shares of the Merger, the Archstone Merger, the Proposed Archstone Charter Amendments (as defined herein) and the amendment or adoption of any stock option plan as necessary to satisfy Archstone's and New Archstone's obligations under Section 5.8(c) (the "Archstone Shareholder Approvals" and, together with the Smith Stockholder Approvals, the "Shareholder Approvals"), to consummate the transactions contemplated by this Agreement to which each Archstone Party is a party. The execution and delivery of this Agreement by Archstone and New Archstone and the consummation by the Archstone Parties of the transactions contemplated by this Agreement to which each Archstone Party is a party have been duly authorized by all necessary action on the part of such Archstone Party, except for and subject to the Archstone Shareholder Approvals. This Agreement has been duly executed and delivered by Archstone and New Archstone and constitutes a valid and binding obligation of Archstone and New Archstone, enforceable against Archstone and New Archstone in accordance with and subject to its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity. (b) Except as set forth in Schedule 3.5(b)(1) to the Archstone Disclosure Letter and subject to receipt of the Archstone Shareholder Approvals, the execution and delivery of this Agreement by Archstone or New Archstone do not, and the consummation of the transactions contemplated by this Agreement to which any Archstone Party is a party and compliance by Archstone or New Archstone with the provisions of this Agreement will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of any Archstone Party or any Archstone Subsidiary under, (i) the Archstone Declaration of Trust or the Archstone Bylaws or the comparable charter or organizational documents or partnership, operating or similar agreement (as the case may be) of any other Archstone Party or Archstone Subsidiary, each as amended or supplemented to the date of this Agreement, (ii) any loan or credit agreement, note, bond, mortgage, indenture, reciprocal easement agreement, lease or other agreement, instrument, permit, concession, franchise or license applicable to Archstone or any Archstone Subsidiary or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following 47 sentence, any Laws applicable to Archstone or any Archstone Subsidiary or their respective properties or assets, other than, in the case of clause (ii) or (iii), any such conflicts, violations, defaults, rights, loss or Liens that individually or in the aggregate would not reasonably be expected to (x) have an Archstone Material Adverse Effect or (y) prevent or materially impair the ability of Archstone to perform any of its obligations hereunder or prevent or materially threaten or impede the consummation of the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to any Archstone Party or any Archstone Subsidiary in connection with the execution and delivery of this Agreement by Archstone or the consummation by Archstone or any Archstone Subsidiary of any of the transactions contemplated by this Agreement, except for (i) the filing with the SEC of (x) the Form S-4 (as defined herein) and (y) such reports and filings under the Securities Act and under Sections 13(a) and 13(d) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (ii) the filing and acceptance for record of the REIT Articles of Merger and the Partnership Articles of Merger by the Department, (iii) the filing of the Delaware Certificate of Merger with the Office of the Secretary of State of the State of Delaware, (iv) such filings as may be required in connection with the payment of any transfer and gains taxes and (v) such other consents, approvals, orders, authorizations, registrations, declarations and filings (A) as are set forth in Schedule 3.5(b)(2) to the Archstone Disclosure Letter or (B) as may be required under (w) the HSR Act, (x) federal, state or local environmental laws or (y) the "blue sky" laws of various states, to the extent applicable, or (C) which, if not obtained or made, would not prevent or delay in any material respect the consummation of any of the transactions contemplated by this Agreement or otherwise prevent Archstone from performing its obligations under this Agreement in any material respect or reasonably be expected to have, individually or in the aggregate, an Archstone Material Adverse Effect. 3.6 SEC Documents; Financial Statements; Undisclosed Liabilities. Archstone has filed all reports, schedules, forms, statements and other documents required to be filed with the SEC since December 31, 1997 through the date hereof (the "Archstone SEC Documents"). All of the Archstone SEC Documents (other than preliminary material), as of their respective filing dates, complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act and, in each case, the rules and regulations promulgated thereunder applicable to such Archstone SEC Documents. None of the Archstone SEC Documents at the time of filing contained, nor will any report, schedule, form, statement or other document filed by Archstone after the date hereof and prior to the Effective Time of the Merger contain, any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of Archstone and the Archstone Subsidiaries included in the Archstone SEC Documents complied, or will comply, as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been or will be prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by the applicable rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly presented, or will fairly present, in all material respects in accordance with the applicable requirements of GAAP and the applicable rules and 48 regulations of the SEC, the consolidated financial position of Archstone and the Archstone Subsidiaries, taken as a whole, as of the dates thereof and the consolidated results of operations and cash flows for the periods then ended (except, in the case of unaudited statements, as permitted by Form 10-Q under the Exchange Act). Except for liabilities and obligations set forth in the Archstone SEC Documents or in Schedule 3.6 to the Archstone Disclosure Letter, neither Archstone nor any Archstone Subsidiary has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a consolidated balance sheet of Archstone or in the notes thereto and which, individually or in the aggregate, would reasonably be expected to have an Archstone Material Adverse Effect. 3.7 Absence of Certain Changes or Events. Except as disclosed in the Archstone SEC Documents or in Schedule 3.7 to the Archstone Disclosure Letter, since December 31, 2000 (the "Archstone Financial Statement Date"), Archstone and the Archstone Subsidiaries have conducted their business only in the ordinary course (taking into account prior practices, including the acquisition of properties and issuance of securities) and there has not been (a) any circumstance, event, occurrence, change or effect that has had an Archstone Material Adverse Effect, nor has there been any circumstance, event, occurrence, change or effect that with the passage of time would reasonably be expected to result in an Archstone Material Adverse Effect, (b) except for regular quarterly distributions not in excess of $0.41 per Archstone Common Share or the stated distribution rate for each Archstone Existing Preferred Share, subject to changes pursuant to Section 5.10 and to any Corresponding Archstone Dividends and Distributions paid pursuant to Section 1.15(e)(ii) and to rounding adjustments as necessary and with customary record and payment dates, any authorization, declaration, setting aside or payment of any dividend or other distribution (whether in cash, shares or property) with respect to Archstone Common Shares or Archstone Existing Preferred Shares, (c) any split, combination or reclassification of any of Archstone's shares of beneficial interest, (d) any damage, destruction or loss, whether or not covered by insurance, that has had or would reasonably be expected to have an Archstone Material Adverse Effect or (e) any change made prior to the date of this Agreement in accounting methods, principles or practices by Archstone or any Archstone Subsidiary materially affecting its assets, liabilities or business, except insofar as may have been disclosed in the Archstone SEC Documents or required by a change in GAAP. 3.8 Litigation. Except as disclosed in the Archstone SEC Documents or in Schedule 3.8 to the Archstone Disclosure Letter, and other than personal injury and other routine tort litigation arising from the ordinary course of operations of Archstone and the Archstone Subsidiaries (a) which are covered by insurance, subject to a reasonable deductible or retention limit or (b) for which all material costs and liabilities arising therefrom are reimbursable pursuant to common area maintenance or similar agreements, there is no suit, action or proceeding pending (in which service of process has been received by an employee of Archstone or an Archstone Subsidiary) or, to the Knowledge of Archstone, threatened in writing against or affecting Archstone or any Archstone Subsidiary that, individually or in the aggregate, would reasonably be expected to (i) have an Archstone Material Adverse Effect or (ii) prevent or materially impair the ability of Archstone to perform any of its obligations hereunder or prevent or materially threaten or impair the consummation of any of the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental 49 Entity or arbitrator outstanding against Archstone or any Archstone Subsidiary having, or which, insofar as reasonably can be foreseen, in the future would have, any such effect. 3.9 Properties. (a) Except as set forth in Schedule 3.9(a) to the Archstone Disclosure Letter, Archstone or one of the Archstone Subsidiaries owns fee simple title to each of the real properties listed in the Archstone SEC Filings as owned by it (the "Archstone Properties"). (b) The Archstone Properties are not subject to any Encumbrances or Property Restrictions which reasonably could be expected to cause an Archstone Material Adverse Effect. (c) Valid policies of title insurance (or fully paid and enforceable commitments therefor) have been issued insuring Archstone's or the applicable Archstone Subsidiary's fee simple title or leasehold estate, as the case may be, to the Archstone Properties in amounts which are approximately equal to the purchase price thereof paid by Archstone or the applicable Archstone Subsidiaries therefor, except where the failure to obtain such title insurance would not reasonably be expected to have an Archstone Material Adverse Effect. Such policies are, at the date hereof, in full force and effect. No material claim has been made against any policy. (d) With respect to any Archstone Property with Five Hundred (500) units or more, Archstone has no Knowledge: (i) that it has failed to obtain a certificate, permit or license from any governmental authority having jurisdiction over such Archstone Property where such failure would reasonably be expected to have a material adverse effect on such Archstone Property or of any pending threat of modification or cancellation of any of the same which would reasonably be expected to have a material adverse effect on such Archstone Property; (ii) of any written notice of any violation of any federal, state or municipal law, ordinance, order, rule, regulation or requirement affecting such Archstone Property issued by any governmental authority which would reasonably be expected to have a material adverse effect on such Archstone Property; or (iii) that it has received written or published notice to the effect that (a) any condemnation or involuntary rezoning proceedings are pending or threatened with respect to such Archstone Property or (b) any zoning, building or similar law, code, ordinance, order or regulation is or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of such Archstone Property or by the continued maintenance, operation or use of the parking areas other than such notices, which, in the aggregate, would not reasonably be expected to have a material adverse effect on such Archstone Property. (e) With respect to Archstone Properties with less than Five Hundred (500) units, Archstone has no Knowledge: 50 (i) that it has failed to obtain certificates, permits or licenses from any governmental authority having jurisdiction over any such Archstone Properties, the absence of which, in the aggregate , would reasonably be expected to have an Archstone Material Adverse Effect or of any pending threat of modification or cancellation of any of the same which, in the aggregate, would reasonably be expected to have an Archstone Material Adverse Effect; (ii) of any written notices of any violation of any federal, state or municipal law, ordinance, order, regulation or requirement affecting such Archstone Properties issued by any governmental authority which, in the aggregate, would reasonably be expected to have an Archstone Material Adverse Effect; or (iii) that it has received written or published notice to the effect that (a) any condemnation or involuntary rezoning proceedings are pending or threatened with respect to any of such Archstone Property or (b) any zoning, building or similar law, code, ordinance, order or regulation is or will be violated by the continued maintenance, operation or use of any buildings or other improvements on any of such Archstone Properties or by the continued maintenance, operation or use of the parking areas other than such notices, which, in the aggregate, would not reasonably be expected to have an Archstone Material Adverse Effect. (f) Archstone has no Knowledge (i) of any structural defects relating to Archstone Properties, Archstone Properties whose building systems are not in working order, physical damage to any Archstone Property for which there is not insurance in effect covering the cost of the restoration and the loss of revenue (subject to a reasonable deduction or retention limit), except such structural defects, building systems not in working order and physical damage, which, in the aggregate, would not reasonably be expected to have an Archstone Material Adverse Effect. (g) Except as set forth in Schedule 3.9(g) to the Archstone Disclosure Letter, (i) all work to be performed, payments to be made and actions to be taken by Archstone or the Archstone Subsidiaries prior to the date hereof pursuant to any agreement entered into with a governmental body or authority in connection with a site approval, zoning reclassification or similar action relating to any Archstone Properties (e.g., Local Improvement District, Road Improvement District, Environmental Mitigation), have been performed, paid or taken, as the case may be, and (ii) Archstone has no Knowledge of any planned or proposed work, payments or actions that may be required after the date hereof pursuant to such agreements, in each of cases (i) and (ii) except where the failure to do so would, in the aggregate, not reasonably be expected to have an Archstone Material Adverse Effect. (h) Insurance summaries previously provided by Archstone to Smith contain a true and complete list, by type of insurance, carrier, coverages (including limits) and term, of all material policies of casualty, liability and other types of insurance (except title insurance) carried by Archstone or any Archstone Subsidiary. All such policies are in full force and effect and neither Archstone nor any Archstone Subsidiary has received from any insurance company notice of any material defects or deficiencies affecting the insurability of Archstone or any Archstone Subsidiary or any of their respective assets thereunder. 51 3.10 Environmental Matters. Except as disclosed in the Archstone SEC Documents, (i) none of Archstone, any of the Archstone Subsidiaries or, to Archstone's Knowledge, any other Person has caused or permitted the presence of any Hazardous Materials at, on or under any of the Archstone Properties, such that the presence of such Hazardous Materials (including the presence of asbestos in any buildings or improvements at the Archstone Properties) would, individually or in the aggregate, reasonably be expected to have an Archstone Material Adverse Effect; (ii) except as authorized by the Environmental Permits, there have been no Releases of Hazardous Materials at, on, under or from (A) the Archstone Properties, or (B) any real property formerly owned, operated or leased by Archstone or the Archstone Subsidiaries during the period of such ownership, operation or tenancy, which would, individually or in the aggregate, reasonably be expected to have an Archstone Material Adverse Effect; (iii) (y) Archstone and the Archstone Subsidiaries have not failed to comply with all Environmental Laws, and (z) neither Archstone nor any of the Archstone Subsidiaries has any liability under the Environmental Laws, except in each of cases (y) and (z) to the extent such failure to comply or any such liability, individually or in the aggregate, would not reasonably be expected to have an Archstone Material Adverse Effect; and (iv) Archstone and the Archstone Subsidiaries have been duly issued, and currently have and will maintain through the Merger Closing Date, all Environmental Permits necessary to operate their businesses as currently operated except where the failure to obtain and maintain such Environmental Permits would not, individually or in the aggregate, reasonably be expected to have an Archstone Material Adverse Effect. Archstone and the Archstone Subsidiaries have timely filed applications for all Environmental permits. 3.11 Taxes. (a) Each of Archstone, the Archstone Subsidiaries and the Archstone Non-Controlled Subsidiaries (i) has filed all Tax returns and reports required to be filed by it (after giving effect to any filing extension properly granted by a Governmental Entity having authority to do so), and all such returns and reports are accurate and complete in all material respects, (ii) has paid (or Archstone has paid on its behalf) all Taxes shown on such returns and reports as required to be paid by it and (iii) has complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441, 1442, 1445, 1446, 3121, and 3402 of the Code or similar provisions under any foreign laws) and has, within the time period prescribed by law, withheld and paid over to the proper governmental entities all amounts required to be so withheld and paid over under applicable laws and regulations, except, with respect to all of the foregoing, where the failure to file such tax returns or reports or failure to pay such Taxes or failure to comply with such requirements would not reasonably be expected 52 to have an Archstone Material Adverse Effect. The most recent audited financial statements contained in the Archstone SEC Documents reflect an adequate reserve for all material Taxes payable by Archstone, the Archstone Subsidiaries and the Archstone Non-Controlled Subsidiaries for all taxable periods and portions thereof through the date of such financial statements. Since the Archstone Financial Statement Date, to Archstone's Knowledge, Archstone has incurred no liability for Taxes under Sections 857(b), 860(c) or 4981 of the Code, including without limitation any Tax arising from a prohibited transaction described in Section 857(b)(6) of the Code, and none of Archstone, any Archstone Subsidiary or any Archstone Non-Controlled Subsidiary has incurred any material liability for Taxes other than in the ordinary course of business. No event has occurred, and no condition or circumstance exists, which presents a material risk that any material Tax described in the preceding sentence will be imposed upon Archstone, any Archstone Subsidiary or any Archstone Non-Controlled Subsidiary. None of Archstone, any Archstone Subsidiary or any Archstone Non-Controlled Subsidiary is the subject of any audit, examination, or other proceeding in respect of federal income Taxes, and to Archstone's Knowledge, no audit, examination or other proceeding in respect of federal income Taxes involving Archstone, any Archstone Subsidiary or any Archstone Non-Controlled Subsidiary is being considered by any Tax authority; and except as set forth on Schedule 3.11(a) to the Archstone Disclosure Letter, no audit, examination or other proceeding in respect of federal income Taxes involving Archstone, any Archstone Subsidiary or any Archstone Non-Controlled Subsidiary has occurred. To the Knowledge of Archstone, no deficiencies for any Taxes have been proposed, asserted or assessed against Archstone, any of the Archstone Subsidiaries or any Archstone Non-Controlled Subsidiary, and no requests for waivers of the time to assess any such Taxes are pending. (b) Archstone (i) for all taxable years for which the IRS could assert a tax liability, has been subject to taxation as a REIT within the meaning of Section 856 of the Code and has qualified as a REIT for all such years, (ii) has operated since December 31, 2000 to the date of this representation, and intends to continue to operate, in such a manner as to qualify as a REIT for its taxable year that and (iii) has not taken or omitted to take any action which would reasonably be expected to result in a challenge to its status as a REIT and, to Archstone's Knowledge, no such challenge is pending or threatened. New Archstone (i) has operated since its formation to the date of this representation, and intends to continue to operate, in such a manner as to qualify as a REIT for the taxable year that includes the Closing Date and (ii) has not taken or omitted to take any action which would reasonably be expected to result in a challenge to its status as a REIT and, to Archstone's Knowledge, no such challenge is pending or threatened. Each Archstone Subsidiary which is a partnership, joint venture or limited liability company, at all times since it became an Archstone Subsidiary, (A)(i) has been treated for federal income tax purposes as a partnership or as an entity that is disregarded for federal income tax purposes and not as a corporation or as an association taxable as a corporation and (ii) has not owned any assets (including, without limitation, securities) that would cause Archstone to violate Section 856(c)(4) of the Code or (B)(i) has been treated for federal income tax purposes as a corporation and that qualifies as a REIT within the meaning of Section 856 of the Code, a qualified REIT subsidiary under Section 856(i) of the Code, or a taxable REIT Subsidiary under Section 856(l) of the Code. Archstone Partnership is not a publicly traded partnership within the meaning of Section 7704(b) of the Code that is taxable as a corporation pursuant to Section 53 7704(a) of the Code. Each Archstone Subsidiary which is a corporation has been since it became an Archstone Subsidiary, and each other issuer of securities in which Archstone holds securities (within the meaning of Section 856(c) of the Code but excluding "straight debt" of issuers described in Section 856(c)(7)) having a value of more than 10 percent of the total value of the outstanding securities of such issuer is a qualified REIT subsidiary under Section 856(i) of the Code or a taxable REIT subsidiary under Section 856(l) of the Code. Except as set forth in Schedule 3.11(b) to the Archstone Disclosure Letter, neither Archstone nor any Archstone Subsidiary holds any asset (x) the disposition of which would be subject to rules similar to Section 1374 of the Code as a result of an election under IRS Notice 88-19 or Temporary Treas. Reg. (S)1.337(d)-5T or (y) which is subject to a consent filed pursuant to Section 341(f) of the Code and the regulations thereunder. (c) To Archstone's knowledge, as of the date hereof, Archstone is a "domestically-controlled REIT" within the meaning of Section 897(h)(4)(B) of the Code. (d) There are no liens for Taxes upon the assets of Archstone, the Archstone Subsidiaries or the Archstone Non-Controlled Subsidiaries. (e) Neither Archstone nor any Archstone Subsidiary is a party to any Tax allocation or sharing agreement. (f) Archstone does not have any liability for the Taxes of any person other than Archstone, the Archstone Subsidiaries and Archstone Non-Controlled Subsidiaries, the Archstone Subsidiaries and the Archstone Non-Controlled Subsidiaries do not have any liability for the Taxes of any person other than Archstone, the Archstone Subsidiaries and the Archstone Non-Controlled Subsidiaries (A) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), (B) as a transferee or successor, (C) by contract, or (D) otherwise. (g) Since Archstone's taxable year which ended December 31, 1996, Archstone has qualified as a REIT, and commencing on January 1, 1997, and all times thereafter, Archstone qualified as an association described in Treasury Regulation (S)301.7701-2(b)(2) pursuant to Treasury Regulation (S)301.7701- 3(b)(3)(i), and Archstone has not made any election pursuant to Treasury Regulation (S)301.7701-3(c)(1)(i) to change its classification from that of an association. Archstone is currently eligible to change its classification from that of an association to that of a partnership or an entity that is classified as an entity disregarded as separate from its owner, without being subject to the limitations imposed by Treasury Regulation (S)301.7701-3(c)(1)(iv). (h) Archstone and the Archstone Subsidiaries have disclosed to the IRS all positions taken on its federal income Tax returns which could reasonably be expected to give rise to a substantial understatement of Tax under Section 6662 of the Code. 3.12 Brokers, Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other Person, other than Morgan Stanley & Co. Incorporated, the fees and expenses of 54 which will be paid by Archstone and are described in the engagement letter dated April 23, 2001, between Morgan Stanley & Co. Incorporated and Archstone, a true, correct and complete copy of which has previously been given to Smith, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Archstone or any Archstone Subsidiary. 3.13 Compliance with Laws. Neither Archstone nor any of the Archstone Subsidiaries has violated or failed to comply with any statute, law, ordinance, regulation, rule, judgment, decree or order of any Governmental Entity applicable to its business, properties or operations, except in each case to the extent that such violation or failure would not reasonably be expected to have an Archstone Material Adverse Effect. 3.14 Contracts; Debt Instruments. Neither Archstone nor any Archstone Subsidiary has received a written notice that Archstone or any Archstone Subsidiary is in violation of or in default under (nor to the Knowledge of Archstone does there exist any condition which upon the passage of time or the giving of notice or both would cause such a violation of or default under) any material loan or credit agreement, note, bond, mortgage, indenture, lease, permit, concession, franchise, license or any other material contract, agreement, arrangement or understanding, to which it is a party or by which it or any of its properties or assets is bound, nor to the Knowledge of Archstone does such a violation or default exist, except as set forth on Schedule 3.14 to the Archstone Disclosure Letter or to the extent such violation or default, individually or in the aggregate, would not reasonably be expected to have an Archstone Material Adverse Effect. 3.15 Opinion of Financial Advisor. Archstone has received the opinion of Morgan Stanley & Co. Incorporated, Archstone's financial advisor, to the effect that the consideration to be paid by Archstone and New Archstone in connection with the Mergers is fair, from a financial point of view, to Archstone. 3.16 State Takeover Statutes. Archstone has taken and New Archstone will take all action necessary to exempt the transactions contemplated by this Agreement between Archstone and Smith and its Affiliates from the operation of Takeover Statutes. 3.17 Investment Company Act of 1940. Neither Archstone, New Archstone nor any of the Archstone Subsidiaries is, or at the Effective Time of the Merger will be, required to be registered under the 1940 Act. 3.18 Definition of "Knowledge of Archstone". As used in this Agreement, the phrase "Knowledge of Archstone" (or words of similar import) means the actual knowledge of those individuals identified in Schedule 3.18 to the Archstone Disclosure Letter. 3.19 Required Shareholder Approvals. The affirmative vote of the holders of not less than a majority of all votes entitled to be cast by holders of Archstone Common Shares outstanding and entitled to vote and voting together as a single class is the only vote of the holders of any class or series of Archstone capital shares or New Archstone capital shares of or on behalf of Archstone or New Archstone necessary or required under this Agreement or under 55 applicable law to approve the Merger, the Archstone Merger, this Agreement, the proposed amendments to the Archstone Declaration of Trust, substantially in the form of Exhibit F, which have been approved by the Board of Trustees of Archstone (the "Proposed Archstone Charter Amendments"), the amendment or adoption of any stock option plan as necessary to satisfy Archstone's and New Archstone's obligations under Section 5.8(c) and the other matters contemplated hereby. ARTICLE 4 COVENANTS 4.1 Conduct of Smith's and Smith Partnership's Business Pending Merger. During the period from the date of this Agreement to the Effective Times, except as consented to in writing by Archstone or as contemplated in this Agreement, Smith and Smith Partnership shall, and shall cause (or, in the case of Smith Subsidiaries and Smith Non-Controlled Subsidiaries that Smith or Smith Partnership do not control, shall use commercially reasonable efforts to cause) each of the Smith Subsidiaries and each of the Smith Non-Controlled Subsidiaries to: (a) conduct its business only in the usual, regular and ordinary course and in substantially the same manner as heretofore conducted, except for such changes as are expressly required by this Agreement; (b) use commercially reasonable efforts to preserve intact its business organizations and goodwill and, provided it does not require additional compensation, keep available the services of its officers and employees; (c) confer on a regular basis with one or more representatives of Archstone to report operational matters of materiality and, subject to Section 4.3, any proposals to engage in material transactions; (d) promptly notify Archstone of the occurrence or existence of any circumstance, event, occurrence, change or effect that has had or would reasonably be expected to have a Smith Material Adverse Effect; (e) promptly deliver to Archstone true and correct copies of any report, statement, schedule or other document filed with the SEC subsequent to the date of this Agreement; (f) maintain its books and records in accordance with GAAP consistently applied and not change in any material manner any of its methods, principles or practices of accounting in effect at the Smith Financial Statement Date, except as may be required by the SEC, applicable law or GAAP; (g) duly and timely file all reports, tax returns and other documents required to be filed with federal, state, local and other authorities, subject to extensions permitted by law, provided Smith notifies Archstone that it is availing itself of such extensions and provided such 56 extensions do not adversely affect Smith's status as a qualified REIT under the Code; (h) except as set forth in Schedule 4.1(h) to the Smith Disclosure Letter, maintain in full force and effect insurance coverage substantially similar to insurance coverage maintained on the date hereof; (i) unless required by law or necessary to either (1) preserve Smith's status as a REIT, or (2) qualify or preserve the status of any Smith Subsidiary as a partnership for federal income tax purposes, as a qualified REIT subsidiary under Section 856(i) of the Code, or as a taxable REIT subsidiary under Section 856(l) of the Code, as the case may be (in which event Smith or the applicable Smith Subsidiary shall not fail to make such election in a timely manner) neither (A) make or rescind any express or deemed election relative to Taxes (except for the Election), (B) settle or compromise any material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, except where such settlement or compromise will not materially and adversely affect Smith, the Smith Subsidiaries or the Smith Non- Controlled Subsidiaries, nor (C) change in any material respect any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of its federal income tax returns that have been filed for prior taxable years, except as may be required by applicable law or except for changes that are reasonably expected not to have a Smith Material Adverse Effect. (j) except as set forth in Schedule 4.1(j) to the Smith Disclosure Letter, not (1) acquire, enter into any option to acquire, or exercise an option or other right or election or enter into any other commitment or contractual obligation (each, a "Commitment") for the acquisition of any real property except (A) as permitted in a property capital budget approved in writing by Archstone or delivered to Archstone as provided for in Section 2.18(f) or (B) other transactions involving consideration of less than $10,000,000 in the aggregate for all such transactions, (2) encumber assets or commence construction of, or enter into any Commitment to develop or construct other real estate projects, except (A) ongoing renovations or capital repair projects as described on Schedule 4.1(j) or (B) in the ordinary course of its leasing activities consistent with past practice, (3) incur or enter into any Commitment to incur additional indebtedness (secured or unsecured) except for (A) refinancing or replacement of any existing indebtedness in the ordinary course of business consistent with past practices on commercially reasonable terms for the matters set forth on Schedule 4.1(j), (B) working capital under its revolving line(s) of credit or other indebtedness which is secured by a second mortgage on any Smith Property and (C) Commitments for indebtedness in connection with the matters described on Schedule 4.1(j); provided, however, the aggregate indebtedness outstanding of Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries (including any additional indebtedness permitted pursuant to Section 4.1(j)(3)(B) and Section 4.1(j)(3)(C)) shall at no time prior to September 30, 2001 exceed $1,600,000,000 and at no time prior to March 30, 2002 exceed $1,750,000,000, or (4) materially modify, amend or terminate or enter into any Commitment to materially modify, amend or terminate, any indebtedness (secured or unsecured) in existence as of the date hereof except as provided in this Section 4.1(j). (k) not amend the Smith Articles or the Smith Bylaws, or the articles or 57 certificate of incorporation, bylaws, code of regulations, partnership agreement, operating agreement or joint venture agreement or comparable charter or organization document of any Smith Subsidiary or any Smith Non-Controlled Subsidiary except to the extent necessary to reflect the admission of additional limited partners in connection with transfers or conversions of interests as required by any contract or agreement of Smith, any Smith Subsidiary or any Smith Non-Controlled Subsidiaries in effect as of the date hereof and except as permitted by this Agreement; (l) except in connection with, and as permitted by the Recapitalization Agreement, not classify or re-classify any unissued shares of stock; make no change in the number of shares of stock, membership interests or units of limited partnership interest issued and outstanding, other than pursuant to (i) the exercise of options disclosed in Schedule 2.3 to the Smith Disclosure Letter; (ii) the redemption of Smith OP Units under the Smith Partnership Agreement solely for shares of Smith Common Stock unless, and only to the extent that, such redemption solely for shares of Smith Common Stock would reasonably be expected to cause Smith not to qualify as a REIT for federal income tax purposes; (iii) the conversion of Smith Preferred Shares or Smith Preferred Units; (iv) the issuance of up to 350,000 shares of Smith in connection with acquisitions of property by CESI or its Subsidiaries (and the corresponding issuance of OP Units); or (v) except as permitted by this Agreement; (m) except as set forth in Schedule 4.1(m) to the Smith Disclosure Letter, grant no options or other right or commitment relating to its shares of capital stock, membership interests or units of limited partnership interest or any security convertible into its shares of capital stock, membership interests or units of limited partnership interest, or any security the value of which is measured by shares of beneficial interest, or any security subordinated to the claim of its general creditors and not amend or waive any rights under any of the Smith Stock Options or Smith Stock Rights; (n) except as provided in Section 5.10 and in connection with the use of Smith Common Stock to pay the exercise price or tax withholding in connection with equity-based employee benefit plans by the participants therein, not (i) authorize, declare, set aside or pay any dividend or make any other distribution or payment with respect to any Smith Common Stock, Smith Preferred Stock, Smith OP Unit or Smith Preferred OP Unit or (ii) directly or indirectly redeem, purchase or otherwise acquire any shares of stock, membership interests or units of partnership interest or any option, warrant or right to acquire, or security convertible into, shares of stock, membership interests or units of partnership interest of Smith or any Smith Subsidiary, except for redemptions of Smith OP Units, whether or not outstanding on the date of this Agreement, under the Smith Partnership Agreement in which solely Smith Common Stock is utilized; (o) not sell, lease, mortgage, subject to Lien (or, in the case of an involuntary Lien, fail to have such Lien removed within 30 days of the creation thereof) or otherwise dispose of any of the Smith Properties, except in connection with (i) a transaction that is permitted by Section 4.1(j), (ii) a transaction that is made in the ordinary course of business and is the subject of a binding contract in existence on the date of this Agreement and disclosed in Schedule 2.18 to 58 the Smith Disclosure Letter or (iii) in connection with leasing activities consistent with past practice or good business judgment; (p) not sell, lease, mortgage, subject to Lien or otherwise dispose of any of its personal property or intangible property, except in the ordinary course of business and is not material, individually or in the aggregate; (q) except as set forth in Schedule 4.1(q) to the Smith Disclosure Letter, not (i) make any loans, advances or capital contributions to, or investments in, any other Person, other than loans, advances and capital contributions to those Smith Subsidiaries or Smith or Smith Non-Controlled Subsidiaries or its partners that are in existence or are contractually committed on the date hereof and ordinary course expense advances to employees and except in connection with a transaction permitted by Section 4.1(j), or (ii) enter into any new, or amend or supplement any existing, contract, lease or other agreement with any Smith Non-Controlled Subsidiary other than in the ordinary course of business consistent with past practice; (r) not pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction of claims, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) furnished to Archstone or incurred in the ordinary course of business consistent with past practice or as otherwise permitted under the terms of this Agreement; (s) except in connection with the transactions that are permitted by Section 4.1(j), not guarantee the indebtedness of another Person, enter into any "keep well" or other agreement to maintain any financial statement condition of another Person or enter into any arrangement having the economic effect of any of the foregoing; (t) except as set forth in Schedule 4.1(t) to the Smith Disclosure Letter, not enter into any Commitment with any officer, director or Affiliate of Smith or any of the Smith Subsidiaries or Smith Non-Controlled Subsidiaries, which, if entered into prior to the date hereof, would have been required to be disclosed on Schedule 2.11 to the Smith Disclosure Letter, or is with a consultant; (u) not increase any compensation, pay any bonuses or enter into or amend any employment, severance or other similar arrangement with any of its officers, directors or employees earning more than $100,000 per annum, other than as required by any contract or Employee Plan; (v) except as set forth in Schedule 4.1(v) to the Smith Disclosure Letter, not adopt any new employee benefit plan, policy, program or arrangement or amend any existing Employee Plans or rights; (w) not settle any stockholder derivative or class action claims arising out of 59 or in connection with any of the transactions contemplated by this Agreement; (x) not change the ownership of any of its Subsidiaries or any of its Non-Controlled Subsidiaries, except (i) changes contemplated by this Agreement, (ii) changes which arise as a result of the acquisition of Smith OP Units in exchange for Smith Common Stock pursuant to exercise of the Smith OP Unit redemption right under the Smith Partnership Agreement or (iii) changes by parties other than Smith, any of the Smith Subsidiaries or any of the Smith Non- Controlled Subsidiaries; (y) not accept a promissory note in payment of the exercise price payable under any option to purchase shares of Smith Common Stock; (z) not enter into any Tax Protection Agreement; (aa) not settle or compromise any material federal, state, local or foreign tax liability; and (bb) not authorize or publicly announce an intention to do any of the foregoing prohibited actions, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing prohibited actions. 4.2 Conduct of Archstone's Business Pending Merger. During the period from the date of this Agreement to the Effective Times, except as consented to in writing by Smith or as contemplated in this Agreement, Archstone shall, and shall cause (or, in the case of Archstone Subsidiaries and Archstone Non- Controlled Subsidiaries that Archstone does not control, shall use commercially reasonable efforts to cause) each of the Archstone Subsidiaries and Archstone Non-Controlled Subsidiaries to: (a) conduct its business only in the usual, regular and ordinary course and in substantially the same manner as heretofore conducted, except for such changes as are expressly required by this Agreement; (b) use commercially reasonable efforts to preserve intact its business organizations and goodwill and keep available the services of its officers and employees; (c) confer on a regular basis with one or more representatives of Smith to report operational matters of materiality and, subject to Section 4.3, any proposals to engage in material transactions; (d) promptly notify Smith of the occurrence or existence of any circumstance, event, occurrence, change or effect that has had or would reasonably be expected to have an Archstone Material Adverse Effect; (e) promptly deliver to Smith true and correct copies of any report, statement, schedule or other document filed with the SEC subsequent to the date of this Agreement; 60 (f) maintain its books and records in accordance with GAAP consistently applied and not change in any material manner any of its methods, principles or practices of accounting in effect at the Archstone Financial Statement Date, except as may be required by the SEC, applicable law or GAAP; (g) duly and timely file all reports, tax returns and other documents required to be filed with federal, state, local and other authorities, subject to extensions permitted by law, provided such extensions do not adversely affect Archstone's status as a qualified REIT under the Code; (h) except as set forth in Schedule 4.2(h) to the Archstone Disclosure Letter, maintain in full force and effect insurance coverage substantially similar to insurance coverage maintained on the date hereof, (i) unless required by law or necessary to either (1) preserve Archstone's status as a REIT, or (2) qualify or preserve the status or any Archstone Subsidiary as a partnership for federal income tax purposes, as a qualified REIT subsidiary under Section 856(i) of the Code, or as a taxable REIT subsidiary under Section 856(l) of the Code, as the case may be (in which event Archstone or the applicable Archstone Subsidiary shall not fail to make such election in a timely manner), neither (A) make or rescind any express or deemed election relative to Taxes (except for the Election) nor (B) change in any material respect any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of its federal income tax returns that have been filed for prior taxable years, except as may be required by applicable law or except for changes that are reasonably expected not to have an Archstone Materially Adverse Effect; (j) except as contemplated by this Agreement and except as set forth in Schedule 4.2(j) to the Archstone Disclosure Letter, not classify or re- classify any unissued shares of beneficial interest; make no change in the number of shares of beneficial interest issued and outstanding, (i) other than pursuant to the exercise of options disclosed in Schedule 3.3 to the Archstone Disclosure Letter or (ii) except as permitted by this Agreement; (k) except as provided in Section 5.10 hereof and in connection with the use of Archstone Common Shares to pay the exercise price or tax withholding in connection with equity-based employee benefit plans by the participants therein or as set forth in Schedule 4.2(l), not (i) authorize, declare, set aside or pay any dividend or make any other distribution or payment with respect to any Archstone Common Shares or (ii) directly or indirectly redeem, purchase or otherwise acquire any shares of beneficial interest, membership interests or units of partnership interest or any option, warrant or right to acquire, or security convertible into, shares of beneficial interest, membership interests, or units of partnership interest of Archstone or any Archstone Subsidiary, except for redemptions of Archstone Common Shares required under the Archstone Declaration of Trust in order to preserve the status of Archstone as a REIT under the Code; 61 (l) except as contemplated by this Agreement and except as set forth on Schedule 4.2(l) to the Archstone Disclosure Letter, not adopt any new employee benefit plan, policy, program or arrangement or amend any existing plans or rights; (m) not settle any stockholder derivative or class action claims arising out of or in connection with any of the transactions contemplated by this Agreement; (n) not (A) enter into or agree to effect any merger, acquisition, consolidation, reorganization, or other business combination with any third party in which Archstone is not the surviving party thereto or (B) enter into or agree to effect any merger, acquisition, exchange offer or other business combination with a third party in which Archstone is the surviving party that would result in the issuance of equity securities representing in excess of 15% of the outstanding Archstone Common Shares on the date any such business combination is entered into or agreed to unless, in either such case, such business combination is approved by Smith, which approval shall not be unreasonably withheld or delayed; (o) except for the Archstone Declaration of Trust, the Archstone Bylaws, the New Archstone Declaration of Trust, the New Archstone Bylaws, the Proposed Archstone Charter Amendments or as set forth on Schedule 4.2(o) to the Archstone Disclosure Letter, not amend the respective declaration of trust or bylaws of Archstone or New Archstone; or (p) not authorize or publicly announce an intention to do any of the foregoing prohibited actions, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing prohibited actions. 4.3 No Solicitation. (a) On and after the date hereof and prior to the Effective Time of the Mergers, Smith (for itself and in its capacity as the sole general partner of Smith Partnership) agrees that: (i) none of it, any of its Subsidiaries (including Smith Partnership) or any of its Non-Controlled Subsidiaries shall invite, initiate, solicit or encourage, directly or indirectly, any inquiries, proposals, discussions or negotiations or the making or implementation of any proposal or offer (including, without limitation, any proposal or offer to its stockholders) with respect to any direct or indirect (A) merger, consolidation, business combination, reorganization, recapitalization, liquidation, dissolution or similar transaction, (B) sale, acquisition, tender offer, exchange offer (or the filing of a registration statement under the Securities Act in connection with such an exchange offer), share exchange or other transaction or series of related transactions that, if consummated, would result in the issuance of securities representing, or the sale, exchange or transfer of, 15% or more of the outstanding voting equity securities of Smith or outstanding partnership interests of Smith Partnership (including, without limitation, partnership interests and units), except an underwritten public offering of Smith Common Stock, for cash, or (C) sale, lease, exchange, mortgage, pledge, transfer or other disposition ("Transfer") of any assets of Smith or Smith Partnership in one or a series of related transactions that, if consummated, would result in the Transfer of more than 15% of the assets of 62 Smith or Smith Partnership, other than the Mergers (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal"), or engage in any discussions or negotiations with or provide any confidential or non-public information or data to, or afford access to properties, books or records to, any Person relating to, or that may reasonably be expected to lead to, an Acquisition Proposal, or enter into any letter of intent, agreement in principle or agreement relating to an Acquisition Proposal, or propose publicly to agree to do any of the foregoing, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal (including, without limitation, by amending or granting any waiver under, the Smith Rights Agreement); (ii) Smith will use its best efforts to cause any officer, director, employee, affiliate, agent, investment banker, financial advisor, attorney, accountant, broker, finder, consultant or other agent or representative of itself or any of its Subsidiaries (including Smith Partnership) or any of its Non-Controlled Subsidiaries (each, a "Representative") not to engage in any of the activities described in Section 4.3(a)(i); (iii) (A) it, any of its Subsidiaries (including Smith Partnership) and any of its Non-Controlled Subsidiaries will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any Persons conducted heretofore with respect to any of the foregoing (including, without limitation, any Acquisition Proposal) and will take commercially reasonable actions to inform each of its Representatives, and each of the Persons referred to in Section 4.3(b), of the obligations undertaken in this Section 4.3 and to cause each of its Representatives to comply with such obligations, and (B) it shall promptly request each Person, if any, that has executed a confidentiality agreement within the twenty-four months prior to the date hereof in connection with its consideration of any Acquisition Proposal to return or destroy all confidential information heretofore furnished to such Person by or on behalf of it, any of its Subsidiaries (including Smith Partnership), and any of its Non-Controlled Subsidiaries; and (iv) it will (A) notify Archstone promptly (but in any event within 24 hours), orally and in writing, if it, any of its Subsidiaries (including Smith Partnership), any of its Non-Controlled Subsidiaries or any of its Representatives receive (1) an Acquisition Proposal or any amendment or change in any previously received Acquisition Proposal, (2) any request for confidential or nonpublic information or data relating to, or for access to the properties, books or records of, any of its Subsidiaries (including Smith Partnership), or any of its Non-Controlled Subsidiaries by any Person that has made, or to Smith's knowledge may be considering making, an Acquisition Proposal, or (3) any oral or written expression that any such activities, discussions or negotiations are sought to be initiated or continued with it, and, as applicable, include in such notice the identity of the Person making such Acquisition Proposal, indication or request, the material terms of such Acquisition Proposal, indication or request and, if in writing, shall promptly deliver to Archstone copies of any proposals, indications of interest, indication or request along with all other related documentation and correspondence; and (B) will keep Archstone informed of the status and material terms of (including all changes to the status or material terms of) any such Acquisition Proposal, indication or request. 63 (b) Notwithstanding Section 4.3(a), the Board of Directors of Smith (including with respect to Smith's capacity as the sole general partner of Smith Partnership) shall not be prohibited from furnishing information to or entering into discussions or negotiations with, any Person that makes a bona fide written Acquisition Proposal to the Board of Directors of Smith after the date hereof which was not invited, initiated, solicited or encouraged, directly or indirectly, by it, any of its Subsidiaries (including Smith Partnership), any of its Non-Controlled Subsidiaries or any of its Representatives on or after the date hereof, if, and only to the extent that (i) a majority of the Board of Directors of Smith determines in good faith, after consultation with its financial advisors of nationally recognized reputation and outside legal counsel, that such Acquisition Proposal is reasonably likely to result in a Superior Acquisition Proposal (as defined herein), (ii) Smith (including Smith Partnership) complies with all of its obligations under this Agreement, (iii) prior to furnishing such information to, or entering into discussions or negotiations with, such Person, Smith provides written notice to Archstone to the effect that it is furnishing information to, or entering into discussions with such Person and (iv) Smith enters into a confidentiality agreement with such Person the material terms of which are (without regard to the terms of such Acquisition Proposal) in all material respects no less favorable to such party, and no less restrictive to the Person making such Acquisition Proposal, than those contained in the Confidentiality Agreement, dated April 19, 2001, between Smith and Archstone (the "Confidentiality Agreement"). (c) Notwithstanding anything to the contrary set forth in Section 4.3(a) or 4.3(b), in the event that an Acquisition Proposal constitutes a Superior Acquisition Proposal (as defined herein), nothing contained in this Agreement shall prohibit the Board of Directors of Smith from withdrawing, modifying, amending or qualifying its recommendation of this Agreement and the Merger as required under Section 5.1(d) hereof and recommending such Superior Acquisition Proposal to its stockholders: (i) if but only if, Smith: (A) complies fully with this Section 4.3 and (B) provides Archstone with at least three (3) business days' prior written notice of its intent to withdraw, modify, amend or qualify its recommendation of this Agreement or the Merger, (ii) if, in the event that during such three (3) business days Archstone makes a counter proposal to such Superior Acquisition Proposal (any such counter proposal being referred to in this Agreement as a "Counter Proposal"), Smith's Board of Directors in good faith, taking into account the advice of its outside financial advisors of nationally recognized reputation, determines (A) that the Counter Proposal is not at least as favorable to Smith's stockholders as the Superior Acquisition Proposal, from a financial point of view, or (B) the Counter Proposal is not at least as favorable generally to Smith's stockholders (taking into account all financial and strategic considerations and other relevant factors, including relevant legal, financial, regulatory and other aspects of such proposals, and the conditions, prospects and time required for completion of such proposal) as the Superior Acquisition Proposal, and (iii) Smith shall have terminated this Agreement in accordance with Section 7.1(h). (d) For all purposes of this Agreement, "Superior Acquisition Proposal" means a bona fide written proposal made by a third party to acquire, directly or indirectly, Smith (and/or Smith Partnership) pursuant to a tender or exchange offer, merger, share exchange, consolidation or sale of all or substantially all of the assets of itself and its Subsidiaries (including Smith Partnership) or otherwise (i) on terms which a majority of Smith's Board of 64 Directors determines in good faith, (A) after consultation with its financial advisors of nationally recognized reputation, are superior, from a financial point of view, to Smith's stockholders to those provided for in the Merger and (B) to be more favorable generally to Smith's stockholders (taking into account all financial and strategic considerations and other relevant factors, including relevant legal, financial, regulatory and other aspects of such proposals, and the conditions, prospects and time required for completion of such proposal) than the Merger, (ii) for which financing, to the extent required, in the reasonable judgment of Smith's Board of Directors is capable of being obtained and (iii) which Smith's Board of Directors determines in good faith is reasonably capable of being consummated. (e) Any disclosure that the Board of Directors of Smith may be compelled to make with respect to the receipt of an Acquisition Proposal in order to comply with its duties to shareholders imposed by applicable law or Rule 14d-9 or 14e-2 of the Exchange Act will not constitute a violation of this Section 4.3. (f) Nothing in this Section 4.3 shall (i) permit Smith to terminate this Agreement (except as expressly provided in Article 7) or (ii) affect any other obligations of Smith under this Agreement. 4.4 Affiliates. Prior to the Effective Time of the Merger, Smith shall cause to be prepared and delivered to Archstone a list (reasonably satisfactory to counsel for Archstone) identifying all Persons who, at the time of the Smith Stockholders Meeting and the Archstone Shareholders Meeting, may be deemed to be "affiliates" of Smith or Smith Partnership as that term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the "Rule 145 Affiliates"). Smith shall use its commercially reasonable efforts to cause each Person who is identified as a Rule 145 Affiliate in such list to deliver to Archstone on or prior to the Effective Time of the Merger a written agreement, in the form previously approved by the parties hereto, that such Rule 145 Affiliate will not sell, pledge, transfer or otherwise dispose of any New Archstone Common Shares issued to such Rule 145 Affiliate pursuant to the Merger, except pursuant to an effective registration statement under the Securities Act or in compliance with paragraph (d) of Rule 145 or as otherwise permitted by the Securities Act and except for or pursuant to pledges which are in effect as of the Merger Closing Date or pledges which are otherwise permitted under the Shareholders Agreement. New Archstone shall be entitled to place legends as specified in such written agreements on the certificates representing any New Archstone Common Shares to be received pursuant to the terms of this Agreement by such Rule 145 Affiliates who have executed such agreements and to issue appropriate stop transfer instructions to the transfer agent for the New Archstone Common Shares or Archstone Surviving Subsidiary Common Shares, issued to such Rule 145 Affiliates, consistent with the terms of such agreements. Each of Archstone Surviving Subsidiary and New Archstone shall timely file the reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the SEC thereunder, and it will take such further action as any Rule 145 Affiliate of Smith or Archstone may reasonably request, all to the extent required from time to time to enable such Rule 145 Affiliate to sell shares of beneficial interest of New Archstone received by such Rule 145 Affiliate in the Merger without registration under the Securities Act pursuant to (i) Rule 145(d)(1) under the Securities Act, as such rule may be amended from to time, or (ii) any successor rule or regulation hereafter adopted by the SEC. 65 4.5 Other Actions. Each of Smith and Smith Partnership, on the one hand, and Archstone and New Archstone, on the other hand, shall not take, and shall use commercially reasonable efforts to cause their respective Subsidiaries not to take, any action that would result in (i) any of the representations and warranties of such party (without giving effect to any "knowledge" qualification) set forth in this Agreement becoming untrue such that any of the conditions to the Merger set forth in Section 6.2(a) or Section 6.3(a), as the case may be, are incapable of being satisfied or (ii) except as expressly required by Section 4.3, any of the conditions to the Merger set forth in Article 6 not being satisfied. ARTICLE 5 ADDITIONAL COVENANTS 5.1 Preparation of the Form S-4 and the Proxy Statement; Smith Stockholders Meeting, Smith Partnership Consent Solicitation and Archstone Shareholders Meeting. (a) As promptly as practicable after execution of this Agreement, (i) each of Smith and Archstone shall prepare and file with the SEC (with appropriate requests for confidential treatment, unless the parties hereto otherwise agree) under the Exchange Act, one or more joint proxy statements/prospectuses, forms of proxies and information statements (such joint proxy statement(s)/prospectus(es) and information statements together with any amendments or supplements thereto, the "Joint Proxy Statement") relating to the shareholder meeting of Smith and the shareholder meeting of Archstone, the vote of the stockholders of Smith with respect to the Merger and the shareholders of Archstone with respect to the Merger and the Archstone Merger (which shall include a vote for both the Primary Archstone Merger and the Alternative Archstone Merger), and the consent, if any, of partners of Smith Partnership in connection with any required Smith Partner Approval and (ii) in connection with the clearance by the SEC of the Joint Proxy Statement, each of Archstone, New Archstone and Smith, if applicable, shall prepare and file with the SEC under the Securities Act one or more registration statements on Form S-4 (such registration statements, together with any amendments or supplements thereto, the "Form S-4"), in which the Joint Proxy Statement will be included, as one or more prospectuses in connection with the registration under the Securities Act of (A) the New Archstone Common Shares and New Archstone Preferred Shares to be distributed to the holders of Smith Common Stock and Smith Preferred Shares in the Merger and to the holders of Archstone Shares of Beneficial Interest in the Archstone Merger and (B) the Archstone Surviving Subsidiary Class A Shares to be distributed to the holders of Smith OP Units in the Partnership Merger and the corresponding New Archstone Common Shares that may be issued upon the redemption of such Archstone Surviving Subsidiary Class A Shares pursuant to the New Archstone Declaration of Trust. The respective parties will cause the Proxy Statement and the Form 66 S-4 to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. Each of Smith, Smith Partnership, Archstone and New Archstone shall furnish all information about itself and its business and operations and all necessary financial information to the other as the other may reasonably request in connection with the preparation of the Joint Proxy Statement and the Form S-4. Each of Archstone, New Archstone and Smith, if applicable, shall use its commercially reasonable efforts, and Smith will cooperate with Archstone, to have the Form S-4 declared effective by the SEC as promptly as practicable (including clearing the Proxy Statement with the SEC). Each of Smith and Smith Partnership, on the one hand, and Archstone and New Archstone, on the other hand, agree promptly to correct any information provided by it for use in the Joint Proxy Statement and the Form S-4 if and to the extent that such information shall have become false or misleading in any material respect, and each of the parties hereto further agrees to take all steps necessary to amend or supplement the Joint Proxy Statement and the Form S-4 and to cause the Joint Proxy Statement and the Form S-4 as amended or supplemented to be filed with the SEC and to be disseminated to their respective stockholders and shareholders and partners, in each case as and to the extent required by applicable federal and state securities laws. Each of Smith, Smith Partnership, Archstone and New Archstone agrees that the information provided by it for inclusion in the Joint Proxy Statement or the Form S-4 and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of stockholders and shareholders of Smith and Archstone and at the time of the respective taking of consents, if any, of partners of Smith Partnership, 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 light of the circumstances under which they were made, not misleading. Archstone and New Archstone will advise and deliver copies (if any) to Smith, promptly after it receives notice thereof, of any request by the SEC for amendment of the Joint Proxy Statement or the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information (regardless of whether such requests relate to Archstone or New Archstone, on the one hand, or Smith or Smith Partnership, on the other hand), and Archstone and New Archstone shall promptly notify Smith, and Smith shall promptly notify Archstone, if applicable, of (i) the time when the Form S-4 has become effective, (ii) the filing of any supplement or amendment thereto, (iii) the issuance of any stop order, and (iv) the suspension of the qualification and registration of the New Archstone Common Shares, New Archstone Preferred Shares and Archstone Surviving Subsidiary Shares of Beneficial Interest issuable in connection with the Mergers or the Archstone Merger. (b) Each of Smith, Smith Partnership, Archstone and New Archstone shall use its commercially reasonable efforts to timely mail the joint proxy statement/prospectus contained in the Form S-4 to its shareholders. It shall be a condition to the mailing of the joint proxy statement/prospectus that (i) Archstone shall have received a "comfort" letter from Arthur Andersen LLP, independent public accountants for Smith and Smith Partnership, of the kind contemplated by the Statement of Auditing Standards with respect to Letters to Underwriters promulgated by the American Institute of Certified Public Accountants (the "AICPA Statement"), dated as of the date on which the Form S-4 shall become effective and as of the Effective Time of the Merger, addressed to Archstone, in form and substance reasonably satisfactory to Archstone, concerning the procedures undertaken by Arthur Andersen LLP with respect to the financial statements and information of Smith, Smith Partnership and their Subsidiaries and Non-Controlled Subsidiaries contained in the Form S-4 and the other matters contemplated by the AICPA Statement and otherwise customary in scope and substance for letters delivered by independent public accountants in connection with transactions such as those contemplated by this Agreement and (ii) Smith shall have received a "comfort" letter from 67 KPMG LLP, independent public accountants for Archstone, of the kind contemplated by the AICPA Statement, dated as of the date on which the Form S-4 shall become effective and as of the Effective Time of the Merger, addressed to Smith and Smith Partnership, in form and substance reasonably satisfactory to Smith, concerning the procedures undertaken by KPMG LLP with respect to the financial statements and information of Archstone, New Archstone and their Subsidiaries contained in the Form S-4 and the other matters contemplated by the AICPA Statement and otherwise customary in scope and substance for letters delivered by independent public accountants in connection with transactions such as those contemplated by this Agreement. Each of Smith and Smith Partnership also shall use commercially reasonable efforts to cause Hogan & Hartson L.L.P. or other counsel reasonably satisfactory to Archstone to have delivered an opinion, which opinion shall be filed as an exhibit to the Form S-4, as to the federal income tax matters described in clause (i) of Section 6.2(d) and Section 6.3(e) and such other federal income tax matters as are required to be addressed in the Form S-4 and the Joint Proxy Statement under the applicable rules of the SEC. Archstone shall use commercially reasonable efforts to cause Mayer, Brown & Platt or other counsel reasonably satisfactory to Smith to have delivered an opinion, which opinion shall be filed with the SEC as an exhibit to the Form S-4, as to the federal income tax matters described in clause (ii) of Section 6.2(d), Section 6.2(e) and Section 6.3(d) and such other federal income tax matters as are required to be addressed in the Form S-4 and the Joint Proxy Statement under the applicable rules of the SEC. Such opinions shall contain customary exceptions, assumptions and qualifications and be based upon customary representations. (c) Archstone will duly call and give notice of and, as soon as practicable following the date of this Agreement (but in no event sooner than 20 business days following the date the Joint Proxy Statement is mailed to the shareholders of Archstone), convene and hold a meeting of its shareholders (the "Archstone Shareholders Meeting") for the purpose of obtaining the Archstone Shareholder Approvals. Archstone shall, through its Board of Trustees, recommend to its shareholders approval of this Agreement, the Merger, the Archstone Merger, the Proposed Archstone Charter Amendments and the transactions contemplated by this Agreement. (d) Smith will duly call and give notice of and, as soon as practicable following the date of this Agreement (but in no event sooner than 20 business days following the date the Joint Proxy Statement is mailed to the shareholders of Smith), convene and hold a meeting of its shareholders (the "Smith Stockholders Meeting") for the purpose of obtaining the Smith Stockholder Approvals. Smith shall, through its Board of Directors, recommend to its shareholders approval of this Agreement, the Merger and the transactions contemplated by this Agreement and include such recommendation in the Proxy Statement; provided, however, that prior to the Smith Stockholders Meeting, such recommendation may be withdrawn, modified, amended or qualified if and only to the extent permitted by Section 4.3(c) hereof. (e) Archstone and Smith shall use their commercially reasonable efforts to convene their respective shareholder meetings on the same day, which day, subject to the provisions of Sections 5.1(c), 5.1(d) and 5.3, shall be a day not later than 60 days after the date the Joint Proxy Statement is mailed. 68 (f) If on the date for the Archstone Shareholders Meeting and Smith Stockholders Meeting established pursuant to Section 5.1(e) of this Agreement, either Archstone or Smith has not received duly executed proxies for a sufficient number of votes to approve the Merger, then both parties shall recommend the adjournment of their respective shareholders meetings until one or more dates not later than the date 10 days after the originally scheduled date of the shareholders meetings. (g) Smith shall request written consents for approval by the limited partners of Smith Partnership of each of the matters described in the definition of Smith Partner Approvals. Smith shall vote in favor of or consent to, as applicable, each of the matters described in the definition of Smith Partner Approvals, to the extent approval thereof is required by the Smith Partnership Agreement. Smith shall recommend to the limited partners of Smith Partnership that they approve such matters. Smith shall execute its written consent to each of the matters described in the definition of Smith Partner Approvals, on the 20th business day after mailing of the Joint Proxy Statement to holders of the Smith OP Units and Smith Preferred OP Units. 5.2 Access to Information; Confidentiality. Subject to the requirements of confidentiality agreements with third parties in existence on the date hereof, each of the parties shall, and shall cause each of its Subsidiaries and its Non-Controlled Subsidiaries to, afford to the other parties and to the officers, employees, accountants, counsel, financial advisors and other representatives of such other parties, reasonable access during normal business hours prior to the Effective Time of the Merger to all their respective properties, books, contracts, commitments, personnel and records and, during such period, each of the parties shall, and shall cause each of its Subsidiaries and its Non-Controlled Subsidiaries to, furnish promptly to the other parties (a) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws and (b) all other information concerning its business, properties and personnel as such other party may reasonably request. Within fifteen (15) business days after the end of each calendar month, Smith shall furnish to Archstone a copy of a regularly prepared financial report which sets forth the aggregate indebtedness outstanding of Smith, the Smith Subsidiaries and the Smith Non-Controlled Subsidiaries (including any additional indebtedness) as of such month end. Each of the parties shall, and shall cause its Subsidiaries and its Non-Controlled Subsidiaries to, use commercially reasonable efforts to cause its officers, employees, accountants, counsel, financial advisors and other representatives and affiliates to, hold any nonpublic information in confidence in accordance with the Confidentiality Agreement, which shall remain in full force and effect pursuant to the terms thereof, notwithstanding the execution and delivery of this Agreement or the termination hereof. 5.3 Notification. (a) Subject to the terms and conditions herein provided, Smith and Smith Partnership shall: (i) use commercially reasonable efforts to cooperate with Archstone (or following the Archstone Merger, New Archstone) in (A) determining which filings are required to be made prior to the Effective Time of the Merger with, and which consents, approvals, 69 permits or authorizations are required to be obtained prior to the Effective Time of the Merger from, governmental or regulatory authorities of the United States, the several states and foreign jurisdictions and any third parties in connection with the execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, including, without limitation, any filing under the HSR Act, and (B) timely making all such filings and timely seeking all such consents, approvals, permits and authorizations; (ii) use commercially reasonable efforts (other than the payment of money which is not contractually required to be paid) to obtain in writing any consents required from third parties to effectuate the Mergers, such consents to be in form reasonably satisfactory to each of the parties; (iii) use best efforts to obtain the Smith Stockholder Approvals and the Smith Partner Approvals; and (iv) use commercially reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Effective Time of the Merger any further action is necessary or desirable to carry out the purpose of this Agreement, Smith and Smith Partnership shall take all such necessary action. (b) Subject to the terms and conditions herein provided, Archstone and New Archstone shall: (i) use commercially reasonable efforts to cooperate with Smith and Smith Partnership in (A) determining which filings are required to be made prior to the Effective Time of the Merger with, and which consents, approvals, permits or authorizations are required to be obtained prior to the Effective Time of the Merger from, governmental or regulatory authorities of the United States, the several states and foreign jurisdictions and any third parties in connection with the execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, including, without limitation, any filing under the HSR Act, and (B) timely making all such filings and timely seeking all such consents, approvals, permits and authorizations; (ii) use commercially reasonable efforts (other than the payment of money which is not contractually required to be paid) to obtain in writing any consents required from third parties to effectuate the Archstone Merger and the Mergers, such consents to be in form reasonably satisfactory to each of the parties; (iii) use best efforts to obtain the Archstone Shareholder Approvals; and (iv) use commercially reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Effective Time of the Merger any further action is necessary or desirable to carry out the purpose of this Agreement, Archstone and New Archstone shall take all such necessary action. (c) Smith and Smith Partnership shall use commercially reasonable efforts to obtain from Arthur Andersen LLP access to all work papers relating to audits of Smith and Smith Partnership performed by Arthur Andersen LLP, and the continued cooperation of Arthur Andersen LLP with regard to the preparation of consolidated financial statements for the Surviving Trust and the Surviving Entity. (d) Smith and Smith Partnership shall give prompt notice to Archstone and New Archstone, and Archstone and New Archstone shall give prompt notice to Smith and Smith Partnership, (i) if such party becomes aware that any representation or warranty made by it 70 contained in this Agreement that is qualified as to materiality becomes untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becomes untrue or inaccurate in any material respect or (ii) of the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. 5.4 Tax Matters. (a) Each of Archstone and New Archstone shall use its commercially reasonable efforts before the effective time of the Archstone Merger to cause the Archstone Merger to qualify as one or more reorganizations under the provisions of Section 368(a)(1)(F) of the Code and to obtain the opinions of counsel referred to in Sections 6.2(e) and 6.3(e). (b) Each of Archstone, New Archstone and Smith shall use its commercially reasonable efforts before and after the Effective Time of the Merger to cause the Merger to qualify as a reorganization under the provisions of Sections 368(a) of the Code and the Partnership Merger to be treated as described in Section 1.4(b) and Sections 6.2(e) and 6.3(e) and to obtain with respect to the Mergers the opinions of counsel referred to in Sections 6.2(e) and 6.3(e). (c) Archstone Surviving Subsidiary shall elect pursuant to Treasury Regulation (S) 301.7701-3(c)(1)(i) to be treated either as a domestic eligible entity with a single owner electing to be disregarded as a separate entity or as a partnership, as applicable, effective not later than one day prior to the Merger Closing Date and shall file not later than one day prior to the Merger Closing Date, a properly completed and executed Form 8832 with the Internal Revenue Service to effect such election. 5.5 Public Announcements. The initial press release to be issued with respect to the transactions contemplated by this Agreement will be in the form agreed to by the parties prior to the execution of this Agreement. Smith will consult with Archstone before issuing, and provide Archstone the opportunity to review and comment upon, any material press release or other written public statement, including, without limitation, any press release or other written public statement which addresses in any manner the transactions contemplated by this Agreement (except for releases which are consistent with prior written public statements), and shall not issue any such press release or make any such written public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange. 5.6 Listing. New Archstone shall use commercially reasonable efforts to cause the New Archstone Common Shares, New Archstone Series A Preferred Shares, New Archstone Series C Preferred Shares and New Archstone Series D Preferred Shares to be issued in the Merger (or upon redemption of Archstone Common Shares pursuant to the Archstone Declaration of Trust) to be approved for listing on the New York Stock Exchange (the "NYSE"), 71 subject to official notice of issuance, prior to the Effective Time of the Merger. 5.7 Transfer and Gains Taxes. Each party shall cooperate in the preparation, execution and filing of all returns, questionnaires, applications or other documents regarding any real property transfer or gains, sales, use, transfer, value added stock transfer and stamp taxes, any transfer, recording, registration and other fees and any similar taxes which become payable in connection with the transactions contemplated by this Agreement (together with any related interests, penalties or additions to tax, "Transfer and Gains Taxes"). From and after the Effective Time of the Merger, the Surviving Trust and the Surviving Entity shall pay or cause to be paid, without deduction or withholding from any amounts payable to the holders of New Archstone Common Shares or Archstone Surviving Subsidiary Class B Shares, all Transfer and Gains Taxes (which term shall not in any event be construed to include for these purposes any Tax imposed under the Code). 5.8 Benefit Plans and Other Employee Arrangements. (a) Benefit Plans. After the Effective Time of the Merger, all employees of Smith, the Smith Subsidiaries, any Smith Non-Controlled Subsidiaries and any Subsidiary thereof who are employed by the Surviving Entity or any of the Surviving Entity's Subsidiaries shall be eligible to participate in substantially the same manner as other similarly situated employees of the Surviving Entity or any of the Surviving Entity's Subsidiaries who were formerly employees of Archstone in any Pension Plan or Welfare Plan sponsored or maintained by the Surviving Entity or the Surviving Trust after the Effective Time of the Merger (the "Survivor Plans") or, if Archstone determines it is not practicable for such employees to do so immediately after the Effective Time of the Merger, then such employees shall continue to be eligible to participate in Employee Plans which constitute Pension Plans or Welfare Plans which are continued by the Surviving Entity or the Surviving Trust until such time as Archstone determines it is practicable to include them in the Survivor Plans as contemplated above. With respect to each Survivor Plan, service with Smith or any Smith Subsidiary (as applicable) and the predecessor of any of them shall be included for purposes of determining eligibility to participate, vesting (if applicable) and determination of the level of entitlement to (other than benefit accrual under a defined benefit plan), benefits under such Survivor Plans to the extent such service was taken into account for similar purposes under a corresponding Employee Plan. Archstone shall, or shall cause its Subsidiaries to, (i) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements of the Survivor Plan which is applicable to all employees of Smith, the Smith Subsidiaries, any Smith Non-Controlled Subsidiaries or any Subsidiary thereof who are employed by the Surviving Entity under any Welfare Plan that such employees may be eligible to participate in after the Effective Time of the Merger, other than limitations or waiting periods that are in effect with respect to such employees as of the Effective Time of the Merger under a Corresponding Employee Plan and that have not been satisfied as of the Effective Time of the Merger, and (ii) provide each such employee of Smith, the Smith Subsidiaries, any Smith Non-Controlled Subsidiaries or any Subsidiary thereof who is employed by the Surviving Entity or any of the Surviving Entity's Subsidiaries with credit for any co-payments and deductibles paid during the plan year prior to the Effective Time of the Merger under a corresponding Employer Plan for purposes of satisfying any applicable 72 deductible or out-of- pocket requirements under any Survivor Plan which is a Welfare Plan that such employees are eligible to participate in after the Effective Time of the Merger. (b) Stock Option and Restricted Stock Plans. The stock option plans or programs of Smith and the restricted stock plans or programs of Smith shall be discontinued as of the Effective Time of the Merger. (c) Smith Stock Options. Immediately prior to the date on which the Smith stockholders approve the Merger, each outstanding Smith Stock Option shall, effective as of such time, become fully vested and exercisable to the extent not already so vested and exercisable and, to the extent not otherwise provided in the applicable option agreement as permitted by applicable law, each such Smith Stock Option shall be automatically converted at the Effective Time of the Merger into an option (a "Substituted Option") to purchase a number of New Archstone Common Shares equal to the number of shares of Smith Common Stock that could have been purchased (assuming full vesting) under such Smith Stock Option multiplied by 1.975 (rounded down to the nearest whole number of shares of Smith Common Stock) at an exercise price per New Archstone Common Share equal to the per-share option exercise price specified in the Smith Stock Option divided by 1.975 (rounded up to the nearest whole cent). Such Substituted Option shall otherwise be subject to the same terms and conditions as such Smith Stock Option. For purposes of expiration and otherwise, the date of grant of the Substituted Option shall be the date on which the corresponding Smith Stock Option was granted. As soon as practicable after the date hereof and subject to applicable law, Archstone shall offer to purchase, subject to consummation of the Mergers, all outstanding Smith Stock Options from the holders thereof for an amount in cash in respect thereof equal to the product of (i) the excess, if any, of (A) $49.48 over (B) the exercise price of such Smith Stock Option and (ii) the number of shares of Smith Common Stock subject thereto. If the holder of any such Smith Stock Option tenders such option prior to 11:59 p.m., Mountain Time, on the second business day following the Effective Time of the Merger, then within seven business days after the Effective Time of the Merger, Archstone shall, subject to reduction for required withholding taxes, pay to each such tendering former holder of Smith Stock Options the purchase price thereof. As promptly as reasonably practicable after the Effective Time of the Merger, New Archstone shall issue to each holder of an outstanding Smith Stock Option a document evidencing the foregoing assumption by New Archstone. In respect of each Smith Stock Option assumed by New Archstone, but not tendered for cash, and converted into a substituted option, and the New Archstone Common Shares underlying such Substituted Option, New Archstone shall, as soon as practicable after the Effective Time of the Merger, file and keep current a Registration Statement on Form S-8 or other appropriate registration statement for as long as Substituted Options remain outstanding. (d) Smith Stock Rights. All Smith Stock Rights set forth in Schedule 5.8(d) of the Smith Disclosure Letter shall, by virtue of this Agreement and without further action of Smith, Archstone or the holder of such Smith Stock Rights, to the extent required in the plan, agreement or instrument pursuant to which such shares of restricted stock were granted, vest and become free of all restrictions immediately prior to the Effective Time of the Merger and shall be converted into the Merger Consideration upon the Effective Time of the Merger pursuant to Section 1.12. 73 5.9 Indemnification. (a) From and after the Effective Time of the Merger, the Surviving Trust and the Surviving entity (collectively, the "Indemnifying Parties") shall provide exculpation and indemnification for each individual who is now or has been at any time prior to the date hereof or who becomes prior to the Effective Time of the Merger, an officer or director of Smith or any Smith Subsidiary (the "Indemnified Parties") which is the same as the exculpation and indemnification provided to the Indemnified Parties by Smith and the Smith Subsidiaries immediately prior to the Effective Time of the Merger in its charter, Bylaws or in its partnership, operating or similar agreement, as in effect on the date hereof. (b) In addition to the rights provided in Section 5.9(a) above, in the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any action by or on behalf of any or all security holders of Smith, New Archstone, or Archstone Surviving Subsidiary or any Smith Subsidiary or Archstone Subsidiary, or by or in the right of Smith, Archstone, New Archstone, the Surviving Trust, the Surviving Entity or Archstone Surviving Subsidiary or any Smith Subsidiary or Archstone Subsidiary, or any claim, action, suit, proceeding or investigation in which any individual who is now, or has been, at any time prior to the date hereof, or who becomes prior to the Effective Time of the Merger, an officer, employee or director of Smith or any Smith Subsidiary (the "Indemnification Parties") is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that he is or was an officer, employee or director of Smith or any of the Smith Subsidiaries or any action or omission by such individual in his capacity as a director, or (ii) this Agreement or the transactions contemplated by this Agreement, whether in any case asserted or arising before or after the Effective Time of the Merger, the Indemnifying Parties shall, from and after the Effective Time of the Merger, indemnify and hold harmless, as and to the full extent permitted by applicable law, each Indemnification Party against any losses, claims, liabilities, expenses (including reasonable attorneys' fees and expenses), judgments, fines and amounts paid in settlement in accordance herewith in connection with any such threatened or actual claim, action, suit, proceeding or investigation. Any Indemnification Party proposing to assert the right to be indemnified under this Section 5.9(b) shall, promptly after receipt of notice of commencement of any action against such Indemnification Party in respect of which a claim is to be made under this Section 5.9(b) against the Indemnifying Parties, notify the Indemnifying Parties of the commencement of such action, enclosing a copy of all papers served; provided, however, that the failure to provide such notice shall not affect the obligations of the Indemnifying Parties except to the extent such failure to notify materially prejudices the Indemnifying Parties' ability to defend such claim, action, suit, proceeding or investigation; and provided further, however, that, in the case of any action pending at the Effective Time of the Merger, notification pursuant to this Section 5.9(b) shall be received by Archstone prior to such Effective Time. If any such action is brought against any of the Indemnification Parties and such Indemnification Parties notify the Indemnifying Parties of its commencement, the Indemnifying Parties will be entitled to participate in and, to the extent that they elect by delivering written notice to such Indemnification Parties promptly after receiving notice of the commencement of the action from 74 the Indemnification Parties, to assume the defense of the action and after notice from the Indemnifying Parties to the Indemnification Parties of their election to assume the defense, the Indemnifying Parties will not be liable to the Indemnification Parties for any legal or other expenses except as provided below. If the Indemnifying Parties assume the defense, the Indemnifying Parties shall have the right to settle such action without the consent of the Indemnification Parties; provided, however, that the Indemnifying Parties shall be required to obtain such consent (which consent shall not be unreasonably withheld) if the settlement includes any admission of wrongdoing on the part of the Indemnification Parties or any decree or restriction on the Indemnification Parties; provided further, however, that no Indemnifying Parties, in the defense of any such action shall, except with the consent of the Indemnification Parties (which consent shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnification Parties of a release from all liability with respect to such action. The Indemnification Parties will have the right to employ their own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such Indemnification Parties unless (i) the employment of counsel by the Indemnification Parties has been authorized in writing by the Indemnifying Parties, (ii) the Indemnification Parties have reasonably concluded (based on written advice of counsel to the Indemnification Parties) that there may be legal defenses available to them that are different from or in addition to and inconsistent with those available to the Indemnifying Parties, (iii) a conflict or potential conflict exists (based on written advice of counsel to the Indemnification Parties) between the Indemnification Parties and the Indemnifying Parties (in which case the Indemnifying Parties will not have the right to direct the defense of such action on behalf of the Indemnification Parties) or (iv) the Indemnifying Parties have not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action from the Indemnification Parties, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the Indemnifying Parties and shall promptly be paid by each Indemnifying Party as they become due and payable in advance of the final disposition of the claim, action, suit, proceeding or investigation to the fullest extent and in the manner permitted by law; provided, however, that in no event shall any contingent fee arrangement be considered reasonable. Notwithstanding the foregoing, the Indemnifying Parties shall not be obligated to advance any expenses or costs prior to receipt of an undertaking by or on behalf of the Indemnification Party to repay any expenses advanced if it shall ultimately be determined that the Indemnification Party is not entitled to be indemnified against such expense. It is understood that the Indemnifying Parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such Indemnification Parties unless (a) the employment of more than one counsel has been authorized in writing by the Indemnifying Parties, (b) any of the Indemnification Parties have reasonably concluded (based on written advice of counsel to the Indemnification Parties) that there may be legal defenses available to them that are different from or in addition to and inconsistent with those available to other Indemnification Parties or (c) a conflict or potential conflict exists (based on written advice of counsel to the Indemnification Parties) between any of the Indemnification Parties and the other Indemnification Parties, in each case of which the Indemnifying Parties shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels. 75 Notwithstanding anything to the contrary set forth in this Agreement, the Indemnifying Parties (i) shall not be liable for any settlement effected without their prior written consent and (ii) shall not have any obligation hereunder to any Indemnification Party to the extent that a court of competent jurisdiction shall determine in a final and non-appealable order that such indemnification is prohibited by applicable law. In the event of a final and non-appealable determination by a court that any payment of expenses is prohibited by applicable law, the Indemnification Parties shall promptly refund to the Indemnifying Parties the amount of all such expenses theretofore advanced pursuant hereto. (c) At or prior to the Effective Time of the Merger, Archstone and New Archstone shall purchase directors' and officers' liability insurance covering acts or omissions occurring prior to the Effective Time of the Merger for a period of six years with respect to those individuals who are currently covered by Smith's directors' and officers' liability insurance policy on terms with respect to such coverage and amount, taken together, no less favorable to Smith's directors and officers currently covered by such insurance than those of such policy in effect on the date hereof. (d) This Section 5.9 is intended for the irrevocable benefit of, and to grant third-party rights to, the Indemnified Parties, the Indemnification Parties and their successors, assigns and heirs and shall be binding on all successors and assigns of Archstone and New Archstone. Each of the Indemnified Parties and the Indemnification Parties shall be entitled to enforce the covenants contained in this Section 5.9 and Archstone and New Archstone acknowledge and agree that each Indemnified Party and Indemnification Party would suffer irreparable harm and that no adequate remedy at law exists for a breach of such covenants and such Indemnified Party or such Indemnification Party shall be entitled to injunctive relief and specific performance in the event of any breach of any provision in this Section 5.9. (e) If the Surviving Trust or the Surviving Entity or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each such case the successors and assigns of such entity shall assume the obligations set forth in this Section 5.9, which obligations are expressly intended to be for the irrevocable benefit of, and shall be enforceable by, each director and officer covered hereby. 5.10 Declaration of Dividends and Distributions. From and after the date of this Agreement, neither Smith, Archstone nor, following the Archstone Merger, New Archstone shall make any dividend or distribution to its respective shareholders without the prior written consent of the other party; provided, however, the written consent of the other party shall not be required for the authorization and payment of (a) distributions at their respective stated dividend or distribution rates with respect to Archstone Existing Preferred Shares or any series of Smith Preferred Stock, (b) quarterly distributions with respect to the Smith Common Stock of $0.585 per share for the quarter ending June 30, 2001 and each quarter thereafter and (c) quarterly distributions with respect to the Archstone Common Shares of up to $0.41 per share for the quarter ending June 30, 2001 and for each quarter thereafter; provided, however, the record date 76 for each distribution with respect to the Smith Common Stock shall be the same date as the record date for the quarterly distribution for the Archstone Common Shares, as provided to Smith by notice not less than twenty (20) business days prior to the record date for any quarterly Archstone distribution. From and after the date of this Agreement, Smith Partnership shall not make any distribution to the holders of Smith OP Units except a distribution per Smith OP Unit in the same amount as a dividend per share of Smith Common Stock permitted pursuant to this Section 5.10, with the same record and payment dates as such dividend on the Smith Common Stock. The foregoing restrictions shall not apply, however, to the extent a distribution (or an increase in a distribution) by Smith or Archstone is necessary for Smith or Archstone, as the case may be, to maintain REIT status, avoid the incurrence of any taxes under Section 857 of the Code, avoid the imposition of any excise taxes under Section 4981 of the Code, or avoid the need to make one or more extraordinary or disproportionately larger distributions to meet any of the three preceding objectives, (ii) to Archstone with respect to any Corresponding Archstone Dividend or (iii) to Smith and Smith Partnership with respect to any Smith Dividends and Smith Partnership Distributions. 5.11 Transfer or Recapitalization of Smith Non-Controlled Subsidiaries. At the Closing and pursuant to the Stock Purchase Agreement, the SMCI Voting Stock Owner shall transfer to such Person or Persons as Archstone shall designate by written notice delivered prior to the Merger Closing, or shall authorize a merger that will result in such a transfer of all of the shares of SMCI which are not owned by Smith Partnership, for an aggregate consideration in an amount equal to the purchase price per share set forth in the Stock Purchase Agreement multiplied by the number of outstanding shares of voting capital stock of SMCI. Archstone shall use commercially reasonable efforts to cause the Person or Persons so designated to perform its obligations under the Stock Purchase Agreement. At or prior to the Merger Closing and pursuant to the Recapitalization Agreement, the CESI Voting Stock Owner shall vote all of its shares of voting capital stock in CESI in favor of the recapitalization of CESI and CESI shall have been recapitalized such that Smith Partnership will have voting control of CESI as of the Merger Closing as provided in the Recapitalization Agreement. 5.12 Notices. Archstone shall provide such notice to its preferred shareholders of the Mergers, the Archstone Merger and other transactions contemplated by this Agreement as is required under Maryland law or the Archstone Declaration of Trust. Smith shall provide such notice to its preferred shareholders of the Mergers and other transactions contemplated by this Agreement as is required under Maryland law or the Smith Articles of Incorporation. 5.13 Resignations. On the Merger Closing Date, Smith shall cause the directors and officers of Smith and of each of the Smith Subsidiaries to submit their resignations from such positions, effective as of the Effective Time of the Merger. 5.14 Assumption of Existing Tax Protection Agreements. Effective as of the Effective Time of the Partnership Merger, New Archstone and Archstone Surviving Subsidiary shall assume the obligations of Smith, Smith Partnership and/or the applicable Smith Subsidiary, as the case may be, under the Tax Protection Agreements as described in Schedule 2.18(j) to the Smith Disclosure Letter. Immediately prior to the Effective Time of the Partnership Merger, 77 New Archstone and Archstone Surviving Subsidiary shall enter into agreements with Smith and Smith Partnership, for the benefit of and enforceable by the individuals and entities who are intended to be protected by the provisions of the Tax Protection Agreements, confirming such assumption effective as of the Effective Time of the Partnership Merger. 5.15 Registration Rights Agreements. At the Merger Closing, Smith shall assign and New Archstone shall assume by appropriate instrument the Registration Rights Agreements described on Schedule 5.16 to the Smith Disclosure Letter. 5.16 Exemption from Liability Under Section 16(b). (a) Provided that Smith delivers to New Archstone the Section 16 Information with respect to Smith prior to the Effective Time of the Merger, the Board of Trustees of New Archstone, or a committee thereof consisting of Non- Employee Directors (as such term is defined for purposes of Rule 16b-3(d) under the Exchange Act), shall adopt a resolution in advance of the Effective Time of the Merger providing that the receipt by the Smith Insiders of the New Archstone Common Shares in exchange for shares of Smith Common Stock, New Archstone Preferred Shares in exchange for Smith Preferred Stock and of options to purchase New Archstone Common Shares upon assumption and conversion of Smith Stock Options, in each case pursuant to the transactions contemplated hereby and to the extent such securities are listed in Section 16 Information, are intended to be exempt from liability pursuant to Rule 16b-3 under the Exchange Act. (b) For purposes of this Section 5.16, "Section 16 Information" shall mean information accurate in all respects regarding the Smith Insiders and the number of shares of Smith Common Stock, Smith Preferred Stock or other Smith equity securities deemed to be beneficially owned by each such Smith Insider and expected to be exchanged for New Archstone Common Shares or New Archstone Preferred Shares in connection with the Merger. (c) For purposes of this Section 5.16, "Smith Insiders" shall mean those officers and directors of Smith who are subject to the reporting requirements of Section 16(a) of the Exchange Act who are listed in the Section 16 Information. 5.17 Restructuring of Assets of Archstone. Prior to the Merger Closing Date, Archstone shall restructure all assets in which it or any Archstone Subsidiary owns a direct or indirect interest that on the day following the Merger Closing Date would be considered owned by New Archstone pursuant to Treasury Regulations (S) 1.856-3(g) for purposes of applying the asset prohibitions applicable to REITs under Section 856(c)(4)(B) of the Code and that would cause New Archstone to fail to satisfy one or more of the asset requirements applicable to REITs on that date if such date were the last day of a calendar quarter (determined without regard to any curative period that otherwise might be available under such Section of the Code) (the "Asset Restructuring"). 5.18 Stockholder Rights Plan. As soon as practicable after the date hereof, Archstone shall take all action necessary to terminate the exceptions to the issuance of the rights to be issued 78 pursuant to that certain Rights Agreement, dated as of July 21, 1994, as amended by First Amendment, dated as of February 8, 1995, between Archstone and Chemical Bank as rights agent. ARTICLE 6 CONDITIONS 6.1 Conditions to Each Party's Obligation to Effect the Mergers. The obligations of each party to effect the Mergers and to consummate the other transactions contemplated by this Agreement to occur on the Merger Closing Date shall be subject to the fulfillment at or prior to the Merger Closing Date of the following conditions: (a) Shareholder and Smith Partner Approvals. The Smith Stockholder Approvals, the Archstone Shareholder Approvals and the Smith Partner Approvals shall have been obtained; provided, however, that, in the case of an Archstone Merger effectuated in the form of the Alternative Archstone Merger, the Archstone Shareholder Approvals shall not include the approval by the holders of Archstone Common Shares of the Proposed Archstone Charter Amendments. (b) HSR Act. The waiting period (and any extension thereof) applicable to the Archstone Merger, the Partnership Merger, the Merger or the transactions contemplated by the Stock Purchase Agreement or the Recapitalization Agreement under the HSR Act, if applicable to the Archstone Merger, the Partnership Merger, the Merger or the transactions contemplated by the Stock Purchase Agreement or the Recapitalization Agreement, shall have expired or been terminated. (c) Listing of Shares. The NYSE shall have approved for listing the New Archstone Common Shares, New Archstone Series A Preferred Shares, New Archstone Series C Preferred Shares and New Archstone Series D Preferred Shares to be issued in the Merger, subject to official notice of issuance, prior to the Effective Time of the Merger. (d) Form S-4. The Form S-4 shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings by the SEC seeking a stop order. (e) No Injunctions or Restraints. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Archstone Merger, the Mergers or any of the other transactions contemplated hereby shall be in effect. (f) Blue Sky Laws. Archstone Surviving Subsidiary and New Archstone shall have received all state securities or "blue sky" permits and other authorizations necessary to issue the Archstone Surviving Subsidiary Common Shares, the Archstone Surviving Subsidiary Preferred Shares, the New Archstone Common Shares and the New Archstone Preferred Shares issuable in the Archstone Merger and the Mergers. 79 6.2 Conditions to Obligations of Archstone and New Archstone. The obligations of Archstone and New Archstone to effect the Mergers and to consummate the other transactions contemplated to occur on the Merger Closing Date are further subject to the following conditions, any one or more of which may be waived by Archstone: (a) Representations and Warranties. Each of the representations and warranties of Smith and Smith Partnership set forth in this Agreement, disregarding all qualifications and exceptions contained therein relating to materiality or Smith Material Adverse Effect, shall be true and correct as of the date of this Agreement and as of the Merger Closing Date as though made on and as of the Merger Closing Date (except to the extent that such representations and warranties are expressly limited by their terms to another date, in which case such representations and warranties shall be true and correct as of such other date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to have a Smith Material Adverse Effect; and New Archstone shall have received a certificate (which certificate may be qualified by "knowledge" to the same extent as the representations and warranties of Smith and Smith Partnership contained herein are so qualified) signed on behalf of Smith by the chief executive officer or the chief financial officer of Smith, in such capacity, to such effect. (b) Performance of Obligations of Smith and Smith Partnership. Smith and Smith Partnership shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Effective Time of the Merger, and Archstone shall have received a certificate signed on behalf of Smith by the chief executive officer or the chief operating officer of Smith, in such capacity, to such effect. (c) Material Adverse Effect. Since the date of this Agreement, there shall have been no Smith Material Adverse Effect and Archstone shall have received a certificate of the chief executive officer or chief operating officer of Smith, in such capacity, certifying to such effect. (d) Tax Opinions Relating to REIT Status and Partnership Status. New Archstone shall have received (i) an opinion of Hogan & Hartson L.L.P. or other counsel to Smith reasonably satisfactory to Archstone, dated as of the Merger Closing Date, to the effect that, (w) commencing with its taxable year ended December 31, 1994 through and including its taxable year ending as of the Merger Closing Date, Smith was organized and has operated in conformity with the requirements for qualification as a REIT under the Code (with customary exceptions, assumptions and qualifications and based on customary representations); and (x) Smith Partnership has been since June 30, 1994 through and including its taxable year ending as of the Merger Closing Date treated for federal income tax purposes as a partnership and not as a corporation or association taxable as a corporation (with customary exceptions, assumptions and qualifications and based upon customary representations); and (ii) an opinion of Mayer, Brown & Platt or other counsel to Archstone reasonably satisfactory to Smith, dated as of the Merger Closing Date, to the effect that, (I) in the event the Primary Archstone Merger is consummated, commencing with Archstone's taxable year ended December 31, 1994, until the time the Election is effective, Archstone was organized and has operated in conformity with the requirements for qualification as a REIT under the Code and that New Archstone's organization and proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code commencing with its taxable year ending December 31, 2001 (with customary exceptions, assumptions and qualifications and based upon customary representations and based upon and subject to the opinions of counsel to Smith described in clause (i) above) or (II) in the event the Alternative Archstone Merger is consummated, (1) commencing with Archstone's taxable year ended December 31, 1994, until the 80 time that the ACS Merger is effective, Archstone was organized and has operated in conformity with the requirements for qualification as a REIT under the Code, (2) that New Archstone's organization and proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code commencing with its taxable year ending December 31, 2001, and (3) that commencing with Archstone REIT's formation until the time of the Election, Archstone REIT was treated for federal income tax purposes as an entity disregarded as a separate entity and not as a corporation or an association taxable as a corporation (with customary exceptions, assumptions and qualifications and based upon customary representations and based upon and subject to the opinions of counsel to Smith described in clause (i) above). (e) Tax Opinion Relating to the Mergers. New Archstone shall have received an opinion dated the Merger Closing Date from Mayer, Brown & Platt or other counsel reasonably satisfactory to Archstone, based upon customary certificates and letters, which letters and certificates are to be in a form to be agreed upon by the parties and dated the Merger Closing Date, and with customary exceptions, assumptions and qualifications, to the effect that (i) if the Merger is consummated in accordance with the terms of this Agreement, the Merger will qualify as a reorganization under the provisions of Section 368(a) of the Code, (ii) if the Archstone Merger is consummated in accordance with the terms of this Agreement, the Archstone Merger will qualify as one or more reorganizations under the provisions of Section 368(a)(1)(F) of the Code and (iii) the Partnership Merger will not result in the recognition of taxable gain or loss at the time of the Partnership Merger to a holder of Smith OP Units or Smith Preferred OP Units, as applicable, (A) who is a "U.S. person" (as defined for purposes of Sections 897 and 1445 of the Code); (B) who does not exercise its redemption right with respect to Archstone Class A-1 Shares under the Archstone Surviving Subsidiary Declaration of Trust on a date sooner than the date two years after the Effective Time of the Partnership Merger; (C) who does not receive a cash distribution in connection with the Partnership Merger (or a deemed cash distribution resulting from relief or a deemed relief from liabilities, including as a result of the prepayment of indebtedness of Smith Partnership in connection with or following the Partnership Merger) in excess of such holder's adjusted basis in its Smith OP Units or its Smith Preferred OP Units, as applicable, at the time of the Partnership Merger); (D) who is not required to recognize gain by reason of the application of Section 707(a) of the Code and the Treasury Regulations thereunder to the Partnership Merger, with the result that the Partnership Merger is treated as part of a "disguised sale" by reason of any transactions undertaken by Smith Partnership prior to or in connection with the Partnership Merger or any debt of Smith Partnership that is assumed or repaid in connection with the Partnership Merger; and (E) whose "at risk" amount does not fall below zero as a result of the Mergers. 81 (f) "Comfort" Letter. Archstone shall have received a "comfort" letter from Arthur Andersen LLP, as described in Section 5.1(b). (g) NCS Agreements. The transactions contemplated by the NCS Agreements shall have been consummated in the manner contemplated by such NCS Agreements. (h) Shareholders Agreement. Each of Robert H. Smith and Robert P. Kogod shall have entered into the Shareholders Agreement. 6.3 Conditions to Obligations of Smith and Smith Partnership. The obligations of Smith and Smith Partnership to effect the Mergers and to consummate the other transactions contemplated to occur on the Merger Closing Date is further subject to the following conditions, any one or more of which may be waived by Smith: (a) Representations and Warranties. Each of the representations and warranties of Archstone and New Archstone set forth in this Agreement, disregarding all qualifications and exceptions contained therein relating to materiality or Archstone Material Adverse Effect, shall be true and correct as of the date of this Agreement and as of the Merger Closing Date as though made on and as of the Merger Closing Date (except to the extent that such representations and warranties are expressly limited by their terms to another date, in which case such representations and warranties shall be true and correct as of such other date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be expected to have an Archstone Material Adverse Effect; and Smith shall have received a certificate (which certificate may be qualified by "knowledge" to the same extent as the representations and warranties of Archstone and New Archstone contained herein are so qualified) signed on behalf of Archstone and New Archstone by the chief executive officer or the chief financial officer of Archstone and New Archstone, in such capacity, to such effect. (b) Performance of Obligations of Archstone and New Archstone. Archstone and New Archstone shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Effective Time of the Merger, and Smith shall have received a certificate of Archstone and New Archstone signed on behalf of Archstone and New Archstone by a duly authorized executive officer of Archstone and New Archstone, in such capacity, to such effect. (c) Material Adverse Effect. Since the date of this Agreement, there shall have been no Archstone Material Adverse Effect and Smith shall have received a certificate of a duly authorized executive officers of Archstone and New Archstone, in such capacity, certifying to such effect. (d) Tax Opinions Relating to REIT Status, Archstone Merger and Partnership Status. Smith shall have received the opinion of Mayer, Brown & Platt or other counsel to Archstone reasonably satisfactory to Smith, dated as of the Merger Closing Date, that, (i) (I) in the event the Primary Archstone Merger is consummated commencing with its taxable year 82 ended December 31, 1994 until the time of the Election is effective, Archstone was organized and has operated in conformity with the requirements for qualification as a REIT under the Code and that New Archstone's organization and proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code commencing with its taxable year ending December 31, 2001 (with customary exceptions, assumptions and qualifications and based upon customary representations and based upon and subject to the opinions of counsel to Smith described in Section 6.2(d) of this Agreement), or (II) in the event the Alternative Archstone Merger is consummated, (1) commencing with Archstone's taxable year ended December 31, 1994, until the time that the ACS Merger is effective, Archstone was organized and has operated in conformity with the requirements for qualification as a REIT under the Code, (2) that New Archstone's organization and proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code commencing with its taxable year ending December 31, 2001, and (3) that commencing with Archstone REIT's formation until the time of the Election, Archstone REIT was treated for federal income tax purposes as an entity disregarded as a separate entity and not as a corporation or an association taxable as a corporation (with customary exceptions, assumptions and qualifications and based upon customary representations and based upon and subject to the opinions of counsel to Smith described in clause (i) above); (ii) if the Archstone Merger is consummated in accordance with the terms of this Agreement, the Archstone Merger will qualify as one or more reorganizations under the provisions of Section 368(a)(1)(F) of the Code (with customary exceptions, assumptions and qualifications and based upon customary representations), and (iii) immediately prior to, and at the time of, the Partnership Merger, Archstone Surviving Subsidiary is and will be treated for federal income tax purposes pursuant to Treasury Regulation (S)301.7701-3 as a partnership or an entity disregarded as a separate entity and not as a corporation or association taxable as a corporation (with customary exceptions, assumptions and qualifications and based upon customary representations). (e) Tax Opinion Relating to the Mergers. Smith shall have received an opinion dated the Merger Closing Date from Hogan & Hartson L.L.P. or other counsel reasonably satisfactory to Smith, based upon customary certificates and letters, which letters and certificates are to be in a form to be agreed upon by the parties and dated the Merger Closing Date, and with customary assumptions, exceptions and qualifications, to the effect that (i) if the Merger is consummated in accordance with the terms of this Agreement, the Merger will qualify as a reorganization under the provisions of Section 368(a) of the Code and (ii) the Partnership Merger will not result in the recognition of taxable gain or loss at the time of the Partnership Merger to a holder of Smith OP Units or Smith Preferred OP Units, as applicable, (A) who is a "U.S. person" (as defined for purposes of Sections 897 and 1445 of the Code); (B) who does not exercise its redemption right with respect to Archstone Class A-1 Shares under the Archstone Surviving Subsidiary Declaration of Trust on a date sooner than the date two years after the Effective Time of the Partnership Merger; (C) who does not receive a cash distribution in connection with the Partnership Merger (or a deemed cash distribution resulting from relief or a deemed relief from liabilities, including as a result of the prepayment of indebtedness of Smith Partnership in connection with or following the Partnership Merger) in excess of such holder's adjusted basis in its Smith OP Units or its Smith Preferred OP Units, as applicable, at the time of the Partnership Merger; (D) who is not required to recognize gain by reason of the application of 83 Section 707(a) of the Code and the Treasury Regulations thereunder to the Partnership Merger, with the result that the Partnership Merger is treated as part of a "disguised sale" by reason of any transactions undertaken by Smith Partnership prior to or in connection with the Partnership Merger or any debt of Smith Partnership that is assumed or repaid in connection with the Partnership Merger; and (E) whose "at risk" amount does not fall below zero as a result of the Mergers. (f) "Comfort" Letter. Smith and Smith Partnership shall have received a "comfort" letter from KPMG LLP, as described in Section 5.1 (b). (g) Entity Election. Archstone Surviving Subsidiary shall have properly filed with the Internal Revenue Service, and the Internal Revenue Service shall have received, Archstone Surviving Subsidiary's election on Form 8832 to be treated as either a domestic eligible entity with a single owner electing to be disregarded as a separate entity or a partnership, as applicable, as described in Section 5.4(b). (h) Archstone Merger. The Archstone Merger shall have been completed in the manner contemplated by this Agreement not less than two (2) days prior to the Merger Closing Date. (i) Asset Restructuring. The Asset Restructuring of Archstone Surviving Subsidiary shall have been completed and neither New Archstone nor Archstone Surviving Subsidiary shall not own any assets that, if the day following the Merger Closing Date were the last day of a calendar quarter, would cause New Archstone to fail to satisfy one or more of the asset requirements applicable to REITs set forth in Section 856(c)(4)(B) of the Code (determined without regard to any curative period that otherwise might be available under such Section of the Code). (j) Shareholders Agreement. Each of the Surviving Trust and the Surviving Entity shall have entered into the Shareholders Agreement. ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER 7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time of the Merger, whether such action occurs before or after any of the Smith Stockholder Approvals, the Archstone Shareholder Approvals or the Smith Partner Approvals are obtained: (a) by mutual written consent duly authorized by the Board of Trustees of Archstone (or following the Archstone Merger, New Archstone) and the Board of Directors of Smith; (b) by Archstone (or following the Archstone Merger, New Archstone), 84 (i) upon a breach of or failure to perform any covenant, obligation or agreement on the part of Smith or Smith Partnership set forth in this Agreement, or (ii) upon a breach of or in the event that any representation or warranty of Smith or Smith Partnership is or shall have become untrue, in either case such that the conditions set forth in Section 6.2(a) or Section 6.2(b), as the case may be, would be incapable of being satisfied by March 31, 2002 (or as otherwise extended); (c) by Smith, (i) upon a breach of or failure to perform any covenant, obligation or agreement on the part of Archstone or New Archstone set forth in this Agreement, or (ii) upon a breach of or in the event that any representation or warranty of Archstone or New Archstone is or shall have become untrue, in either case such that the conditions set forth in Section 6.3(a) or Section 6.3(b), as the case may be, would be incapable of being satisfied by March 31, 2002 (or as otherwise extended); (d) by either Archstone (or following the Archstone Merger, New Archstone) or Smith, if any judgment, injunction, order, decree or action by any Governmental Entity of competent authority preventing the consummation of the Archstone Merger or either of the Mergers shall have become final and non- appealable; (e) by either Archstone (or following the Archstone Merger, New Archstone) or Smith, if the Mergers shall not have been consummated before March 31, 2002; provided, however, that a party may not terminate pursuant to this clause (e) if the terminating party shall have breached in any material respect its obligations under this Agreement in any manner that shall have caused either of the Mergers not to have been consummated by such date; (f) by either Archstone (or following the Archstone Merger, New Archstone) or Smith (unless Smith or Smith Partnership is in breach in any material respect of its obligations under Section 5.1) if, upon a vote at a duly held Smith Stockholders Meeting or any adjournment thereof, the Smith Stockholder Approvals shall not have been obtained as contemplated by Section 5.1 or if the Smith Partner Approvals have not been obtained as contemplated by Section 5.1; (g) by either Smith or Archstone (unless Archstone is in breach in any material respect of its obligations under Section 5.1) if, upon a vote at a duly held Archstone Shareholders Meeting or any adjournment thereof, the Archstone Shareholder Approvals shall not have been obtained as contemplated by Section 5.1; (h) by Smith (i) if the Board of Directors of Smith shall have withdrawn, modified, amended or qualified in any manner adverse to Archstone its approval or recommendation of either of the Merger or this Agreement in connection with, or approved or recommended, any Superior Acquisition Proposal, or, (ii) in order to enter into a binding written agreement with respect to a Superior Acquisition Proposal, provided that, in each case, Smith shall have complied with the terms of Section 4.3 and, contemporaneous with or prior to terminating pursuant to this Section 7.1(h), has paid to Archstone the Break-Up Fee (as defined herein) as provided by Section 7.2 hereof; and 85 (i) by Archstone (or following the Archstone Merger, New Archstone), if (1) the Board of Directors of Smith shall have failed to recommend or withdrawn, modified, amended or qualified, or proposed publicly not to recommend or to withdraw, modify, amend or qualify, in any manner adverse to Archstone (or following the Archstone Merger, New Archstone) its approval or recommendation of either of the Mergers or this Agreement or approved or recommended any Superior Acquisition Proposal, (2) following the announcement or receipt of an Acquisition Proposal, Smith shall have failed to call the Smith Stockholders Meeting in accordance with Section 5.1 (a) or failed to prepare and mail to its stockholders the Joint Proxy Statement in accordance with Section 5.1(a) or 5.1(b), or (3) the Board of Directors of Smith or any committee thereof shall have resolved to do any of the foregoing. 7.2 Certain Fees and Expenses. If this Agreement shall be terminated pursuant to Section 7.1(h), 7.1(i)(1) or 7.1(i)(3), then Smith and Smith Partnership theretofore or thereupon shall pay to Archstone (or following the Archstone Merger, New Archstone) a fee equal to the Break-Up Fee (as defined herein). If this Agreement shall be terminated pursuant to Section 7.1(b) or 7.1(f), then Smith and Smith Partnership shall pay to Archstone (or following the Archstone Merger, New Archstone) (provided that Smith was not entitled to terminate this Agreement pursuant to Section 7.1(c) at the time of such termination) an amount equal to the Break-Up Expenses (as defined herein). If this Agreement shall be terminated pursuant to Section 7.1 (c) or 7.1 (g), then Archstone shall pay to Smith Partnership (provided that Archstone was not entitled to terminate this Agreement pursuant to Section 7.1(b) at the time of such termination) an amount equal to the Break-Up Expenses. If this Agreement shall be terminated pursuant to Section 7.1(b), 7.1(f), or 7.1(i)(2) and prior to the time of such termination an Acquisition Proposal has been received by Smith or Smith Partnership, and either prior to the termination of this Agreement or within twelve (12) months thereafter, Smith or Smith Partnership enters into any written agreement to consummate a transaction or series of transactions which, had such agreement been proposed or negotiated during the term of this Agreement, would have constituted an Acquisition Proposal pursuant to Section 4.3 (each, a "Smith Acquisition Agreement"), which is subsequently consummated (whether or not any Smith Acquisition Agreement relates to the same Acquisition Proposal which had been received at the time of the termination of this Agreement), then Smith and Smith Partnership shall pay the Break-Up Fee to Archstone (or following the Archstone Merger, New Archstone) upon consummation. If (a) this Agreement shall be terminated by Smith pursuant to Section 7.1(e), (b) prior to the time of such termination an Acquisition Proposal has been received by Smith or Smith Partnership, (c) during the period following the receipt of an Acquisition Proposal as described in clause (b) and prior to termination of this Agreement, Archstone (or following the Archstone Merger, New Archstone) does not announce, enter into or agree to effect any merger, acquisition, exchange offer, consolidation, reorganization, or other business combination with any third party, and (d) either prior to the termination of this Agreement or within twelve (12) months thereafter, Smith or Smith Partnership enters into a Smith Acquisition Agreement which is subsequently consummated (whether or not any Smith Acquisition Agreement relates to the same Acquisition Proposal which had been received at the time of the termination of this Agreement), then Smith and Smith Partnership shall pay the Break-Up Fee to Archstone (or following the Archstone Merger, New Archstone) upon consummation. For purposes of this Section 7.2, "Acquisition Proposal" shall have the meaning assigned to the term "Acquisition 86 Proposal", except that all references to 15% in such definition shall be deemed to be a reference to 25%. The payment of the Break-Up Fee shall be compensation for the loss suffered by Archstone as a result of the failure of the Mergers to be consummated (including, without limitation, opportunity costs and out-of-pocket costs and expenses) and to avoid the difficulty of determining damages under the circumstances. The Break-Up Fee shall be paid by Smith and Smith Partnership to Archstone, or the Break-Up Expenses shall be paid by the party required to pay the Break-Up Expenses (the "Payor") to the party entitled to receive the Break- Up Expenses (the "Recipient") in immediately available funds within two (2) business days after the date the event giving rise to the obligation to make such payment occurred (except as otherwise provided in Section 7.1(h) or 7.1(i)). Each of Archstone and Smith acknowledges that the agreements contained in this Section 7.2 are integral parts of this Agreement; accordingly, if Smith or Smith Partnership fail to promptly pay the Break-Up Fee or Break-Up Expenses due pursuant to this Section 7.2 and, in order to obtain payment, Archstone (or following the Archstone Merger, to New Archstone) commences a suit which results in a judgment against Smith or Smith Partnership for any amounts owed pursuant to this Section 7.2, Smith and Smith Partnership shall pay to Archstone (or following the Archstone Merger, to New Archstone) its costs and expenses (including attorneys' fees and expenses) in connection with such suit, together with interest on the amount owed at the rate on six-month U.S. Treasury obligations in effect on the date such payment was required to be made plus 300 basis points. As used in this Agreement, "Break-Up Fee" shall be an amount equal to $95,000,000 less Break-Up Expenses paid or payable under this Section 7.2 (the "Base Amount"). Notwithstanding the prior sentence, to the extent that the right to receive a "Break-Up Fee" (the "Break-Up Fee Payment") in a taxable year would create excessive bad income ("EBI") for Archstone (or following the Archstone Merger, to New Archstone), the right to receive the portion of the Break-Up Fee Payment that would create EBI shall be deferred, or potentially extinguished, as set forth below. The right to receive a Break-Up Fee Payment shall be treated as creating EBI for Archstone (or following the Archstone Merger, to New Archstone) to the extent that the right to receive the amount, when taken into account with other gross income of Archstone (or following the Archstone Merger, to New Archstone) for that year, would cause Archstone (or if after the Archstone Merger, to New Archstone) to violate for that taxable year either the 75% or 95% gross income tests described in Sections 856(c)(2) or 856(c)(3) of the Code. Any amounts deferred in a particular year pursuant to the preceding paragraph shall become payable in the next succeeding year(s); but only to the extent that it would not then create EBI. To the extent that any deferred amount would continue to create EBI after it has been carried forward for seven years (applying first in, first out principles), that portion shall no longer be an obligation of Smith or Smith Partnership. Notwithstanding the foregoing, Break-Up Fee Payments that would otherwise be considered EBI under the preceding provisions shall be made if and to the extent that Archstone (or following the Archstone Merger, to New Archstone), as a condition precedent, obtains an opinion of tax counsel or private ruling from the IRS that the receipt of such excess amounts would not adversely affect Archstone's (or following the 87 Archstone Merger, New Archstone's) ability to qualify as a REIT. If a Break-Up Fee Payment is inadvertently made in an amount in excess of the limitations set forth above, such excess payments shall be treated as a loan from Smith or Smith Partnership to Archstone (or following the Archstone Merger, to New Archstone), to be repaid as soon as practicable following discovery of the overpayment. The purpose of these provisions dealing with EBI is to protect the REIT status of Archstone (or if after the Archstone Merger, to New Archstone), and these provisions shall be interpreted and applied so as to accomplish that purpose. The "Break-Up Expenses" payable to the Recipient shall be an amount equal to the lesser of (i) $7,500,000 or (ii) the Recipient's out-of-pocket expenses incurred in connection with this Agreement and the transactions contemplated hereby (including, without limitation, all attorneys', accountants' and investment bankers' fees and expenses). If the Break-Up Expenses payable to the Recipient exceed the maximum amount that can be paid to the Recipient without causing the Recipient to fail to meet the requirements of Sections 856(c)(2) and (3) of the Code determined as if the payment of such amount did not constitute qualifying income under such sections of the Code, as determined by independent accountants to the Recipient (the "Maximum Amount"), the amount initially payable to the Recipient shall be limited to the Maximum Amount. If, however, within the seven-year period commencing on the date of this Agreement, the Recipient receives a tax opinion indicating that it has received a ruling from the IRS holding that the Recipient's receipt of the Break-Up Expenses would either constitute qualifying income under Sections 856(c)(2) or (3) of the Code ("Qualifying Income") or would be excluded from gross income of the Recipient within the meaning of such sections of the Code or that receipt by the Recipient of the balance of the Break-Up Expenses above the Maximum Amount following the receipt of and pursuant to such ruling would not be deemed constructively received prior thereto, the Recipient shall be entitled to have payable to it the full amount of the Break-Up Expenses. The obligation of the Payor to pay any unpaid portion of the Break-Up Expenses shall terminate seven years from the date of this Agreement. In the event that the Recipient is not able to receive the full Break-Up Expenses, the Payor shall place the unpaid amount in escrow and shall not release any portion thereof to the Recipient unless and until the Payor receives either one or both of the following: (i) a letter from the independent accountants of the Recipient indicating the maximum amount that can be paid at that time to the Recipient without causing it to fail to comply with Sections 856(c)(2) and (3) of the Code or (ii) a tax opinion indicating that the Recipient has received a ruling from the IRS holding that the Recipient's receipt of such income would constitute "qualifying income" under Section 856(c)(2) or (3) of the Code or would be excluded from gross income under such sections, in either of which events the Payor shall pay to the Recipient the unpaid Break-Up Expenses or, if less and either there is no tax opinion or the ruling described above does not hold that the Base Amount either would constitute qualifying income or would be excluded from gross income for purposes of those rules, the maximum amount stated in the letter referred to in (i) above. Subject to satisfaction of the conditions set forth in the immediately preceding sentence, there is no limitation on the number of distributions that can be made from the escrow prior to the seventh anniversary of the date of this Agreement. 7.3 Effect of Termination. In the event of termination of this Agreement by either Smith or Archstone as provided in Section 7.1, this Agreement shall forthwith become void and 88 have no effect, without any liability or obligation on the part of Archstone, New Archstone, Smith or Smith Partnership, other than the last sentence of Section 5.2, Section 7.2, this Section 7.3 and Article 8, and except to the extent that such termination results from a material breach by any party of any of its representations, warranties, covenants or agreements set forth in this Agreement. 7.4 Amendment. This Agreement may be amended by the parties in writing by action of the respective Board of Trustees or Board of Directors of Archstone and Smith at any time before or after any Shareholder Approvals are obtained and prior to the filing of the Articles of Merger with the Department; provided, however, that, after the Shareholder Approvals and the Smith Partner Approvals are obtained, no such amendment, modification or supplement shall be made which by law requires the further approval of shareholders or partners without obtaining such further approval. The parties agree to amend this Agreement in the manner provided in the immediately preceding sentence to the extent required to (a) continue the status of each party as a REIT or (b) preserve the Merger as a reorganization under Section 368(a) of the Code. 7.5 Extension; Waiver. At any time prior to the Effective Time of the Merger, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the proviso of Section 7.4, waive compliance with any of the agreements or conditions of the other party contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. ARTICLE 8 GENERAL PROVISIONS 8.1 Nonsurvival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement confirming the representations and warranties in this Agreement shall survive the Effective Time of the Merger. This Section 8.1 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time of the Merger. 8.2 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be delivered personally, sent by overnight courier (providing proof of delivery) to the parties or sent by telecopy (providing confirmation of transmission) at the following addresses or telecopy numbers (or at such other address or telecopy number for a party as shall be specified by like notice): 89 (a) if to Archstone or New Archstone, to: Archstone Communities Trust 7670 South Chester Street Suite 100 Englewood, Colorado 80112 Attention: General Counsel Fax No.: (303) 858-0021 with a copy (which shall not constitute notice) to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603 Attention: Edward J. Schneidman Michael T. Blair Fax No.: (312) 701-7711 (b) if to Smith or Smith Partnership, to: Charles E. Smith Residential Realty, Inc. 2345 Crystal Drive Crystal Park #4 Arlington, VA 22202 Attention: General Counsel Fax No.: (703) 769-1312 with a copy (which shall not constitute notice) to: Hogan & Hartson L.L.P. 555 Thirteenth Street, N.W. Washington, D.C. 20004-1109 Attention: J. Warren Gorrell, Jr. Bruce W. Gilchrist Fax No.: (202) 637-5910 All notices shall be deemed given only when actually received. 8.3 Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." 8.4 Counterparts. This Agreement may be executed in one or more counterparts, all 90 of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. 8.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement, the Smith Disclosure Letter, the Archstone Disclosure Letter, the Confidentiality Agreement, the Voting Agreements, the Shareholders Agreement and the other agreements entered into in connection with the Mergers constitute the entire agreement and supersede all prior agreements and understandings, both written and oral between the parties with respect to the subject matter of this Agreement. Except as provided in Section 5.9, no provision of this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies. 8.6 Governing Law. THE PARTNERSHIP MERGER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE (AS TO THE CERTIFICATE OF MERGER) AND THE STATE OF MARYLAND (AS TO THE PARTNERSHIP ARTICLES OF MERGER), REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF. EXCEPT AS PROVIDED IN THE IMMEDIATELY PRECEDING SENTENCE, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF. 8.7 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned or delegated, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties; provided, however, that, if the Archstone Merger is effectuated in the form of the Alternative Archstone Merger, then all of Archstone's rights, interests and obligations under this Agreement shall become rights, interests and obligations of Archstone Corporate Subsidiary and Archstone REIT by operation of law. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. 8.8 Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any federal court located in Maryland or in any state court located in Maryland this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself (without making such submission exclusive) to the personal jurisdiction of any federal court located in Maryland or any state court located in Maryland in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement and (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court. 91 8.9 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 8.10 Exculpation. This Agreement shall not impose any personal liability on any shareholder, trustee, trust manager, officer, employee or agent of Archstone or Smith, and all Persons shall look solely to the property of Archstone or Smith for the payment of any claim hereunder or for the performance of this Agreement. 8.11 Joint and Several Obligations. In each case where both Smith and Smith Partnership are obligated to perform the same obligation hereunder, such obligation shall be joint and several. In each case where both Archstone and New Archstone (or the Surviving Trust and the Surviving Entity) are obligated to perform the same obligation hereunder, such obligation shall be joint and several. 92 IN WITNESS WHEREOF, Archstone, New Archstone, Smith and Smith Partnership have caused this Agreement to be signed by their respective officers (or general partners) thereunto duly authorized all as of the date first written above. ARCHSTONE COMMUNITIES TRUST By: /s/ Charles E. Mueller, Jr. ------------------------------- Name: Charles E. Mueller, Jr. Title: Chief Financial Officer NEW GARDEN RESIDENTIAL TRUST By: /s/ Charles E. Mueller, Jr. ------------------------------- Name: Charles E. Mueller, Jr. Title: Chief Financial Officer CHARLES E. SMITH RESIDENTIAL REALTY, INC. By: /s/ Wesley D. Minami ------------------------------- Name: Wesley D. Minami Title: President CHARLES E. SMITH RESIDENTIAL REALTY, L.P. By: Charles E. Smith Residential Realty, Inc., its sole general partner By: /s/ Wesley D. Minami ------------------------------- Name: Wesley D. Minami Title: President 93 EX-2.1(A) 3 dex21a.txt FORM OF SHAREHOLDERS AGREEMENT EXHIBIT 2.1(a) Exhibit A --------- SHAREHOLDERS' AGREEMENT ----------------------- THIS SHAREHOLDERS' AGREEMENT (this "Agreement"), dated as of __________, 2001, is by and among Archstone-Smith Trust, a Maryland real estate investment trust ("Parent Trust"), Archstone-Smith Operating Trust, a Maryland real estate investment trust ("Operating Trust" and, together with Parent Trust, the "Company"), Robert H. Smith, an individual ("RHS"), and Robert P. Kogod, an individual ("RPK"; and, together with RHS, the "Shareholders"). RECITALS -------- WHEREAS, Parent Trust, Operating Trust, Charles E. Smith Residential Realty, Inc., a Maryland corporation ("Skyline"), and Charles E. Smith Residential Realty, L.P., a Delaware limited partnership (the "Skyline Operating Partnership"), have entered into an Agreement and Plan of Merger, dated as of May 3, 2001 (the "Merger Agreement"); WHEREAS, the Company has determined that the preservation of a separate brand for the Skyline Division (as hereafter defined), will enable the Company to realize the benefits of Skyline's management experience and expertise regarding the high-rise residential apartment business and better serve the long term interests of the Company and its securityholders; WHEREAS, pursuant to the Merger Agreement, it is contemplated that, among other things, the Shareholders will Beneficially Own (as hereafter defined) Common Shares (as hereafter defined); WHEREAS, the Shareholders and the Company wish to record their understanding regarding certain matters relating to the management of the Company and certain other matters. WHEREAS, it is a condition to the consummation of the transactions contemplated by the Merger Agreement that the parties hereto enter into this Agreement; and NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. Definitions. In addition to the capitalized terms defined elsewhere in this Agreement, the following capitalized terms shall have the following meanings when used in this Agreement: "Affiliate" means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person. The term "control" has the meaning ascribed to such term in Rule 405 of the Securities Act. "Beneficial Owner" means any Person deemed to be a "beneficial owner" of a security as defined in Rule 16a-1(a)(2) or Rule 13d-3(d)(1)(i) under the Exchange Act. The terms "Beneficially Own" and "Beneficial Ownership" have correlative meanings. A Person shall be deemed to Beneficially Own Common Shares for which Class A-1 shares of the Operating Trust Beneficially Owned by such Person may be exchanged. "Board" means the Board of Trustees of Parent Trust. "Commission" means the Securities and Exchange Commission (or any other governmental body succeeding to the functions of the Securities and Exchange Commission). "Common Shares" means common shares of beneficial interest of Parent Trust, $0.01 par value per share, or any voting stock of Parent Trust or any other Person that the Common Shares are hereafter converted into or exchanged for by reason of a merger, recapitalization or similar transaction. "Company High Rise Business" means the high-rise residential apartment business conducted by the Company or any Subsidiary thereof, including the Skyline Business and any existing or future high-rise residential apartment business conducted by the Company or any Subsidiary thereof. Such high-rise residential apartment business shall include, but not be limited to, the acquisition, operation, leasing, development and management of such structures. "EAG" has the meaning ascribed to such term in Section 2(c). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Garden Apartments" means buildings having five (5) or fewer stories and which are used primarily for multifamily for rent housing. "High-rise Apartments" means buildings having in excess of eight (8) stories and which are used primarily for multifamily for rent housing. "Mental Disability" means, as reasonably determined in writing by Parent Trust, the inability to perform each of the essential duties of such Person's position by reason of a medically determinable mental impairment which is permanent in character or which reasonably can be expected to last for a continuous period of six (6) months. "Merger" has the meaning ascribed to such term in the Merger Agreement. "Merger Agreement" has the meaning ascribed to such term in the Recitals. "Mid-rise Apartments" means buildings having six (6), seven (7), or eight (8) stories and which are used primarily for multifamily for rent housing. "Permitted Transferee" means, with respect to any Person, (i) such Person's Affiliates, (ii) such Person's spouse and descendants (whether natural or adopted) and any trust for the benefit of such Person and/or such Person's spouse and/or descendants or any entity controlled by such Person's spouse and/or descendants, and (iii) charitable foundations. "Person" means any individual, corporation, proprietorship, firm, partnership, limited partnership, limited liability company, trust, association or other entity. 2 "Physical Disability" means, as reasonably determined in writing by Parent Trust, the inability to engage in any substantial gainful activity associated with such person's fiduciary or employment responsibilities by reason of a medically determinable physical impairment which has lasted or can reasonably be expected to last for a continuous period of not less than six (6) months. A Physical Disability shall not include a Mental Disability. "RHS" has the meaning ascribed to such term in the Preamble. "RPK" has the meaning ascribed to such term in the Preamble. "Securities Act" means the Securities Act of 1933, as amended. "Shareholder" has the meaning ascribed to such term in the Preamble. "Shareholder Representative" shall have the meaning ascribed to such term in Section 2(b). "Skyline Business" means all of the business and operations related to the acquisition, ownership, operation, leasing, development or management of "high- rise residential real estate apartment business" conducted by Skyline, the Skyline Operating Partnership, or any of their Subsidiaries prior to the consummation of the Merger. "Skyline Division" has the meaning ascribed to such term in Section 4(a). "Subsidiary" of any Person means any Affiliate controlled by such Person directly, or indirectly through one or more intermediaries. "Successor Trustee" shall have the meaning ascribed to such term in Section 2(b). SECTION 2. Board of Trustees. (a) Nomination of Shareholders to Serve on the Board. Pursuant to the Merger Agreement, RHS and RPK will be elected as Class II and Class I trustees of the Board, respectively, as of the closing of the Merger. RHS shall serve as a Class II trustee until the annual meeting of shareholders of Parent Trust in 2003 and until his successor is duly elected and qualifies. RPK shall serve as a Class I trustee until the annual meeting of shareholders of Parent Trust in 2002 and until his successor is duly elected and qualifies. Subject to the terms of this Agreement, the Company agrees that, (i) for a period of ten (10) years from and after the date hereof, RHS shall have the right to nominate himself to serve as a trustee on the Board and (ii) for a period of ten (10) years from and after the date hereof, RPK shall have the right to nominate himself to serve as a trustee on the Board. Parent Trust shall take all actions necessary to cause the Board to nominate each such Shareholder and to recommend his election to the shareholders of Parent Trust. Parent Trust and each Shareholder agree to take all actions necessary so as to cause each such Shareholder to be elected to the Board, including, without limitation, the voting of its Common Shares and causing the vote of all Common Shares Beneficially Owned by such Shareholder, the execution of written consents, the calling of special meetings, the removal of trustees, the filling of vacancies on the Board, and the waiving of notice and the attending of meetings. 3 (b) Death, Disability, Resignation, Removal, etc. So long as the nomination right set forth in Section 2(a) remains in effect: (1) in the event of the Physical Disability, removal pursuant to Parent Trust's declaration of trust, resignation or expiration of the term of service on the Board of a Shareholder, such Shareholder shall be entitled to nominate a Successor Trustee instead of nominating himself pursuant to such Section 2(a) by delivering notice of such nomination to Parent Trust within 60 days after receipt by such Shareholder of notice of such Physical Disability or removal, or within 60 days after such resignation or the expiration of such Shareholder's term of service; (2) in the event of the death or Mental Disability of a Shareholder, such Person's Shareholder Representative shall be entitled to nominate a Successor Trustee pursuant to such Section 2(a) by delivering notice of such nomination to Parent Trust within 60 days after such Shareholder Representative receives notice of the death or Mental Disability of such Shareholder; (3) in the event of the death, Mental Disability, Physical Disability, removal pursuant to Parent Trust's Declaration of Trust, resignation or expiration of the term of service on the Board of any Successor Trustee, the Shareholder or Shareholder Representative who nominated such Successor Trustee, or if such Shareholder is no longer living or has become subject to a Mental Disability since making such nomination, then such Person's Shareholder Representative shall be entitled to nominate a new Successor Trustee pursuant to such Section 2(b) by delivering notice of such nomination to Parent Trust within 60 days after such Shareholder or Shareholder Representative, as the case may be, receives notice of such death, Mental Disability, Physical Disability, removal, or resignation or within 60 days after the expiration of such Successor Trustee's term of service on the Board. Notwithstanding anything to the contrary in the foregoing, each Successor Trustee nominated by a Shareholder or any Shareholder Representative shall be subject to the reasonable approval of the Board. Any Successor Trustee shall be appointed by the remaining trustees then in office to serve any unexpired term of the subject Shareholder or Successor Trustee, as the case may be, or if such appointment is not permitted under applicable laws, shall be submitted to the shareholders of the Parent Trust for election pursuant to the Parent's Trust's declaration of trust and bylaws. Parent Trust agrees to take all actions necessary to nominate and to cause any such Successor Trustee to be elected in the same manner as provided in Section 2(a). As used herein, the term "Shareholder Representative" means, with respect to a designated Shareholder, the executor of the estate of such Shareholder, or the legal representative of such Shareholder, or such person as may be designated in writing by such Shareholder while competent or by such Shareholder's executor or legal representative upon such Shareholder's death or Mental Disability. "Successor Trustee" means any Person nominated by a Shareholder 4 or any Shareholder Representative under Section 2(a) who actually becomes a trustee on the Board. (c) Nomination of Third Person to Serve on the Board. Pursuant to the Merger Agreement, Ernest A. Gerardi, an individual ("EAG"), will be elected as a Class III trustee of the Board as of the closing of the Merger to serve until the annual meeting of shareholders of Parent Trust in 2004 and until his successor is duly elected and qualifies. In the event of the death, Mental or Physical Disability, resignation or removal pursuant to Parent Trust's Declaration of Trust of EAG during the initial term during which he is serving as a trustee on the Board, the Shareholders, acting unanimously (or, if either or both of the Shareholders are no longer serving as trustees on the Board, any then serving Shareholder Representative designated pursuant to Section 2(b)), shall be entitled to notify Parent Trust within 60 days after notice of such death, Mental or Physical Disability, removal or resignation, of a successor nominee as trustee (which Person shall be reasonably acceptable to the Board) who shall be appointed by the remaining trustees then in office to serve the unexpired term of such trustee or, if such appointment is not permitted under applicable laws, be elected by the shareholders of Parent Trust pursuant to Parent Trust's declaration of trust and bylaws. (d) Term of Office. A trustee elected pursuant to this Section 2 shall serve until (i) his or her term expires as provided in Parent Trust's declaration of trust and bylaws, (ii) he or she is removed pursuant to Parent Trust's declaration of trust or (iii) his or her then-current term expires as provided in Parent Trust's declaration of trust and bylaws and the party who nominated such trustee no longer has the right to nominate a trustee pursuant to the provisions of this Section 2(a), in which case the Person so elected shall no longer have the right to be nominated as a trustee on the Board, but the Board, in its discretion, may continue to nominate such Person as a trustee. (e) Limitation on Nominees. Notwithstanding the foregoing, a Shareholder or Shareholder Representative shall not have the right to nominate a Person to serve as a trustee on the Board (and any such Person shall immediately offer their unconditional resignation from the Board) if: (i) such Person is employed by, or has equity investment interests, directly or indirectly, in, any material competitor of the Company (unless such investment constitutes less than one-half of one percent (0.50%) of the equity ownership in a public company); (ii) such Person is not reasonably experienced in business, financial, or real estate industry matters; (iii) such Person has been convicted of, or has pled nolo contendere to, a felony; (iv) the election of such Person would violate any law; or (v) any event required to be disclosed pursuant to Item 401(f) of Regulation S-K of the Exchange Act (other than Item 401(f)(1)) has occurred with respect to such Person. (f) Compensation, Expense and Insurance. Except during a period when such Person is an officer or employee of the Company, RHS, RPK, EAG, and any Successor Trustee shall be entitled to fees and other compensation, participation in option, share or other benefit plans for which trustees are eligible, reimbursement of expenses, and trustees and officers liability insurance and indemnities on an equal basis with other members of Parent Trust's Board. (g) Size of Board. The current size of the Board is nine (9) members. So long as the Shareholders or Shareholder Representatives have the right to nominate one or more trustees 5 pursuant to Section 2(a), Parent Trust's Board of Trustees shall consist of no more than ten (10) members; provided that the size of the Board may be increased beyond ten (10) members, in the sole discretion of the Board, in connection with any future mergers, acquisitions, business combinations or other strategic transactions of the Company, and the size of the Board may be increased beyond ten (10) members as may be required pursuant to the terms of any class or series of preferred shares of the Parent Trust. Additionally, the size of the Board may be increased beyond ten (10) members, in the sole discretion of the Board, other than in connection with any mergers, acquisitions, business combinations or other strategic transactions of the Company and other than as may be required pursuant to the terms of any class or series of preferred shares of the Parent Trust, only as follows: (i) if the Board desires to increase the size of the Board by one additional member, then, at the time Board adds such additional member, the Shareholders (and any Shareholder Representative), as a group, shall be entitled to nominate one additional member at the same time the Board adds the such additional member; and (ii) thereafter, the Shareholders (and any Shareholder Representatives), as a group, shall be entitled to nominate one additional member for every second additional member added by the Board and at the time thereof. Any additional Board members which the Shareholders (and any Shareholder Representatives), as a group, may be entitled to nominate under the foregoing provisions shall be subject to the reasonable approval of the Board and shall serve in the appropriate class as determined by the Board. In addition, the other provisions of Sections 2(a) and 2(b) shall apply to such nominees. SECTION 3. Executive Committee of the Board. Parent Trust shall establish and maintain, in accordance with the bylaws of Parent Trust, an Executive Committee of the Board, the members of which shall include, for so long as they shall have the right to be nominated as trustees to the Board, the Persons originally nominated to the Board pursuant to Section 2(a) and their respective successors. In the event that the number of members on the Executive Committee is more than seven (7), the Shareholders (and any Shareholder Representative), as a group, then serving shall be entitled to designate the eighth member (at the time the ninth member is designated) and every third member thereafter (at the time the second member thereafter is designated) from among the trustees then serving on the Board of Trustees. SECTION 4. Skyline Division. (a) Conduct of Company High Rise Business. Effective upon the consummation of the Merger, the Company shall internally organize and establish a new administrative operating division (the "Skyline Division") through which the Company shall conduct the Company High Rise Business in the same manner and on the same basis as the Company operates its "East Region" and "West Region". All High-rise Apartments and Mid-rise Apartments owned by Skyline as of the date of this Agreement will be operated through the Skyline Division under the name "Charles E. Smith Residential." All Garden Apartments owned by Skyline as of the date of this Agreement will be operated by such division and under such brand name as determined by the Chief Executive Officer of Parent Trust. Unless otherwise agreed in writing by the Shareholders (or any Shareholder Representative then serving), for a period of fifteen (15) years from and after the date hereof or until the earlier termination of this Agreement: (i) neither the Company nor any Subsidiary thereof shall conduct the Company High Rise Business except through the Skyline Division (other than as may be determined by the Chief Executive Officer of 6 Parent Trust with respect to High Rise Apartments not described in the second sentence of this Section 4(a)), and (ii) the Company shall use the name "Charles E. Smith Residential" in the operation of all High-rise Apartments. As to any Mid-rise Apartments which the Company may hereafter acquire or develop, the Chief Executive Officer of Parent Trust will determine whether such assets should be operated as part of the Company's High Rise Business or as part of the Company's garden apartment business. (b) Division Headquarters. Unless otherwise agreed to in writing by the Shareholders (and any Shareholder Representative then serving), the Company shall maintain the current headquarters of the Skyline Division in its current premises at 2345 Crystal Drive, Crystal Park #4, Arlington, Virginia 22202, for a period of fifteen (15) years from and after the date hereof or until the earlier termination of this Agreement; provided, however, that the Company shall not be obligated to use such offices in the event that the lease terms for such offices are not consistent with local market terms. (c) Management. (i) Chairman. RHS shall serve as Chairman of the Skyline Division commencing upon the consummation of the Merger. RHS shall be considered an employee of the Company. As Chairman of the Skyline Division, RHS shall have such responsibilities as may be determined from time to time by the Board. RHS shall be entitled to receive the compensation set forth on Schedule B attached hereto. (ii) Officers. The Skyline Division shall be operated under the direction of a President--Charles E. Smith Residential Division (or such other title as the Board may determine), in the discretion of the Board. Such officer shall have general responsibility for the management of the business and affairs of the Skyline Division, subject to the supervision and control of the Chief Executive Officer of Parent Trust and the Board. Such officer shall work out of the headquarters described above. The initial Person serving as such officer shall be W.D. Minami. Such officer shall be elected annually by the Board at the first meeting of the Board held after each annual meeting of shareholders of Parent Trust and shall hold office until his or her successor is elected and qualifies or until his or her death, resignation or removal in the manner provided in Parent Trust's declaration of trust and bylaws. The Chief Executive Officer of Parent Trust will consult with the Chairman of the Skyline Division regarding any replacement of such officer. RPK shall be entitled to the compensation and the parties acknowledge that EAG will receive the compensation each as set forth on Schedule B attached hereto. SECTION 5. Transfer Restrictions. Each of RHS and RPK hereby agree that, for a period of three (3) years from and after the date hereof, they shall not, and shall cause their Affiliates to not, directly or indirectly, sell, transfer, assign, gift, pledge, encumber, hypothecate, mortgage, exchange or otherwise dispose of (whether by operation of law or otherwise) ("transfer") any Common Shares (or securities convertible into or exchangeable for Common Shares) Beneficially Owned by such Person, other than to a Permitted Transferee; provided, that to exercise any rights or receive any benefits hereunder, any such Permitted Transferee must agree in writing to be bound by the terms of this Agreement. Notwithstanding the foregoing, (i) during such period commencing on the first anniversary of the effectiveness of the Merger and 7 terminating on the second anniversary thereof, RHS and RPK and their Affiliates, together shall be permitted to transfer an aggregate of 400,000 Common Shares (including securities convertible into or exchangeable for Common Shares) and (ii) during such period commencing on the first anniversary of the effectiveness of the Merger and terminating on the third anniversary thereof, RHS and RPK and their Affiliates, together shall be permitted to transfer an aggregate of 800,000 Common Shares (or securities convertible into or exchangeable for Common Shares) including any Common Shares transferred pursuant to clause (i). Notwithstanding any provision of this Section 5, RHS and RPK and their Affiliates shall be permitted to transfer any Common Shares (including securities convertible into or exchangeable for Common Shares) Beneficially Owned by such Person to (i) any existing or future lender to whom Common Shares Beneficially Owned by such Person are pledged, hypothecated, mortgaged or encumbered pursuant to a bona fide financing incurred for investment or other valid business purposes upon customary commercial terms, and (ii) any Person to whom such shares are transferred upon foreclosure, or in lieu of foreclosure of any loan contemplated by the provisions of the preceding clause (i). SECTION 6. Limitation on Sale of Certain Properties. Without the prior written consent of the Shareholders, including any then serving Shareholder Representative, for a period of fifteen (15) years from and after the date hereof, the Company shall not, and shall cause its Subsidiaries to not, directly or indirectly, transfer any interest (legal, beneficial or other) in any of the properties identified on Schedule A hereto other than pursuant to a transaction in which all of the interests of the Company and its Subsidiaries in such properties are transferred to a Person not Affiliated with the Company and other than pursuant to a bona fide mortgage of any or all of such properties to secure a loan or other financing of the Company or its Subsidiaries upon customary commercial terms. The obligations of the Company under this Section 6 are separate and independent of, and in addition to, the obligations of the Company under Exhibit D-1 to Annex A of the declaration of trust of Operating Trust. SECTION 7. Representations and Warranties of Company. The Company represents and warrants to the Shareholders and EAG that: (a) The Company has all necessary trust power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by the Company and the performance of its obligations hereunder have been duly and validly authorized by the Company, and no other proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement or to perform such obligations except approval of Parent Trust's Board of a resolution increasing the size of Parent Trust Board as provided herein and election of RHS, RPK and EAG as provided herein. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by each other party hereto, constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. (b) The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company will not, (i) conflict with or violate the declaration of trust or bylaws of the Company, (ii) conflict with or violate any law, rule, 8 regulation, order, judgment or decree applicable to the Company or by which any of the Company's property may be bound or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien on any of the Company's properties pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company is a party or by which the Company or the Company's properties are bound or affected, except, in the case of clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would not prevent or materially impair or delay the performance by the Company of its obligations under this Agreement. (c) The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any federal, state, local or foreign regulatory body, except (i) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or materially impair or delay the performance by the Company of the Company's obligations under this Agreement, and (ii) filings with the Securities and Exchange Commission under the Exchange Act. SECTION 8. Termination. Notwithstanding anything to the contrary contained in this Agreement, this Agreement shall terminate and be of no further force or effect (i) with respect to RHS and any RHS Representative, at such time as RHS and his Permitted Transferees described in clauses (i) and (ii) of the definition thereof, in the aggregate, Beneficially Own less than one million (1,000,000) Common Shares (including securities convertible into or exchangeable for Common Shares), and (ii) with respect to RPK and any RPK Representative, at such time as RPK and his Permitted Transferees described in clauses (i) and (ii) of the definition thereof, in the aggregate, Beneficially Own less than one million (1,000,000) Common Shares (including securities convertible into or exchangeable for Common Shares). For purposes of this Section 8, the minimum ownership amounts contained above in order for this Agreement to remain valid shall be adjusted appropriately to reflect any subdivision or combination of Common Shares (including securities convertible into or exchangeable for Common Shares) and any adjustments arising as a result of any reorganization, reclassification or similar Company events occurring during the term of this Agreement. SECTION 9. Acknowledgments. Each of the parties hereto acknowledges that the rights, restrictions, prohibitions and other provisions hereof are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of each of the other parties hereto, and are a material inducement to such party to enter into the transactions contemplated by this Agreement and the Merger Agreement. SECTION 10. Remedies. The obligations of the parties hereto are unique. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. The parties acknowledge that it would be extremely difficult or impracticable to measure the resulting damages caused by any breach of this Agreement and that no adequate remedy at law exists for a breach of such covenants. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions (including preliminary and permanent relief) to 9 prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement. Each of the parties hereto (a) consents to submit itself (without making such submission exclusive) to the personal jurisdiction of any federal court located in Maryland or any state court located in Maryland in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement and (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court. The remedies provided in this Agreement shall be cumulative and shall not preclude the assertion or exercise of any other rights or remedies available by law, in equity or otherwise. SECTION 11. Attorneys' Fees. In any action to enforce the terms of this Agreement, the prevailing party shall be entitled to recover its attorneys' fees and court costs and other nonreimbursable litigation expenses, such as expert witness fees and investigation expenses. SECTION 12. Notices. Any notice, request, instruction or other document to be given hereunder shall be in writing and shall be deemed to have been given (a) when received if given in person or by courier or a courier service, (b) on the date of transmission if sent by facsimile or other wire transmission or (c) three business days after being deposited in the U.S. mail, certified or registered mail, postage prepaid, addressed as specified as specified below or to such other individual or address as a party hereto may designate for itself by notice given as herein provided: If to the Company: Archstone Communities Trust 7670 South Chester Street Suite 100 Englewood, Colorado 80112 Attention: General Counsel Telephone: (303) 708-5949 Facsimile: (303) 858-0021 With a copy to: Mayer, Brown & Platt 190 S. LaSalle Street Chicago, Illinois 60603 Attention: Edward J. Schneidman Michael T. Blair Telephone: (312)701-7832 Facsimile: (312) 701-7711 If to RHS: Robert H. Smith Waterford House 1200 Crystal Drive Arlington, VA 22102 Telephone: (703) 416-2453 10 With a copy to: Hogan & Hartson, LLP 555 Thirteenth Street, NW Washington, DC 20004 Attention: J. Warren Gorrell, Jr. Bruce W. Gilchrist Telephone: (202) 637-5600 Facsimile: (202) 637-5910 If to RPK: Robert P. Kogod 2929 Massachusetts Avenue Washington, D.C. 20008 Telephone: (202) 462-2929 Facsimile: (202) 232-3162 With a copy to: Hogan & Hartson LLP 555 Thirteenth Street, NW Washington, DC 20004 Attention: J. Warren Gorrell, Jr. Bruce W. Gilchrist Telephone: (202) 637-5686 Facsimile: (202) 637-5910 SECTION 13. Amendments and Waivers. The provisions of this Agreement may be amended or waived only upon the written agreement of Parent Trust, the Operating Trust and each of the Shareholders (or any Shareholder Representative then serving). Any waiver, permit, consent or approval of any kind or character of any provision or condition of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in writing. Any amendment or waiver effected in accordance with this Section 13 shall be binding upon the Company and each Shareholder, including any then serving Shareholder Representative. Any determination by the Company pursuant to this Section 13 shall be made by Parent Trust acting by the vote of a majority of the members of the Board, not including EAG or any member of the Board that was nominated by the Shareholders or any Shareholder Representative. SECTION 14. Successors and Assigns. All covenants and agreements in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors of the parties hereto (including any Shareholder Representative then serving), whether so expressed or not. Except as may arise hereunder in connection with the exercise of any rights hereunder by any Shareholder Representative, the rights of RHS and RPK hereunder shall not be assignable. 11 SECTION 15. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, and the remainder of this Agreement shall remain operative and in full force and effect. The parties shall negotiate in good faith a replacement clause or provision as consistent with the ineffective clause or provision as is practicable under law. SECTION 16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. SECTION 17. Entire Understanding. This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the matters set forth herein and supersedes any and all prior agreements, arrangements and understandings among the parties. SECTION 18. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. Transmission by facsimile of an executed counterpart of this Agreement shall constitute due and sufficient delivery of this Agreement. SECTION 19. Interpretation. The headings preceding the Sections included in this Agreement and the headings to Exhibits and Schedules attached to this Agreement are for convenience only and shall not be deemed part of this Agreement or be given any effect in interpreting this Agreement. The use of the masculine, feminine or neuter gender herein shall not limit any provision of this Agreement. The use of the terms "including" or "include" shall in all cases herein mean "including, without limitation" or "include, without limitation", respectively. Underscored references to Sections or Schedules shall refer to those portions of this Agreement. SECTION 20. No Third Party Beneficiaries. Except as otherwise expressly set forth herein, this Agreement is solely for the benefit of the parties hereto (including any Shareholder Representative then serving) and no provision of this Agreement shall be deemed to confer upon other third parties any remedy, claim, liability, reimbursement, cause of action or other right. SECTION 21. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 22. No Presumption Against Drafter. Each of the parties hereto has jointly participated in the negotiation and drafting of this Agreement. In the event of any ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by each of the parties hereto and no presumptions or burdens of proof shall arise favoring any party by virtue of the authorship of any of the provisions of this Agreement. 12 SECTION 23. Limitation of Liability. Any obligation or liability whatsoever of the Company which may arise at any time under this Agreement or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby shall be satisfied, if at all, out of the Company's assets only. No such obligation or liability shall be personally binding upon, nor shall resort for the enforcement thereof be had to, the property of any of its shareholders, trustees, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise. SECTION 24. Joint and Several Obligations. The obligations of the Company hereunder shall be joint and several obligations of Parent Trust and Operating Trust. [Remainder of page intentionally left blank] 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. ARCHSTONE-SMITH TRUST By:__________________________________ Name: Title: ARCHSTONE-SMITH OPERATING TRUST By:__________________________________ Name: Title: _____________________________________ Robert H. Smith _____________________________________ Robert P. Kogod SCHEDULE A ---------- LIST OF PROPERTIES The Bennington Crystal House I Crystal House II Crystal Square Crystal Place Gateway Place Water Park Towers Crystal Plaza Crystal Towers Parc Vista SCHEDULE B ---------- COMPENSATION TERMS FOR RHS, RPK AND EAG RHS: - --- Salary Base salary of a minimum of $300,000 for each year during employment, with the amount for each year after the first year to be determined by the Board. Bonus Annual bonus of a minimum of $150,000 for each year during employment, with the amount of bonus payable for each year after the first year to be determined by the Board. Options Base option level of 100,000 Common Shares for each year during the term of employment. The number of option shares to be awarded in each of December 2002, 2003 and 2004, whether or not RHS is then employed, will equal the product of 100,000 Common Shares times a percentage (which may be greater or less than 100%) equal to the number of options actually granted to the Chief Executive Officer of Parent Trust for such year divided by the base option level applicable to the Chief Executive Officer for that year. For example, if the base option level of the Chief Executive Officer for a year is 125,000 and he is actually awarded 250,000 option shares, then RHS will receive an award of 100,000 times 200% or 200,000 option shares. The terms of the options will be generally the same as those granted to other executive officers of Parent Trust. Other Benefits Participation in other benefit programs generally made available to officers of Parent Trust. RPK: - ---- Salary Base salary of a minimum of $150,000 for each year during employment, with the amount for each year after the first year to be determined by the Board. Other Benefits Participation in other benefit programs generally made available to officers of Parent Trust. EAG: - ---- Salary Base salary from CESI of a minimum of $200,000 for each year during employment, with the amount for each year after the first year to be determined by the Board of CESI. Bonus Annual bonus each year during employment to be determined by the Board of CESI. Other Benefits Participation in other benefit programs generally made available to officers of CESI. Continuation of existing company-provided apartment and whole life policy. 17 EX-2.1(B) 4 dex21b.txt AMENDED AND RESTATED DECLARATION OF TRUST EXHIBIT B --------- ARCHSTONE-COMMUNITIES TRUST ARTICLES OF AMENDMENT AND RESTATEMENT AMENDED AND RESTATED DECLARATION OF TRUST First: Archstone Communities Trust, a Maryland real estate investment trust (the "Trust") formed under Title 8 of the Corporations and Associations Article of the Annotated Code of Maryland ("the Act"), desires to amend and restate its Declaration of Trust as currently in effect and as hereinafter amended and to change its name to Archstone-Smith Operating Trust. Second: The amendment to and restatement of the Declaration of Trust as hereinafter set forth was advised by the Board of Trustees (the "Board") of the Trust and approved by the shareholders of the Trust as required by law. Third: The following sets forth all of the provisions of the Declaration of Trust as currently in effect and as hereinafter amended: Declaration The Trustee hereby declares that it holds the duties of Trustee hereunder and holds all assets of the Trust presently existing and hereafter to be received, and all rents, income, profits and gains therefrom, from whatever source derived, in trust for the Unitholders (as defined herein) in accordance with the terms and conditions hereinafter provided, including, without limitation Annex A hereto in its entirety, which are all of the provisions of the Trust's declaration of trust as currently in effect and as hereinafter amended (the "Declaration of Trust"). ARTICLE I The Trust Section 1. Name. (a) The Trust governed by this Amended and Restated Declaration of Trust (as amended, supplemented or restated from time to time, this "Declaration of Trust") is herein referred to as the "Trust" and shall be known by the name "Archstone-Smith Operating Trust." So far as may be practicable, legal and convenient, the affairs of the Trust shall be conducted and transacted under such name, which name shall not refer to the Trustee individually or personally or to the beneficiaries or Unitholders of the Trust, or to any officers, employees or agents of the Trust. Under circumstances in which the Trustee determines that the use of the name "Archstone-Smith Operating Trust" is not practicable, legal or convenient, it may as appropriate use the Trustee's name with suitable reference to its Trustee status, or some other suitable designation, or it may adopt another name under which the Trust may hold property or operate in any jurisdiction, which name shall not, to the knowledge of the Trustee, refer to beneficiaries or Unitholders of the Trust. (b) Legal title to all of the properties subject from time to time to this Declaration of Trust shall be transferred to, vested in and held by the Trust in its own name or by the Trustee or Trustees as trustee or trustees of the Trust, except that the Trustees shall have the power to cause legal title to any property of the Trust to be held by and/or in the name of the Trustees, or any other person as nominee, on such terms, in such manner and with such power as the Trustees may determine, provided that the interest of the Trust therein is, in the judgment of the Trustees, appropriately protected. (c) The Trust shall have the authority to operate under an assumed name or names in such state or states or any political subdivision thereof where it would not be legal, practical or convenient to operate in the name of the Trust. The Trust shall have the authority to file such assumed name certificates or other instruments in such places as may be required by applicable law to operate under such assumed name or names. Section 2. Resident Agent. The name and address of the resident agent of the Trust in the State of Maryland is CSC Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland 21202. The principal office of the Trust in the State of Maryland is c/o CSC Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland 21202. The Trust may have such other offices or places of business within or without the State of Maryland as the Trustee may from time to time determine. Section 3. Nature of Trust. The Trust is a real estate investment trust under the Act. The Trust has elected, and is intended, to be treated as a "partnership" for federal and state income tax purposes and, as such, this Declaration of Trust hereby includes Annex A attached hereto in its entirety. Capitalized terms not otherwise defined herein have the meanings specified in Annex A. Section 4. Powers and Purposes. (a) The purpose and nature of the business to be conducted by the Trust is (i) to conduct any business that may be lawfully conducted by a real estate investment trust organized pursuant to the Act; provided, however, that -------- ------- such business shall be limited to and conducted in such a manner as to permit the Trust at all times to be classified as a "partnership" for federal income tax purposes (except as expressly authorized under Section 8.2 of Annex A hereto) so long as the Parent REIT continues to be classified as a "real estate investment trust" for purposes of Section 856, et. seq. of the Internal Revenue -------- Code of 1986, as amended (a "REIT"), (ii) to enter into any partnership, joint venture, trust, limited liability company or other similar arrangement to engage in any of the foregoing or the ownership of interests in any entity engaged, directly or indirectly, in any of the foregoing and (iii) to do anything necessary or incidental to the foregoing. (b) The Trust is empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Trust, including, without limitation, the powers set forth in Section 5.1.A of Annex A hereto; provided, however, that the -------- ------- Trust shall not take, or refrain from taking, any action which, in the judgment of the Trustees, in their sole and absolute discretion, (i) could adversely affect the ability of the Parent REIT to continue to qualify as a REIT for so long as the Parent REIT continues to so qualify, (ii) could subject the Parent REIT to any taxes under Section 857 or Section 4981 of the Code (except as expressly authorized under Section 8.2 of Annex A), (iii) could adversely affect the ability of the Trust to continue to be classified as a "partnership" for federal income tax purposes (except as expressly authorized under Section 8.2 of Annex A), or (iv) could violate any law or regulation of any governmental body or agency having jurisdiction over the Parent REIT or its securities, unless such action (or inaction) shall have been specifically consented to by the Trustees in writing. ARTICLE 2 Beneficial interests in the Trust Section 1. Units. (a) The Trust shall initially be authorized to issue _____________ shares of beneficial interest (par value $0.01 per share), which shall be designated as units ("Units"). Ownership of Units shall be evidenced by certificates in such form as shall be determined by the Trustees from time to time in accordance with Maryland law. The certificates shall be negotiable and title thereto shall be transferred by assignment or delivery in all respects as a stock certificate of a Maryland corporation. The owners of the Units, who are the beneficiaries of the Trust, shall be designated as "Unitholders". The Units shall consist of such types or classes as the Trustees may create and authorize from time to time and designate as representing a beneficial interest in the Trust. (b) The Trustees may amend this Declaration of Trust, without Unitholder consent, to increase or decrease the aggregate number of Units or the number of Units of any class which the Trust has authority to issue. (c) The Trustees may (by filing articles supplementary pursuant to Maryland law) classify or reclassify any unissued Units from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or distributions, qualifications or terms or conditions of redemption of the Units. The Trustees are authorized to issue from the authorized but unissued Units of the Trust preferred Units in series and to establish from time to time the number of preferred Units to be included in each such series and to fix the designation and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Units of each series. Except for Units so classified or reclassified and any preferred Units issued hereunder, all other Units shall be designated as Common Units. All Units issued by the Trust, whether created herein or pursuant to reclassification or pursuant to subsequent amendments to this Declaration of Trust shall be subject to the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and terms and conditions of redemption as set forth in Annex A hereto, as from time to time amended in compliance with Article 6 hereof and Article 12 of Annex A hereto and as made a part of this Declaration of Trust. Section 2. Class A Common Units. The Trustee has classified __________ Units of the Trust as Class A-1 Common Units (the "Class A-1 Common Units") and _______ Units of the Trust as Class A-2 Common Units (the "Class A-2 Common Units", and, together with the Class A-1 Common Units, the "Class A Common Units"). Each Class A-2 Common Unit shall have the same designations, preferences, rights, powers and duties as each Class A-1 Common Unit. The Trust may issue Class A-2 Common Units only to Trustee Related Parties. Any Class A-1 Common Units transferred to a Trustee Related Party in accordance with the provisions of Article 9 of Annex A hereto shall automatically convert into Class A-2 Common Units upon any such transfer and the number of authorized Class A-2 Common Units shall automatically increase in a corresponding amount and the Class A-1 Common Units so converted being returned to the status of authorized but unissued Class A-1 Common Units. Any Class A-2 Common Units transferred to any Person other than a Trustee Related Party in accordance with the provisions of Article 9 of Annex A hereto shall automatically convert into Class A-1 Common Units upon any such transfer in accordance with Section 2.1.B of Annex A hereto and the number of authorized Class A-1 Common Units shall automatically increase in a corresponding amount, and the Class A-2 Common Units so converted shall be returned to the status of authorized but unissued Class A-2 Common Units. The Class A-1 Common Units and the Class A-2 Common Units are referred to in Annex A as Class A-1 Units and Class A-2 Units, respectively, and collectively as Class A Units. Section 3. Class B Common Units. The Trustee has classified _______ Units of the Trust as Class B Common Units (the "Class B Common Units"). Except as otherwise provided in Sections 2.2.D. and 3.1.C. of Annex A hereto, each Class B Common Unit shall have the same designations, preferences, rights, powers and duties as each Class A-1 Common Unit. Each Class B Common Unit shall automatically convert into a Class A Common Unit as provided in Annex A. Upon any such conversion, the number of authorized Class A Common Units shall automatically be increased in a corresponding amount, and the number of Class B Common Units so converted shall be returned to the status of authorized but unissued Class B Common Units. Section 4. Series A Preferred Units. The Trustee has classified [3,237,435] Units of the Trust as Series A Cumulative Convertible Redeemable Preferred Units (the "Series A Preferred Units"). A description of the Series A Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit F to Annex A hereto. Section 5. Series B Junior Participating Preferred Units. The Trustee has classified __________ Units of the Trust as Series B Junior Participating Convertible Preferred Units (the "Series B Junior Participating Preferred Units"). A description of the Series B Junior Participating Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit G to Annex A hereto. Section 6. Series C Preferred Units. The Trustee has classified 2,000,000 Units of the Trust as Series C Cumulative Convertible Redeemable Preferred Units (the "Series C Preferred Units"). A description of the Series C Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit H to Annex A hereto. Section 8. Series D Preferred Units. The Trustee has classified 2,300,000 Units of the Trust as Series D Cumulative Convertible Redeemable Preferred Units (the "Series D Preferred Units"). A description of the Series D Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit I to Annex A hereto. Section 9. Series E Preferred Units. The Trustee has classified 1,600,000 Units of the Trust as Series E Cumulative Convertible Redeemable Preferred Units (the "Series E Preferred Units"). A description of the Series E Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit J to Annex A hereto. Section 10. Series F Preferred Units. The Trustee has classified 800,000 Units of the Trust as Series F Cumulative Convertible Redeemable Preferred Units (the "Series F Preferred Units"). A description of the Series F Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit K to Annex A hereto. Section 11. Series G Preferred Units. The Trustee has classified 600,000 Units of the Trust as Series G Cumulative Convertible Redeemable Preferred Units (the "Series G Preferred Units"). A description of the Series G Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit L to Annex A hereto. Section 12. Series H Preferred Units. The Trustee has classified 2,640,325 Units of the Trust as Series H Cumulative Convertible Redeemable Preferred Units (the "Series H Preferred Units"). A description of the Series H Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit M to Annex A hereto. Section 13. Series I Preferred Units. The Trustee has classified 500 Units of the Trust as Series I Cumulative Convertible Redeemable Preferred Units (the "Series I Preferred Units"). A description of the Series I Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit N to Annex A hereto. Section 14. Series J Preferred Units. The Trustee has classified 684,931 Units of the Trust as Series J Cumulative Redeemable Preferred Units (the "Series J Preferred Units"). A description of the Series J Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit O to Annex A hereto. Section 15. Series K Preferred Units. The Trustee has classified 666,667 Units of the Trust as Series K Cumulative Convertible Redeemable Preferred Units (the "Series K Preferred Units"). A description of the Series K Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit P to Annex A hereto. Section 16. Series L Preferred Units. The Trustee has classified 641,026 Units of the Trust as Series L Cumulative Convertible Redeemable Preferred Units (the "Series L Preferred Units"). A description of the Series L Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit Q to Annex A hereto. Section 17. Series M Preferred Units. The Trustee has classified 4,000,000 Units of the Trust as Series M Cumulative Convertible Redeemable Preferred Units (the "Series M Preferred Units"). A description of the Series M Preferred Units, including the designations, preferences, rights, powers and duties, is set forth in Exhibit R to Annex A hereto. Section 20. General Nature. All Units shall be personal property entitling the Unitholders only to those rights provided in this Declaration of Trust, including Annex A hereto in its entirety or in any articles supplementary creating any class or series of Units. The legal ownership of the property of the Trust and the right to conduct the business of the Trust is vested exclusively in the Trustees; the Unitholders shall have no interest therein other than the beneficial interest in the Trust conferred by their Units and shall have no right to compel any partition, division, dividend or distribution of the Trust or any of its property. The death or incapacity of a Unitholder shall not terminate the Trust or give his or her legal representative any rights against other Unitholders, the Trustees or the Trust property, except the rights described in Article 9 of Annex A hereto. Section 21. Transferability; Transfer Restrictions. Units in the Trust shall be transferable only in accordance with the provisions of Article 9 of Annex A hereto. By accepting the transfer of Units, whether of record or beneficially, all future Unitholders agree to be bound by the provisions of Annex A hereto as fully as if such Unitholders had executed a stockholders agreement containing all of such provisions. All certificates representing any class or series of Units shall bear an appropriate restrictive legend with a statement to the effect that any transferee agrees to be so bound. The Trust may condition the transfer and recordation of any change in record ownership by the execution by any purported Unitholder of any instrument in which the holder agrees to all of such provisions. Section 22. Preemptive Rights. Except to the extent expressly granted in Section 2.3 of Annex A hereto or in any articles supplementary (which shall be effective only for the class of Units established thereby), no person shall have any preemptive, preferential or other similar rights with respect to (i) additional Capital Contributions or loans to the Trust; or (ii) issuance or sale of any Units or other Trust Interests. ARTICLE 3 Unitholders Section 1. Meetings. (a) There shall be an annual meeting of Unitholders at such time and place, either within or without the State of Maryland, as the Trustees shall prescribe, at which Trustees shall be elected or re-elected and any other proper business may be conducted. The annual meeting of Unitholders shall be held upon reasonable notice at a convenient location and within a reasonable period following delivery of the annual report. Failure to hold an annual meeting does not invalidate the Trust's existence or affect any otherwise valid acts of the Trust. Special meetings of Unitholders may be called by a majority of the Trustees or by the Chairman of the Board, President or Chief Executive Officer of the Trust, and shall be called upon the written request of Unitholders holding in the aggregate twenty-five percent (25%) or more of the outstanding Units of the Trust entitled to vote. Written or printed notice stating the place, date and time of the Unitholders' meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the day of the meeting either personally or by mail, by or at the direction of the Trustee or any officer or the person calling the meeting, to each Unitholder of record entitled to vote at such meeting. No Unitholder not entitled to vote at a meeting shall have any rights to notice of a meeting except as expressly provided for in this Declaration of Trust or under law. No other business than that which is stated in the call for a special meeting shall be considered at such meeting. (b) A majority of the outstanding Units entitled to vote at any meeting, taken together as a single class, represented in person or by proxy shall constitute a quorum at such meeting. Whenever any action is to be taken by the Unitholders, it shall, except as otherwise required by law or this Declaration of Trust or the Bylaws, be authorized by a majority of the number of votes entitled to be cast on the matter. Any action required or permitted to be taken by the holders of the Class A-2 Common Units may be taken without a meeting by the unanimous written consent of the holders of the Class A-2 Common Units. The Bylaws of the Trust may provide that any action required or permitted to be taken by the holders of any other class or series of Units may be taken without a meeting by the written consent of Unitholders entitled to cast a sufficient number of votes to approve the matter as required by applicable law, the Declaration of Trust (including Annex A) or the Bylaws. Section 2. Voting. At each meeting of Unitholders, each Unitholder entitled to vote shall have the right to vote, in person or by proxy, the number of Units of the Trust owned by him or her on each matter on which the vote of the Unitholders is taken. Only Class A-2 Common Unitholders shall have the right to vote in the election of Trustees. In any election of Trustees in which more than one vacancy is to be filled, each Unitholder may vote the number of Class A-2 Common Units of the Trust owned by him or her for each vacancy to be filled. There shall be no right of cumulative voting. Exclusive voting power is vested in the Class A-1 Common Units and Class A-2 Common Units, except to the extent that the Declaration of Trust or Maryland law provides voting rights to any other class of Units. Each outstanding Unit, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of Unitholders, except (i) to the extent that this Declaration of Trust, including Annex A hereto in its entirety, or any articles supplementary limit or deny voting rights to the holders of the Units of any class or series or (ii) as otherwise provided by Maryland law. Section 3. Distributions. The Trustees may from time to time authorize the Trust to pay to Unitholders such dividends or distributions in cash, property or other assets of the Trust or in securities of the Trust or from any other source as the Trustees in their discretion shall determine. The Unitholders shall be entitled to receive dividends and distributions as set forth in Article 3 of Annex A hereto, when, as and if declared by the Trustees, out of funds legally available therefor, and to such distributions upon liquidation of the Trust as set forth in Article 13 of Annex A hereto. The Trustees shall endeavor to authorize the Trust to pay such dividends and distributions as shall be necessary pursuant to Article 3 of Annex A hereto and as shall be necessary for the Parent REIT to qualify as a REIT (so long as the Parent REIT determines to qualify as a REIT); however, Unitholders shall have no right to any dividend or distribution unless and until declared by the Trustees. The exercise of the powers and rights of the Trustees pursuant to this Section 3 shall be subject to the provisions of any class or series of Units at the time outstanding. The receipt by any Person in whose name any Units are registered on the records of the Trust or by his or her duly authorized agent shall be a sufficient discharge for all dividends or distributions payable or deliverable in respect of such Units and from all liability with respect to the application thereof. Section 4. Annual Report. The Trust shall prepare an annual report concerning its operations for the preceding fiscal year in the manner and within the time prescribed by the Act. Section 5. Inspection Rights. Each Unitholder shall have such inspection rights as set forth in Section 6.5 of Annex A hereto. Section 6. Limitation of Liability. Unitholders shall not be personally or individually liable in any manner whatsoever for any debt, act, omission or obligation incurred by the Trust or the Trustees and shall be under no obligation to the Trust or its creditors with respect to their Units other than the obligation to pay to the Trust the full amount of the consideration for which the Units were issued or to be issued, except as set forth in Sections 2.2, 5.5, 8.5 and 11.3 of Annex A hereto. The Trust shall indemnify each Unitholder as set forth in Section 5.7 of Annex A hereto. ARTICLE 4 The Trustee Section 1. Number, Qualification, Compensation and Term. (a) The number of Trustees shall be not less than one nor more than fifteen (15) Trustees. The current number of Trustees is one (1), which may be changed from time to time by resolution of the Trustees. Any action by the Trustees referred to in Annex A hereto shall include action approved by a majority of the Trustees at any time there exists more than one Trustee. Trustees may be any persons, including individuals, corporations, business trusts, estates, trusts, partnerships, limited partnerships, limited liability companies, associations, two or more persons having a joint or common interest, or any other legal or commercial entity. Whenever a vacancy shall occur, until such vacancy is filled as provided in Section 3 of this Article 4, the Trustee or Trustees continuing in office, regardless of their number, shall have all of the powers granted to the Trustees and shall discharge all of the duties imposed on the Trustees by this Declaration of Trust. (b) The term of office of each Trustee shall be one year and until its successor is elected and qualifies, subject to prior death, resignation or removal. In the event that the number of Trustees is increased to more than one (1) the Board of Trustees shall be divided into three classes of Trustees, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of Trustees constituting the entire Board of Trustees. The term of office of each Trustee shall be three (3) years and until his, her or its successor is elected and qualifies, subject to prior death, resignation or removal. At each annual meeting of Unitholders, successors to the class of Trustees whose term expires at such annual meeting shall be elected. If the authorized number of Trustees constituting the Board of Trustees is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of Trustees in each class as nearly equal as possible, and any additional Trustee of any class elected to fill a vacancy resulting from an increase in such class shall hold office until the next annual meeting of shareholders, but in no case shall a decrease in the number of Trustees constituting the Board of Trustees shorten the term of any incumbent Trustee. The name of the current Trustee is as follows: Name Address - ---- ------- Archstone-Smith Trust 7670 South Chester Street, Suite 100 Englewood, Colorado 80112 The records of the Trust shall be revised to reflect the names and addresses of the current Trustees, at such times as any change has occurred. Section 2. Resignation, Removal and Death. A Trustee may resign at any time by giving written notice thereof in recordable form to the Trust and to the other Trustees, if any, at the principal office of the Trust. Any such resignation of a Trustee shall become effective as provided therein. A Trustee may be removed only upon the vote of holders of Class A-2 Common Units in accordance with Section 5.1 of Annex A hereto. Upon the resignation or removal of any Trustee, such Trustee shall execute and deliver such documents and render such accounting as the remaining Trustees shall require and shall thereupon be discharged as Trustee. Upon the incapacity or death of any Trustee, his or her status as a Trustee shall immediately terminate and his or her legal representatives shall perform the acts set forth in the preceding sentence. Section 3. Vacancies. The resignation, removal, incompetency or death of any or all of the Trustees shall not terminate the Trust or affect its continuity. Whenever there shall be a vacancy or vacancies among the Trustees (including vacancies resulting from an increase in the number of Trustees), such vacancy or vacancies shall be filled (i) at a special meeting of Class A-2 Common Unitholders called for such purpose (which may be by written consent in lieu of a meeting), (ii) by the Trustee or Trustees then in office or (iii) at the next annual meeting of Unitholders. Trustees elected at special meetings of Class A-2 Common Unitholders to fill vacancies shall hold office for the balance of the unexpired term of the Trustees whom they are replacing or whose vacancy they are filling (or in the case of a vacancy created by an increase in the number of Trustees, for the balance of the unexpired term of Trustees of the same class of Trustees). Any Trustee appointed by the remaining Trustee or Trustees to fill vacancies shall hold office until the next annual meeting of Unitholders and until his or her successor is elected and qualifies. Section 4. Successor Trustees. The right, title and interest of the Trustees in and to the Trust property shall vest automatically in all persons who may hereafter become trustees upon their due election and qualification without any further act, and thereupon they shall have the same rights, privileges, powers, duties and immunities as though named as Trustees in this Declaration of Trust. Appropriate written evidence of the election and qualification of successor Trustees shall be filed with the records of the Trust and in such other offices or places as the Trustee may deem necessary, appropriate or desirable. Upon the resignation, removal or death of a Trustee, such Trustee (and upon his or her death, his or her estate) shall automatically cease to have any right, title or interest in or to any of the Trust property, and the right, title and interest of such Trustee in and to the Trust property shall vest automatically in the remaining Trustee or Trustees without any further act. Section 5. Meetings and Action Without a Meeting. The Trustees may act with or without a meeting. Except as otherwise provided herein, any action of a majority of Trustees present at a duly convened meeting of the Trustees shall be conclusive and binding as an action of the Trustees. Action may be taken without a meeting in any manner and by any means permitted by Maryland law only by unanimous consent of all of the Trustees in office and shall be evidenced by a written certificate or instrument signed by all of the Trustees in office. Any action taken by the Trustees in accordance with the provisions of this Section 5 and Article 5 of Annex A hereto shall be conclusive and binding on the Trust, the Trustees and the Unitholders, as an action of all of the Trustees, collectively, and of the Trust. Any deed, mortgage, evidence of indebtedness or other instrument, agreement or document of any character, whether similar or dissimilar, executed by one or more of the Trustees, when authorized at a meeting or by written authorization without a meeting in accordance with the provisions of this Section 5, shall be valid and binding on the Trustees, the Trust and the Unitholders. Section 6. Authority. The Trustees may hold the legal title to all property belonging to the Trust. The Trustees shall have absolute and exclusive control, management and disposition thereof, and absolute and exclusive control over the management and conduct of the business affairs of the Trust, free from any power or control on the part of the Unitholders, in the same manner as if the Trustees were the absolute owners thereof, subject only to the express limitations in this Declaration of Trust. Section 7. Powers. The Trustees shall have all of the powers necessary, convenient or appropriate to effectuate the purposes of the Trust and may take any action which they deem necessary or desirable and proper to carry out such purposes. Any determination of the purposes of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of this Declaration of Trust, the presumption shall be in favor of the grant of powers to the Trustees. Without limiting the generality of the foregoing, the powers of the Trustees on behalf of the Trust shall include those set forth in Section 5.1 of Annex A hereto, subject to the limitations set forth in Annex A hereto. Section 8. Right to Own Units. A Trustee may acquire, hold and dispose of Units in the Trust for its individual account and may exercise all rights of a Unitholder to the same extent and in the same manner as if it were not a Trustee. Section 9. [reserved] Section 10. Limitation of Liability. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of trustees of a real estate investment trust, no Trustee of the Trust shall be liable to the Trust or to any Unitholder for money damages, except to the extent set forth in Section 5.8 or other Sections of Annex A hereto. Section 11. Indemnification. The Trust shall indemnify each Trustee, to the fullest extent permitted by Maryland law, as amended from time to time, subject to and in accordance with the provisions of Section 5.7 of Annex A hereto. Section 12. Persons Dealing with Trustees. No corporation, persons, transfer agent or other party shall be required to examine or investigate the terms or conditions contained in this Declaration of Trust or otherwise applicable to the Trust, and every such corporation, person, transfer agent or other party may deal with trust property and assets as if the Trustees were the sole and exclusive owners thereof free of all trusts; and no such corporation, person, transfer agent or other party dealing with the Trustees or with the Trust or Trust property and assets shall be required to see to the application of any money or property paid or delivered to any Trustee, or nominee, agent or representative of the Trust or the Trustees. A certificate executed by or on behalf of the Trustees or by any other duly authorized representative of the Trust delivered to any person or party dealing with the Trust or Trust property and assets, or, if relating to real property, recorded in the deed records for the county or district in which such real property lies, certifying as to the identity and authority of the Trustees, agents or representatives of the Trust for the time being, or as to any action of the Trustees or of the Trust, or of the Unitholders, or as to any other fact affecting or relating to the Trust or this Declaration of Trust, may be treated as conclusive evidence thereof by all persons dealing with the Trust. No provision of this Declaration of Trust shall diminish or affect the obligation of the Trustees and every other representative or agent of the Trust to deal fairly and act in good faith with respect to the Trust and the Unitholders insofar as the relationship and accounting among the parties to the Trust is concerned; but no third party dealing with the Trust or with any Trustee, agent or representative of the Trust shall be obliged or required to inquire into, investigate or be responsible for the discharge and performance of such obligation. Section 13. Administrative Powers. The Trustees shall have the power to pay the expenses of administration of the Trust, including all legal and other expenses in connection with the preparation and carrying out of the acquisition of properties and the issuance of Units; and to employ such officers, experts, counsel, managers, salesmen, agents, workmen, clerks and other persons as they deem appropriate. The Trustees shall also enjoy the full benefit of the provisions of Section 5.9 of Annex A hereto. Section 14. Election of Officers. The Trustees shall annually elect a President and a Secretary of the Trust. The Trustees may also annually elect one or more Vice Presidents, a Treasurer, Assistant Secretaries, Assistant Treasurers and such other officers as the Trustees shall deem proper. Except as required by law, the officers of the Trust need not be Trustees. All officers and agents of the Trust shall have such authority and perform such duties in the management of the Trust as may be provided in the Bylaws or as may be determined by the Trustees not inconsistent with the Bylaws. Any officer or agent elected or appointed by the Trustees may be removed by the Trustees whenever in its judgment the best interest of the Trust will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of any officer or agent shall not of itself create contract rights. The Trustees shall fix the compensation of all officers. Section 15. Committees and Delegation of Powers and Duties. The Trustees may, in their discretion, by resolution passed by a majority of the Trustees, designate from among the Trustees one or more committees which shall consist of one or more Trustees. The Trustees may designate one or more Trustees as alternate members of any such committee, who may replace any absent or disqualified member at any meeting of the committee. Such committees shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing them (including, but not limited to, the determination of the type and amount of consideration at which Units are to be issued). A majority of any such committee may determine its action and fix the time and place of its meetings, unless the Trustees shall otherwise provide. The Trustees, by resolution passed by a majority of the Trustees, may at any time change the membership of any committee, fill vacancies on it or dissolve it. The Bylaws, or a majority of the Trustees, may authorize any one or more of the Trustees, or any one or more of the officers or employees or agents of the Trust, on behalf of the Trust, to exercise and perform any and all powers granted to the Trustees, and to discharge any and all duties imposed on the Trustees, and to do any acts and to execute any instruments deemed by such person or persons to be necessary or appropriate to exercise such power or to discharge such duties, and to exercise his or her own judgment in so doing. ARTICLE 5 Termination and Duration Section 1. Termination. The Trust may be terminated only in accordance with the provisions of Article 11 of Annex A hereto, subject to the provisions of any class or series of Units at the time outstanding. Upon termination of the Trust and distribution to the Unitholders as provided in Article 11 of Annex A hereto, a majority of the Trustees shall execute and place among the records of the Trust an instrument in writing setting forth the fact of such termination, and the Trustees shall thereupon be discharged from all further liabilities and duties hereunder, and the right, title and interest of all Unitholders shall cease and be canceled and discharged. Section 2. Merger, Consolidation or Sale. The Trust shall have the power to (i) merge with or into another entity, or (ii) sell or otherwise dispose of all or substantially all of the assets of the Trust; provided that such action shall have been approved by the Trustees and by the Unitholders in accordance with the provisions of Annex A hereto. Section 4. Duration. Subject to possible earlier termination in accordance with the provisions of this Article V and Article 11 of Annex A hereto, or as required by law, the duration of the Trust shall be perpetual. ARTICLE 6 Amendments Section 1. Amendments. Except as otherwise provided in Section 1(b) of Article 2, Section 2 of this Article 6 and in Article 12 of Annex A hereto, this Declaration of Trust may be amended only after a majority of the Trustees has declared such amendment advisable and such amendment has been approved at a meeting by the affirmative vote or written consent of the holders of at least a majority of the Units then outstanding and entitled to vote thereon. Section 2. Amendment by Trustees. The Trustees by a two-thirds vote may amend, without the approval of the Unitholders, provisions of this Declaration of Trust from time to time to enable the Trust to qualify as a REIT for so long as it determines to so qualify. Section 3. Requirements of Maryland Law. Except as provided in Article 2, Section 1(b) or in this Article 6 or in Article 12 of Annex A hereto, this Declaration of Trust may only be amended in accordance with Section 8-501 of the Act. ARTICLE 7 Miscellaneous Section 1. Construction. This Declaration of Trust, including Annex A hereto in its entirety, shall be construed in such a manner as to give effect to the intent and purposes of the Trust and this Declaration of Trust, including, without limitation, the intent for the Trust to be treated as a partnership for federal income tax purposes. Subject to the foregoing, if any provisions hereof appear to be in conflict, more specific provisions shall control over general provisions. This Declaration of Trust, including Annex A hereto in its entirety, shall govern all of the relationships among the Trustees and the Unitholders of the Trust; and each provision hereof shall be effective for all purposes and to all persons dealing with the Trust to the fullest extent possible under applicable law in each jurisdiction in which the Trust shall engage in business. In defining or interpreting the powers and duties of the Trust and the Trustees and officers of the Trust, reference may be made, to the extent appropriate and not inconsistent with the Code, the Act and this Declaration of Trust, to Title 1 through Title 3 of the Corporations and Associations Article of the Annotated Code of Maryland. Section 2. Headings for Reference Only. Headings preceding the text of articles, sections and subsections hereof have been inserted solely for convenience and reference, and shall not be construed to effect the meaning, construction or effect of this Declaration of Trust. Section 3. Applicable Law. This Declaration of Trust has been executed with reference to, and its construction and interpretation shall be governed by, Maryland law, and the rights of all parties and the construction and effect of every provision hereof shall be subject to and construed according to Maryland law. Section 4. Certifications. Any certificates signed by a person who, according to the records of the State Department of Assessments and Taxation of Maryland, appears to be a Trustee hereunder, shall be conclusive evidence as to the matters so certified in favor of any person dealing with the Trust or the Trustees or any one or more of them, and the successors or assigns of such persons, which certificate may certify to any matter relating to the affairs of the Trust, including, but not limited to, any of the following: a vacancy among the Trustees; the number and identity of Trustees; this Declaration of Trust and any amendments or supplements thereto, or any restated declaration of trust and any amendments or supplements thereto, or that there are no amendments to this Declaration of Trust or any restated declaration of trust; a copy of the Bylaws or any amendment thereto; the due authorization of the execution of any instrument or writing; the vote at any meeting of the Trustees or a committee thereof or Unitholders; the fact that the number of Trustees present at any meeting or executing any written instrument satisfied the requirements of this Declaration of Trust; a copy of any Bylaw adopted by the Unitholders or the identity of any officer elected by the Trustees; or the existence or nonexistence of any fact or facts which in any manner relate to the affairs of the Trust. If this Declaration of Trust or any restated declaration of trust is filed or recorded in any recording office other than the State Department of Assessments and Taxation of Maryland, any one dealing with real estate so located that instruments affecting the same should be filed or recorded in such recording office may rely conclusively on any certificate of the kind described above which is signed by a person who according to the records of such recording office appears to be a Trustee hereunder. In addition, the Secretary or any Assistant Secretary of the Trust or any other officer of the Trust designated by the Bylaws or by action of the Trustees may sign any certificate of the kind described in this Section 4, and such certificate shall be conclusive evidence as to the matters so certified in favor of any person dealing with the Trust, and the successors and assigns of such person. Section 5. Severability. If any provision of this Declaration of Trust, including any provision of Annex A hereto, shall be 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 of Trust and this Declaration of Trust shall be carried out, if possible, as if such invalid or unenforceable provision were not contained herein. Section 6. Bylaws. The Trustees shall have the exclusive power to adopt, alter or repeal any provisions of these Bylaws. Section 7. Filing and Recording. This Declaration of Trust, including Annex A attached hereto in its entirety, shall be filed in the manner prescribed for real estate investment trusts under Maryland law and may also be filed or recorded in such other places as the Trustees deem appropriate, but failure to file for record this Declaration of Trust, including Annex A hereto in its entirety, or any amendment hereto, in any office other than in the State Department of Assessments and Taxation of Maryland shall not affect or impair the validity or effectiveness of this Declaration of Trust, Annex A hereto, or any amendment or supplement hereto. ARTICLE 8 Limitation of Liability and Indemnification of Officers and Employees Section 1. Limitation of Liability of Officers and Employees. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of officers, employees or agents of a real estate investment trust, no officer, employee or agent of the Trust shall be liable to the Trust or to any Unitholder for money damages. Section 2. Indemnification of Officers and Employees. The Trust shall indemnify each officer, employee and agent, to the fullest extent permitted by Maryland law, as amended from time to time, subject to and in accordance with the provisions of Section 5.7 of Annex A hereto. Section 3. Insurance. Notwithstanding any other provisions of this Declaration of Trust, the Trust, for purposes of providing indemnification for its Trustees, officers, employees and agents, shall have the authority, without specific Unitholder approval, to enter into insurance or other arrangements, with persons or entities which are regularly engaged in the business of providing insurance coverage, to indemnify all Trustees, officers, employees and agents of the Trust against any and all liabilities and expenses incurred by them by reason of their being Trustees, officers, employees or agents of the Trust, whether or not the Trust would otherwise have the power under this Declaration of Trust or under Maryland law to indemnify such persons against such liability. Without limiting the power of the Trust to procure or maintain any kind of insurance or other arrangement, the Trust may, for the benefit of persons indemnified by it, (i) create a trust fund, (ii) establish any form of self-insurance, (iii) secure its indemnity obligation by grant of any security interest or other lien on the assets of the Trust or (iv) establish a letter of credit, guaranty or surety arrangement. Any such insurance or other arrangement may be procured, maintained or established within the Trust or with any insurer or other person deemed appropriate by the trustees regardless of whether all or part of the stock or other securities thereof are owned in whole or in part by the Trust. In the absence of fraud, the judgment of the Trustees as to the terms and conditions of insurance or other arrangement and the identity of the insurer or other arrangement shall not be subject to voidability, nor subject the Trustees approving such insurance or other arrangement to liability, on any ground, regardless of whether Trustees participating in and approving such insurance or other arrangement shall be beneficiaries thereof. * * * * * Immediately before the adoption of this Declaration of Trust, the total number of Shares of all classes which the Trust had authority to issue was 250,000,000, consisting of 226,800,000 Common Shares, par value $1.00 per share, 9,200,000 Cumulative Convertible Series A Preferred Shares of Beneficial Interest, par value $1.00 per share, 4,200,000 Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share, 2,000,000 Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per Share, 2,300,000 Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share, 1,600,000 Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share, 800,000 Series F Cumulative Convertible Preferred Shares of Beneficial Interest, par value $1.00 per share, 600,000 Series G Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $1.00 per share, and 2,500,000 Junior Participating Preferred Shares of Beneficial Interest, par value $1.00 per share, having an aggregate par value of $250,000,000. Immediately after the adoption of this Declaration of Trust, the total number of Units of all classes which the Trust has authority to issue is ________, consisting of ______ Class A-1 Common Units, par value $0.01 per share, ________ Class A-2 Common Units, par value $0.01 per share, ________ Class B Common Units, par value $0.01 per share, [3,237,435] Series A Preferred Units, par value $0.01 per share, __________, Series B Junior Participating Preferred Units, par value $0.01 per share, 2,000,000 Series C Preferred Units, par value $0.01 per share, 2,300,000 Series D Preferred Units, par value $0.01 per share, 1,600,000 Series E Preferred Units, par value $0.01 per share, 800,000 Series F Preferred Units, par value $0.01 per share, 600,000 Series G Preferred Units, par value $0.01 per share, 2,640,325 Series H Preferred Units, par value $0.01 per share, 500 Series I Preferred Units, par value $0.01 per share, 684,931 Series J Preferred Units, par value $0.01 per share, 666,667 Series K Preferred Units, par value $0.01 per share, 641,026 Series L Preferred Units, par value $0.01 per share, and 4,000,000 Series M Preferred Units, par value $0.01 per share, having an aggregate par value of $______. IN WITNESS WHEREOF, the Trust has caused this Amended and Restated Declaration of Trust to be signed in its name and on its behalf as of the date first written above, by its undersigned who acknowledges this Amended and Restated Declaration of Trust to be the trust act of the Trust and that to the best of his knowledge, information and belief, the matters and facts set forth herein are true in all material respects and that this statement is made under the penalties for perjury. ARCHSTONE COMMUNITIES TRUST By: ------------------------------- Name: Title: ATTEST: - ------------------------------- Caroline Brower Secretary ANNEX A Table of CoNtents ARTICLE 1 DEFINED TERMS........................................................................................ 1 ARTICLE 2 CAPITAL CONTRIBUTIONS................................................................................ 15 Section 2.1 Capital Contributions of the Unitholders................................................... 15 Section 2.2 Issuances of Additional Trust Interests.................................................... 15 Section 2.3 Preemptive Rights.......................................................................... 17 Section 2.4 Other Contribution Provisions.............................................................. 18 ARTICLE 3 DISTRIBUTIONS........................................................................................ 18 Section 3.1 Requirement and Characterization of Distributions.......................................... 18 Section 3.2 Amounts Withheld........................................................................... 22 Section 3.3 Distributions Upon Liquidation............................................................. 22 ARTICLE 4 ALLOCATIONS.......................................................................................... 22 Section 4.1 Allocations For Capital Account Purposes................................................... 22 ARTICLE 5 MANAGEMENT AND OPERATIONS OF BUSINESS................................................................ 25 Section 5.1 Management................................................................................. 25 Section 5.2 Declaration of Trust....................................................................... 29 Section 5.3 Restrictions on Trustee's Authority........................................................ 29 Section 5.4 Reimbursement of the Trustee............................................................... 30 Section 5.5 Outside Activities of the Trustee.......................................................... 32 Section 5.6 Transactions with Affiliates............................................................... 34 Section 5.7 Indemnification............................................................................ 34 Section 5.8 Liability of the Trustee................................................................... 36 Section 5.9 Other Matters Concerning the Trustee....................................................... 37 Section 5.10 Title to Trust Assets...................................................................... 38 Section 5.11 Reliance by Third Parties.................................................................. 38 ARTICLE 6 RIGHTS AND OBLIGATIONS OF UNITHOLDERS................................................................ 39 Section 6.1 Limitation of Liability.................................................................... 39 Section 6.2 Management of Business..................................................................... 39 Section 6.3 Outside Activities of Unitholders.......................................................... 39 Section 6.4 Return of Capital.......................................................................... 39 Section 6.5 Rights of Unitholders Relating to the Trust................................................ 40 Section 6.6 Redemption Right........................................................................... 41 ARTICLE 7 BOOKS, RECORDS, ACCOUNTING AND REPORTS............................................................... 44 Section 7.1 Records and Accounting..................................................................... 44 Section 7.2 Fiscal Year................................................................................ 44 Section 7.3 Reports.................................................................................... 45 ARTICLE 8 TAX MATTERS.......................................................................................... 45 Section 8.1 Preparation of Tax Returns................................................................. 45
Section 8.2 Tax Elections.............................................................................. 45 Section 8.3 Tax Matters Partner........................................................................ 46 Section 8.4 Organizational Expenses.................................................................... 47 Section 8.5 Withholding................................................................................ 47 ARTICLE 9 TRANSFERS AND WITHDRAWALS............................................................................ 48 Section 9.1 Transfer................................................................................... 48 Section 9.2 Transfer of Trustee's Trust Interest....................................................... 48 Section 9.3 Unitholders' Rights to Transfer............................................................ 49 Section 9.4 General Provisions......................................................................... 51 ARTICLE 10 ADDITIONAL UNITHOLDERS.............................................................................. 52 Section 10.1 Additional Unitholders..................................................................... 52 ARTICLE 11 DISSOLUTION, LIQUIDATION AND TERMINATION............................................................ 53 Section 11.1 Dissolution................................................................................ 53 Section 11.2 Winding Up................................................................................. 54 Section 11.3 Compliance with Timing Requirements of Regulations; Restoration of Deficit Capital Accounts 55 Section 11.4 Rights of Unitholders...................................................................... 57 Section 11.5 Notice of Dissolution...................................................................... 57 Section 11.6 Reasonable Time for Winding-Up............................................................. 57 Section 11.7 Waiver of Partition........................................................................ 57 Section 11.8 Liability of the Liquidator................................................................ 58 ARTICLE 12 AMENDMENT OF AGREEMENT.............................................................................. 58 Section 12.1 General.................................................................................... 58 Section 12.2 Amendments Requiring Approval of Class A-2 Unitholders..................................... 58 Section 12.3 Amendments Requiring Approval of Class A-1 Unitholders..................................... 59 Section 12.4 Other Amendments Requiring Certain Unitholder Approval..................................... 59 ARTICLE 13 GENERAL PROVISIONS.................................................................................. 60 Section 13.1 Addresses and Notice....................................................................... 60 Section 13.2 Titles and Captions........................................................................ 60 Section 13.3 Pronouns and Plurals....................................................................... 60 Section 13.4 Further Action............................................................................. 60 Section 13.5 Binding Effect............................................................................. 60 Section 13.6 Creditors.................................................................................. 60 Section 13.7 Waiver..................................................................................... 61 Section 13.8 Counterparts............................................................................... 61 Section 13.9 Applicable Law............................................................................. 61 Section 13.10 Invalidity of Provisions................................................................... 61 Section 13.11 Entire Agreement........................................................................... 61 Section 13.12 No Rights as Shareholders.................................................................. 61 EXHIBIT A CAPITAL ACCOUNT MAINTENANCE......................................................................... 1
ii EXHIBIT B SPECIAL ALLOCATION RULES............................................................................ 1 EXHIBIT C PROTECTED PARTNERS AND PROTECTED AMOUNTS............................................................ 1 EXHIBIT D TAX PROTECTION AGREEMENT............................................................................. 1 EXHIBIT E NOTICE OF REDEMPTION................................................................................ 1
iii ANNEX A This Annex A constitutes not only an integral part of the Declaration ------- of Trust but also a separate agreement among all of the holders of Units (as defined herein) of the Trust, each of whom is identified on the books and records of the Trust. Each holder of Units on the Effective Date (as defined herein) shall become a party to this agreement without further action required on the part of any such holder. Effective as of the day prior to the Effective Date, the Trust elected pursuant to Treasury Regulation (S) 301.7701-3(c) to be treated for federal income tax purposes as a disregarded entity not separate from its owner (and not as an "association taxable as a corporation"). On the Effective Date, this election has caused the Trust to become treated as a "partnership" for federal income tax purposes. The provisions in this Annex A relating to Capital ------- Accounts (as defined herein) and allocations of Net Income and Net Loss (each as defined herein) (and items of income, gain, loss, and deduction) for federal income tax purposes are intended to be consistent with the provisions of the Code (as defined herein) and the Treasury Regulations (as defined herein) applicable to entities that are characterized as "partnerships" for federal income tax purposes. ARTICLE 1 DEFINED TERMS The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement. "Act" means Title 8 of the Corporations and Associations Article of --- the Annotated Code of Maryland, including, as it may be amended from time to time, and any successor to such statute. "Adjusted Capital Account" means the Capital Account maintained for ------------------------ each Unitholder as of the end of each Fiscal Year (i) increased by any amounts which such Unitholder is obligated to restore pursuant to any provision of this Agreement, or is treated as being obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c), or is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704- 2(i)(5) and (ii) decreased by the items described in Regulations Sections 1.704- 1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. "Adjusted Capital Account Deficit" means, with respect to any -------------------------------- Unitholder, the deficit balance, if any, in such Unitholder's Adjusted Capital Account as of the end of the relevant Fiscal Year. 1 "Adjusted Property" means any property the Carrying Value of which has ----------------- been adjusted pursuant to Exhibit A hereof. --------- "Affiliate" means, with respect to any Person, (i) any Person directly --------- or indirectly controlling, controlled by or under common control with such Person, (ii) any Person owning or controlling ten percent (10%) or more of the outstanding voting interests of such Person, (iii) any Person of which such Person owns or controls ten Percent (10%) or more of the voting interests, or (iv) any officer, director, general partner or trustee of such Person or of any Person referred to in clauses (i), (ii), and (iii) above. For the purposes of this definition, "control" when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aggregate Protected Amount" means the aggregate balances of the -------------------------- Protected Amounts, if any, of all Protected Unitholders, as determined on the date in question. "Agreed Value" means (i) in the case of any Contributed Property, the ------------ 704(c) Value of such property as of the time of its contribution to the Trust, reduced by any liabilities either assumed by the Trust upon such contribution or to which such property is subject when contributed, as the same is reflected in the books and records of the Trust; and (ii) in the case of any property distributed to a Unitholder by the Trust, the Trust's Carrying Value of such property at the time such property is distributed, reduced by any indebtedness either assumed by such Trust upon such distribution or to which such property is subject at the time of distribution as determined under Section 752 of the Code and the Regulations thereunder. "Agreement" means this Annex A to the Declaration of Trust. --------- "Available Cash" means, with respect to any period for which such -------------- calculation is being made: (a) all cash revenues and funds received by the Trust from whatever source (excluding the proceeds of any Capital Contribution to the extent determined by the Trustee) plus the amount of any reduction (including, without limitation, a reduction resulting because the Trustee determines such amounts are no longer necessary) in reserves of the Trust, which reserves are referred to in clause (b)(iv) below; (b) less the sum of the following (except to the extent made with the proceeds of any Capital Contribution): (i) all interest, principal and other debt payments made during -------- such period by the Trust, (ii) all cash expenditures (including capital expenditures) made by the Trust during such period, 2 (iii) investments in any entity (including loans made thereto) to the extent that such investments are permitted under this Agreement and are not otherwise described in clauses (b)(i) or (ii), and (iv) the amount of any increase in reserves established during such period which the Trustee determines is necessary or appropriate in its sole and absolute discretion. Notwithstanding the foregoing, Available Cash shall not include any cash received, or reductions in reserves, or take into account any disbursements made, or reserves established, after commencement of the dissolution and liquidation of the Trust. "Book-Tax Disparities" means, with respect to any item of Contributed -------------------- Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for federal income tax purposes as of such date. A Unitholder's share of the Trust's Book-Tax Disparities in all of its Contributed Property and Adjusted Property will be reflected by the difference between such Unitholder's Capital Account balance as maintained pursuant to Exhibit A and the hypothetical balance of such Unitholder's Capital --------- Account computed as if it had been maintained strictly in accordance with federal income tax accounting principles. "Business Day" means any day except a Saturday, Sunday or other day on ------------ which commercial banks in New York, New York are authorized or required by law to close. "Capital Account" means the Capital Account maintained for a --------------- Unitholder pursuant to Exhibit A hereof. --------- "Capital Contribution" means, with respect to any Unitholder, any -------------------- cash, cash equivalents or the Agreed Value of Contributed Property which such Unitholder contributes or is deemed to contribute to the Trust pursuant to Section 2.1 or 2.2 hereof. "Carrying Value" means (i) with respect to a Contributed Property or -------------- Adjusted Property, the 704(c) Value of such property, reduced (but not below zero) by all Depreciation with respect to such Contributed Property or Adjusted Property, as the case may be, charged to the Unitholders' Capital Accounts following the contribution of or adjustment with respect to such Property, and (ii) with respect to any other Trust property, the adjusted basis of such property for federal income tax purposes, all as of the time of determination. The Carrying Value of any property shall be adjusted from time to time in accordance with Exhibit A hereof, and to reflect changes, additions (including --------- capital improvements thereto) or other adjustments to the Carrying Value for dispositions and acquisitions of Trust properties, as deemed appropriate by the Trustee. "Cash Amount" means an amount of cash per Unit equal to the Value on ----------- the Valuation Date of the Shares Amount. "Class A Cash Portion" has the meaning set forth in Section 3.1.C. -------------------- 3 "Class A Unit" means any Unit that is not specifically designated by ------------ the Trustee as being of another specified class of Units. "Class A Unitholders" means the Unitholders who are holders of Class A ------------------- Units. "Class A-1 Unit" means any Class A Unit that is not a Class A-2 Unit. -------------- "Class A-2 Unit" means any Class A Unit held by any Trustee Related -------------- Party. "Class B Cash Portion" has the meaning set forth in Section 3.1.C. -------------------- "Class B Unit" means a Unit with such designations, preferences, ------------ rights, powers and duties as are described in or pursuant to Section 2.2.C. "Class B Unitholders" means the Unitholders who are holders of Class B ------------------- Units. "Code" means the Internal Revenue Code of 1986, as amended and in ---- effect from time to time, as interpreted by the applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "Common Unit" means a Unit that is not a Preferred Unit. The Class A- ----------- 1 Units, Class A-2 Units and Class B Units are Common Units. "Common Unit Available Cash" has the meaning set forth in Section -------------------------- 3.1.C. "Contributed Property" means each property or other asset contributed -------------------- to the Trust, in such form as may be permitted by the Act, but excluding cash contributed or deemed contributed to the Trust. Once the Carrying Value of a Contributed Property is adjusted pursuant to Exhibit A hereof, such property --------- shall no longer constitute a Contributed Property for purposes of Exhibit A --------- hereof, but shall be deemed an Adjusted Property for such purposes. "Conversion Factor" means 1.0; provided that, if the Parent REIT (i) ----------------- -------- declares or pays a dividend on its outstanding Shares in Shares or makes a distribution to all holders of its outstanding Shares in Shares, (ii) subdivides its outstanding Shares or (iii) combines its outstanding Shares into a smaller number of Shares, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of Shares issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination has occurred as of such time) and the denominator of which shall be the actual number of Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, subdivision or combination; and provided further that if -------- ------- an entity shall cease to be the Parent REIT (the "Predecessor Entity") and another entity shall become the Parent REIT (the "Successor Entity"), the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which is the Value of one Share of the Predecessor Entity, determined as of the date when the Successor Entity becomes the Parent REIT, and the denominator of which is the Value of one Share of the Successor Entity, 4 determined as of that same date. (For purposes of the second proviso in the preceding sentence, if any shareholders of the Predecessor Entity will receive consideration in connection with the transaction in which the Successor Entity becomes the Parent REIT, the numerator in the fraction described above for determining the adjustment to the Conversion Factor (that is, the Value of one Share of the Predecessor Entity) shall be the sum of the greatest amount of cash and the fair market value (as determined in good faith by the Trustee) of any securities and other consideration that the holder of one Share in the Predecessor Entity could have received in such transaction (determined without regard to any provisions governing fractional shares).) Any adjustment to the Conversion Factor shall become effective immediately after the effective date of the event retroactive to the record date, if any, for the event giving rise thereto, it being intended that (x) adjustments to the Conversion Factor are to be made to avoid unintended dilution or anti-dilution as a result of transactions in which Shares are issued, redeemed or exchanged without a corresponding issuance, redemption or exchange of Units and (y) if a Specified Redemption Date shall fall between the record date and the effective date of any event of the type described above, that the Conversion Factor applicable to such redemption shall be adjusted to take into account such event. "Convertible Funding Debt" has the meaning set forth in Section 5.5.E. ------------------------ "Debt" means, as to any Person, as of any date of determination, (i) ---- all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Person's interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person which, in accordance with generally accepted accounting principles, should be capitalized. "Declaration of Trust" means the Amended and Restated Declaration of -------------------- Trust of the Trust, of which this Annex A is part, filed in the State of Maryland on __________________, as amended or restated from time to time. "Depreciation" means, for each fiscal year, an amount equal to the ------------ federal income tax depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such year, except that if the Carrying Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or other period, Depreciation shall be an amount which bears the same ratio to such beginning Carrying Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such year bears to such beginning adjusted tax basis; provided, however, -------- ------- that if the federal income tax depreciation, amortization, or other cost recovery deduction for such year is zero, Depreciation shall be determined with reference to such beginning Carrying Value using any reasonable method selected by the Trustee. 5 "Distribution Period" means any calendar quarter or shorter period ------------------- with respect to which a distribution of Available Cash is to be made to the Unitholders by the Trust. "Effective Date" means the date of closing of the merger of Charles E. -------------- Smith Residential Realty, L.P. with and into the Trust pursuant to the Merger Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "ERISA Plan Investor" means (i) a Plan, (ii) a trust which was ------------------- established pursuant to a Plan, or a nominee for such trust or Plan, or (iii) an entity whose underlying assets include assets of a Plan by reason of such Plan's investment in such entity. "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Exercise Percentage" has the meaning set forth in Section 2.3. ------------------- "Fiscal Year" means the fiscal year of the Trust, which shall be the ----------- calendar year. "Funding Debt" means the incurrence of any Debt by or on behalf of the ------------ Parent REIT for the purpose of providing funds to the Trust. "Immediate Family" means, with respect to any natural Person, such ---------------- natural Person's spouse and such natural Person's natural or adoptive parents, descendants, nephews, nieces, brothers, and sisters. "Incapacity" or "Incapacitated" means, (i) as to any natural Person ---------- ------------- who is a Unitholder, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Unitholder incompetent to manage his or her person or estate, (ii) as to any corporation which is a Unitholder, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter, (iii) as to any partnership or limited liability company which is a Unitholder, the dissolution and commencement of winding up of the partnership or limited liability company, (iv) as to any estate which is a Unitholder, the distribution by the fiduciary of the estate's entire interest in the Trust, (v) as to any trust which is a Unitholder, the termination of the trust (but not the substitution of a new trustee) or (vi) as to any Unitholder, the bankruptcy of such Unitholder. For purposes of this definition, bankruptcy of a Unitholder shall be deemed to have occurred when (a) the Unitholder commences a voluntary proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Unitholder is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Unitholder, (c) the Unitholder executes and delivers a general assignment for the benefit of the Unitholder's creditors, (d) the Unitholder files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Unitholder in any proceeding of the nature described in clause (b) above, (e) the Unitholder seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Unitholder or for all or any substantial part of the Unitholder's properties, (f) any proceeding seeking liquidation, reorganization or other 6 relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Unitholder's consent or acquiescence of a trustee, receiver of liquidator has not been vacated or stayed within ninety (90) days of such appointment or (h) an appointment referred to in clause (g) is not vacated within ninety (90) days after the expiration of any such stay. "Indemnitee" means (i) any Person made a party to a proceeding by ---------- reason of its status as (A) the Trustee and (B) a director or officer of the Trust or the Trustee and (ii) such other Persons (including, without limitation, other Unitholders and Affiliates of the Trustee, a Unitholder or the Trust) as the Trustee may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion. "IRS" means the Internal Revenue Service, which administers the --- internal revenue laws of the United States. "Junior Participating Preferred Units" means the series of Units ------------------------------------ designated as the Junior Participating Preferred Units with the designations, preferences and other rights set forth in Exhibit I hereto. --------- "Liquidating Event" has the meaning set forth in Section 11.1. ----------------- "Liquidator" has the meaning set forth in Section 11.2.A. ---------- "Merger Agreement" means that certain agreement and plan of merger ---------------- among the Trust, New Garden Residential Trust, Charles E. Smith Residential Realty, Inc. and Charles E. Smith Residential Realty, L.P., dated May 3, 2001. "Net Income" means, for any taxable period, the excess, if any, of the ---------- Trust's items of income and gain for such taxable period over the Trust's items of loss and deduction for such taxable period. The items included in the calculation of Net Income shall be determined in accordance with federal income tax accounting principles, subject to the specific adjustments provided for in Exhibit A. If an item of income, gain, loss or deduction that has been included - --------- in the initial computation of Net Income is subjected to the special allocation rules in Exhibit B, Net Income or the resulting Net Loss, whichever the case may --------- be, shall be recomputed without regard to such item. "Net Loss" means, for any taxable period, the excess, if any, of the -------- Trust's items of loss and deduction for such taxable period over the Trust's items of income and gain for such taxable period. The items included in the calculation of Net Loss shall be determined in accordance with federal income tax accounting principles, subject to the specific adjustments provided for in Exhibit A. If an item of income, gain, loss or deduction that has been included - --------- in the initial computation of Net Loss is subjected to the special allocation rules in Exhibit B, Net Loss or the resulting Net Income, whichever the case may --------- be, shall be recomputed without regard to such item. 7 "New Securities" means (i) any rights, options, warrants or -------------- convertible or exchangeable securities having the right to subscribe for or purchase Shares, excluding grants under any Share Option Plan, or (ii) any Debt issued by the Parent REIT that provides any of the rights described in clause (i). "Nonrecourse Built-in Gain" means, with respect to any Contributed ------------------------- Properties or Adjusted Properties that are subject to a mortgage or negative pledge securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Trustees pursuant to Section 2.B of Exhibit B if such --------- properties were disposed of in a taxable transaction in full satisfaction of such liabilities and for no other consideration. "Nonrecourse Deductions" has the meaning set forth in Regulations ---------------------- Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c). "Nonrecourse Liability" has the meaning set forth in Regulations --------------------- Section 1.752-1(a)(2). "Notice of Redemption" means the Notice of Redemption substantially in -------------------- the form of Exhibit E to this Agreement. --------- "Parent REIT" means the Trustee; provided, however, that if (i) the ----------- -------- ------- common shares of beneficial interest (or other comparable equity interests) of the Trustee are at any time not Publicly Traded and (ii) the common shares of beneficial interest (or other comparable equity interests) of an entity that owns, directly or indirectly, more than fifty percent (50%) of the common shares of beneficial interest (or other comparable equity interests) of the Trustee are Publicly Traded, the term "Parent REIT" shall refer to such entity whose common shares of beneficial interest (or other comparable equity securities) are Publicly Traded. "Percentage Interest" means, as to a Unitholder holding Units of a ------------------- class of Trust Interests, such Unitholder's interest in such class, determined by dividing the Units of such class owned by such Unitholder by the total number of Units of such class then outstanding as specified in the Trust's books and records, multiplied by the aggregate Percentage Interest allocable to such class of Trust Interests. "Person" means a natural person, partnership (whether general or ------ limited), trust, including a trust qualified under Sections 401(a) or 501(c) of the Code, a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, estate, association, private foundation within the meaning of 509(a) of the Code, corporation, limited liability company, unincorporated organization, joint stock company, custodian, nominee or any other individual or entity in its own or any representative capacity. "Plan" means (i) an employee benefit plan subject to title I of ERISA ---- or (ii) a plan as defined in Section 4975(e) of the Code. "Predecessor Entity" has the meaning set forth in the definition of ------------------ "Conversion Factor" herein. 8 "Preferred Unit" means any Unit issued from time to time pursuant to -------------- Section 2.2 hereof that is specifically designated by the Trustee at the time of its issuance as a Preferred Unit. Each class or series of Preferred Units shall have such designations, preferences, and relative, participating, optional, or other special rights, powers, and duties, including rights, powers, and duties senior to the Common Units, all as determined by the Trustee, subject to compliance with the requirements of Section 2.2 hereof. "Protected Amount" means the amount specified on Exhibit C with ---------------- --------- respect to any Protected Unitholder, as such Exhibit may be amended from time to time. "Protected Unitholder" means a Unitholder designated as a Protected -------------------- Unitholder on Exhibit C, as such exhibit may be amended from time to time, which --------- Protected Unitholder is obligated to make certain contributions, not in excess of such Protected Unitholder's Protected Amount, to the Trust with respect to any deficit balance in such Unitholder's Capital Account upon the occurrence of certain events. A Protected Unitholder who is obligated to make any such contribution only upon liquidation of the Trust shall be designated on Exhibit C --------- as a "Part I Protected Unitholder" and a Protected Unitholder who is obligated to make any such contribution to the Trust either upon liquidation of the Trust or upon liquidation of such Protected Unitholder's Trust Interest shall be designated on Exhibit C as a "Part II Protected Unitholder." --------- "Publicly Traded" means listed or admitted to trading on the New York --------------- Stock Exchange, the American Stock Exchange or another national securities exchange or designated for quotation on the Nasdaq National Market, or any successor to any of the foregoing. "Qualified Assets" means any of the following assets: (i) Trust ---------------- Interests, rights, options, warrants or convertible or exchangeable securities of the Trust; (ii) Debt issued by the Trust or any Subsidiary thereof in connection with the incurrence of Funding Debt; (iii) equity interests in Qualified REIT Subsidiaries and limited liability companies whose assets consist solely of Qualified Assets; (iv) up to one percent (1%) equity interest in any partnership or limited liability company at least ninety-nine percent (99%) of the equity of which is owned, directly or indirectly, by the Trust; (iv) equity interests in any Person held by Archstone Communities Trust on the date hereof that are de minimis in relation to the net assets of the Trust and its Subsidiaries and transfer of which would require the consent of third parties that has not been obtained; (vi) cash held for payment of administrative expenses or pending distribution to securityholders of the Trustee or any wholly owned Subsidiary thereof or pending contribution to the Trust; (vii) the proceeds of any relinquished property held in a qualified escrow account pursuant to Section 1031 of the Code, as of the Effective Date, provided Parent REIT is obligated to contribute the replacement property and any remaining proceeds therein upon acquisition or the proceeds or the qualified escrow account upon termination of the account to the Trust; and (viii) any other tangible and intangible assets that, taken as a whole, are de minimis in relation to the net assets of the Trust and its Subsidiaries. "Qualified REIT Subsidiary" means any Subsidiary of the Trustee that ------------------------- is a "qualified REIT subsidiary" within the meaning of Section 856(i) of the Code. 9 "Recapture Income" means any gain recognized by the Trust (computed ---------------- without regard to any adjustment required by Section 734 or Section 743 of the Code) upon the disposition of any property or asset of the Trust, which gain is characterized either as ordinary income or as "unrecaptured Section 1250 gain" (as defined in Section 1(h)(7) of the Code) because it represents the recapture of deductions previously taken with respect to such property or asset. "Recourse Liabilities" means the amount of liabilities owed by the -------------------- Trust (other than Nonrecourse Liabilities and liabilities to which Unitholder Nonrecourse Deductions are attributable in accordance with Section 1.704-(2)(i) of the Regulations). "Redeeming Unitholder" has the meaning set forth in Section 6.6.A -------------------- hereof. "Redemption Amount" means either the Cash Amount or the Shares Amount, ----------------- as determined by the Trustee, in its sole and absolute discretion subject to the provisions of Section 6.6; provided that if the Shares are not Publicly Traded -------- at the time a Redeeming Unitholder exercises its Redemption Right, the Redemption Amount shall be paid only in the form of the Cash Amount unless the Redeeming Unitholder, in its sole and absolute discretion, consents to payment of the Redemption Amount in the form of the Shares Amount. A Redeeming Unitholder shall have no right, without the Trustee's consent, in its sole and absolute discretion, to receive the Redemption Amount in the form of the Shares Amount. "Redemption Right" shall have the meaning set forth in 6.6.A hereof. ---------------- "Regulations" means the Treasury Regulations promulgated under the ----------- Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "REIT" means a real estate investment trust under Section 856 of the ---- Code. "REIT Requirements" has the meaning set forth in Section 3.1.A. ----------------- "Residual Gain" or "Residual Loss" means any item of gain or loss, as ------------- ------------- the case may be, of the Trust recognized for federal income tax purposes resulting from a sale, exchange or other disposition of Contributed Property or Adjusted Property, to the extent such item of gain or loss is not allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit B to eliminate Book-Tax --------- Disparities. "Safe Harbors" has the meaning set forth in Section 9.6.F. ------------ "Securities Act" means the Securities Act of 1933, as amended. -------------- "Series A Preferred Units" means the series of Units designated as the ------------------------ Series A Preferred Units with the designations, preferences and other rights set forth in Exhibit F hereto. --------- 10 "Series B Junior Participating Preferred Units" means the series of --------------------------------------------- Units designated as the Series B Junior Participating Preferred Units with the designations, preferences and other rights set forth in Exhibit G hereto. --------- "Series C Preferred Units" means the series of Units designated as the ------------------------ Series C Preferred Units with the designations, preferences and other rights set forth in Exhibit H hereto. --------- "Series D Preferred Units" means the series of Units designated as the ------------------------ Series D Preferred Units with the designations, preferences and other rights set forth in Exhibit I hereto. --------- "Series E Preferred Units" means the series of Units designated as the ------------------------ Series E Preferred Units with the designations, preferences and other rights set forth in Exhibit J hereto. --------- "Series F Preferred Units" means the series of Units designated as the ------------------------ Series F Preferred Units with the designations, preferences and other rights set forth in Exhibit K hereto. --------- "Series G Preferred Units" means the series of Units designated as the ------------------------ Series G Preferred Units with the designations, preferences and other rights set forth in Exhibit L hereto. --------- "Series H Preferred Units" means the series of Units designated as the ------------------------ Series H Preferred Units with the designations, preferences and other rights set forth in Exhibit M hereto. --------- "Series I Preferred Units" means the series of Units designated as the ------------------------ Series I Preferred Units with the designations, preferences and other rights set forth in Exhibit N hereto. --------- "Series J Preferred Units" means the series of Units designated as the ------------------------ Series J Preferred Units with the designations, preferences and other rights set forth in Exhibit O hereto. --------- "Series K Preferred Units" means the series of Units designated as the ------------------------ Series K Preferred Units with the designations, preferences and other rights set forth in Exhibit P hereto. --------- "Series L Preferred Units" means the series of Units designated as the ------------------------ Series L Preferred Units with the designations, preferences and other rights set forth in Exhibit Q hereto. --------- "Series M Preferred Units" means the series of Units designated as the ------------------------ Series M Preferred Units with the designations, preferences and other rights set forth in Exhibit R hereto. --------- "704(c) Value" of any Contributed Property means the value of such ------------ property at the time of contribution as determined by the Trustee using such reasonable method of valuation as it may adopt, provided, however, subject to -------- ------- Exhibit A hereof, the Trustee shall, in its sole and absolute discretion, use - --------- such method as it deems reasonable and appropriate to allocate the aggregate of the 704(c) Values of Contributed Properties in a single or integrated transaction among the separate properties on a basis proportional to their respective fair market values. "Share" means a share of beneficial interest (or other comparable ----- equity interest) of the Parent REIT. Shares may be issued in one or more classes or series in accordance with the terms of the Declaration of Trust (or, if the Trustee is not the Parent REIT, the organizational 11 documents of the Parent REIT). If there is more than one class or series of Shares, the term "Shares" shall, as the context requires, be deemed to refer to the class or series of Shares that corresponds to the class or series of Trust Interests for which the reference to Shares is made. When used with reference to Class A Units or Class B Units, the term "Shares" refers to common shares of beneficial interest (or other comparable equity interest) of the Parent REIT. References in this Agreement to a "class" of Shares shall also mean a "series" of Shares unless the context requires otherwise. "Shares Amount" means a number of Shares equal to the product of the ------------- number of Units offered for redemption by a Redeeming Unitholder times the Conversion Factor; provided that, if the Unitholder Entity issues to all holders -------- ---- of Shares rights, options, warrants or convertible or exchangeable securities entitling such holders to subscribe for or purchase Shares or any other securities or property (collectively, the "rights"), which rights shall not have expired by their terms, then the Shares Amount shall also include such rights that a holder of that number of Shares would be entitled to receive. "Share Option Plan" means any equity incentive plan of the Trustee, ----------------- the Parent REIT, the Trust and/or any Affiliate of the Trust. "Specified Redemption Date" means the tenth Business Day after receipt ------------------------- by the Trustee of a Notice of Redemption; provided that, if the Shares are not -------- ---- Publicly Traded, the Specified Redemption Date means the thirtieth Business Day after receipt by the Trustee of a Notice of Redemption. "Subsidiary" means, with respect to any Person, any corporation, ---------- limited liability company, trust, partnership or joint venture, or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person. "Successor Entity" has the meaning set forth in the definition of ---------------- "Conversion Factor" herein. "Terminating Capital Transaction" means any sale or other disposition ------------------------------- of all or substantially all of the assets of the Trust for cash or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Trust for cash. "Termination Transaction" has the meaning set forth in Section 9.2.B. ----------------------- "Trust" means the Maryland real estate investment trust formed under ----- the Act and continued pursuant to this Agreement and any successor thereto. "Trust Interest" means an interest in the Trust and includes any and -------------- all benefits to which the holder of such a Trust Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Trust Interest may be expressed as a number of Units. 12 "Trust Minimum Gain" has the meaning of "Partnership Minimum Gain" set ------------------ forth in Regulations Section 1.704-2(b)(2), and the amount of Trust Minimum Gain, as well as any net increase or decrease in Trust Minimum Gain, for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d). "Trust Record Date" means the record date established by the Trustee ----------------- either (i) for the distribution of Available Cash pursuant to Section 3.1 hereof, which record date shall be the same as the record date established by the Parent REIT for a distribution to holders of the corresponding class (if any) of Shares of some or all of its portion of such distribution, or (ii) if applicable, for determining the Unitholders entitled to vote on or consent to any proposed action for which the consent or approval of the Unitholders is sought. "Trustee" means Archstone-Smith Trust or its successors as trustee(s) ------- of the Trust. "Trustee Declaration of Trust" means the Declaration of Trust of the ---------------------------- Trustee filed in the State of Maryland on ______________, as amended or restated from time to time. "Trustee Payment" has the meaning set forth in Section 13.13. --------------- "Trustee Related Party" means (i) the Trustee or the Parent REIT, (ii) --------------------- any Person of which the Trustee or the Parent REIT owns or controls more than fifty percent (50%) of the voting interests, (iii) any Person directly or indirectly owning or controlling more than fifty percent (50%) of the outstanding voting interests of the Trustee or the Parent REIT, and (iv) any Person of which a Person described in clause (iii) directly or indirectly owns or controls more than fifty percent (50%) of the voting interest. "Unit" means a "Share" as defined in Section 8-101 of the Act, a ---- transferable unit of beneficial interest in the Trust issued pursuant to Sections 2.1 and 2.2, and includes Class A-1 Units, Class A-2 Units, Class B Units, Series A Preferred Units, Series B Junior Participating Preferred Units, Series C Preferred Units, Series D Preferred Units, Series E Preferred Units, Series F Preferred Units, Series G Preferred Units, Series H Preferred Units, Series I Preferred Units, Series J Preferred Units, Series K Preferred Units, Series L Preferred Units and Series M Preferred Units and any other classes or series of Units established after the date hereof. The number of Units outstanding and the Percentage Interests in the Trust represented by such Units are set forth in the Trust's books and records. The ownership of each class of Units may be evidenced by a certificate in a form approved by the Trustee. "Unitholder" means any Person named as a Unitholder in the Trust's ---------- books and records, in such Person's capacity as a Unitholder of the Trust. "Unitholder Minimum Gain" means an amount, with respect to each ----------------------- Unitholder Nonrecourse Debt, equal to the Trust Minimum Gain that would result if such Unitholder Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3). 13 "Unitholder Nonrecourse Debt" has the meaning of "Partner Nonrecourse --------------------------- Debt" set forth Regulations Section 1.704-2(b)(4). "Unitholder Nonrecourse Deductions" has the meaning of "Partner --------------------------------- Nonrecourse Deductions" set forth in Regulations Section 1.704-2(i)(2), and the amount of Unitholder Nonrecourse Deductions with respect to a Unitholder Nonrecourse Debt for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2). "Unrealized Gain" attributable to any item of Trust property means, as --------------- of any date of determination, the excess, if any, of (i) the fair market value of such property (as determined under Exhibit A) as of such date, over (ii) the --------- Carrying Value of such property (prior to any adjustment to be made pursuant to Exhibit A) as of such date. - --------- "Unrealized Loss" attributable to any item of Trust property means, as --------------- of any date of determination, the excess, if any, of (i) the Carrying Value of such property (prior to any adjustment to be made pursuant to Exhibit A) as of --------- such date, over (ii) the fair market value of such property (as determined under Exhibit A) as of such date. - --------- "Valuation Date" means the date of receipt by the Trustee of a Notice -------------- of Redemption or, if such date is not a Business Day, the first Business Day thereafter. "Value" means, with respect to any outstanding Shares of the Parent ----- REIT that are Publicly Traded, the average of the daily market price for the ten consecutive trading days immediately preceding the date with respect to which value must be determined. The market price for each such trading day shall be the closing price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day. If the outstanding Shares of the Parent REIT are Publicly Traded and the Shares Amount includes rights that a holder of Shares would be entitled to receive, then the Value of such rights shall be determined by the Trustee acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. If the Shares of the Parent REIT are not Publicly Traded, the Value of the Shares Amount per Unit offered for redemption means the amount that a holder of one Unit would receive if each of the assets of the Trust were to be sold for its fair market value on the last day of the preceding calendar year, the Trust were to pay all of its outstanding liabilities on such last day of the preceding calendar year, and the remaining proceeds were to be distributed to the Unitholders in accordance with the terms of this Agreement. Such Value shall be determined by the Trustee, acting in good faith and based upon a commercially reasonable estimate of the amount that would be realized by the Trust if each asset of the Trust (and each asset of each partnership, limited liability company, trust, joint venture or other entity in which the Trust owns a direct or indirect interest) were sold to an unrelated purchaser in an arms' length transaction where neither the purchaser nor the seller were under economic compulsion to enter into the transaction (without regard to any discount in value as a result of the Trust's minority interest in any property or any illiquidity of the Trust's interest in any property). 14 ARTICLE 2 CAPITAL CONTRIBUTIONS Section 2.1 Capital Contributions of the Unitholders ---------------------------------------- A. Contribution and the Effective Date. As of the Effective Date, ----------------------------------- the Unitholders have made the Capital Contributions as set forth in the Trust's books and records. The Unitholders own Units in the amounts set forth in the Trust's books and records and have Percentage Interests in the Trust as set forth in the Trust's books and records, which number of Units and Percentage Interest shall be adjusted in such books and records from time to time by the Trustee to the extent necessary to reflect accurately and in accordance with the terms of this Agreement redemptions, Capital Contributions, the issuance of additional Units or similar events having an effect on a Unitholder's Percentage Interest occurring after the date hereof in accordance with the terms of this Agreement. B. Class A-2 Units Interest of the Trustee Related Parties in the -------------------------------------------------------------- Trust. All Class A Units held by any of the Trustee Related Parties shall be - ----- denominated as Class A-2 Units. In the event that any Trustee Related Party shall at any time acquire any Class A-1 Units (whether pursuant to Section 8.6 otherwise), such Class A-1 Units shall automatically without the requirement for any action by the Trust or the Trustee, be converted into a corresponding number of Class A-2 Units upon consummation of such transaction. Upon any bona fide Transfer (other than a pledge) of Class A-2 Units by any Trustee Related Party to a Person that is not a Trustee Related Party, such Class A-2 Units shall automatically, without the requirement for any action by the Trust or the Trustee, be converted into a corresponding number of Class A-1 Units upon consummation of such transaction. C. Additional Capital Contributions. Except as provided in Sections -------------------------------- 2.2, 5.5, 8.5, and 11.3 hereof, the Unitholders shall have no obligation to make any additional Capital Contributions or provide any additional funding to the Trust (whether in the form of loans, repayments of loans or otherwise). Except as otherwise set forth in Section 11.3 hereof, no Unitholder shall have any obligation to restore any deficit that may exist in its Capital Account, either upon a liquidation of the Trust or otherwise. Section 2.2 Issuances of Additional Trust Interests --------------------------------------- A. General. The Trustee shall not, on behalf of the Trust, issue ------- Units or other Trust Interests to the Parent REIT unless either (a) the Trust Interests are issued in connection with the grant, award or issuance of Shares or other equity interests in the Parent REIT having designations, preferences and other rights such that the economic interests attributable to such Shares or other equity interests are substantially similar to the designations, preferences and other rights (except voting rights) of the Trust Interests issued to the Trustee in accordance with this Section 2.2.A or (b) the additional Trust Interests are issued to all Unitholders holding Trust Interests in the same class in proportion to their respective Percentage Interests in such class (considering the Class A-1 Units, the Class A-2 Units and the Class B Units as one class for such 15 purposes). References in this Agreement to a "class" of Trust Interests or Units shall include a "series" of Trust Interests or Units, unless the context requires otherwise. B. Restrictions on Issuances of Shares by Trustee. After the ---------------------------------------------- Effective Date, the Trustee shall not grant, award, or issue any additional Shares (other than Shares issued pursuant to Section 6.6), or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase Shares (collectively "New Securities"), other than to -------------- all holders of Shares unless (i) the Trustee shall cause the Trust to issue to the Trustee Trust Interests or rights, options, warrants or convertible or exchangeable securities of the Trust having designations, preferences and other rights, all such that the economic interests are substantially the same as those of the New Securities, and (ii) the Trustee contributes the net proceeds from the grant, award or issuance of such New Securities and from the exercise of rights contained in such New Securities to the Trust. Without limiting the foregoing, the Trustee is expressly authorized to issue New Securities for less than fair market value, and to cause the Trust to issue to the Trustee corresponding Trust Interests, so long as (x) the Trustee concludes in good faith that such issuance is in the interests of the Trustee and the Trust (for example, and not by way of limitation, the issuance of Shares and corresponding Units pursuant to an employee share purchase plan providing for employee purchases of Shares at a discount from fair market value or employee share options that have an exercise price that is less than the fair market value of the Shares, either at the time of issuance or at the time of exercise), and (y) the Trustee contributes all proceeds from such issuance and exercise to the Trust. C. Class A-1 and Class B Units. Except as otherwise provided below --------------------------- and in Section 3.1.C, each Class B Unit shall have the same designations, rights, preferences, powers and duties as each Class A-1 Unit: (1) The amount of Available Cash distributable with respect to Class B Units shall be determined in accordance with Section 3.1.C hereof. (2) Each Class B Unit shall be converted automatically into a Class A-1 Unit on the day immediately following the Trust Record Date for the Distribution Period in which the Class B Unit was issued, without the requirement for any action by either the Trust or the Unitholder holding the Class B Unit. (3) A holder of Class B Units will not have the Redemption Right under Section 6.6 with respect to its Class B Units. (4) The Trustee shall cause Class B Units to be issued by the Trust only pursuant to an amendment to this Agreement pursuant to Section 12.2.B hereof, which amendment shall designate that the newly issued Units are Class B Units. The Trustee shall have the right, in its sole and absolute discretion, subject to Section 2.2.A and Section 3.1.E hereof, to determine whether the Trust should issue Class A-1 Units, Class B Units (or one or more series thereof), or another class of Trust Interests in connection with a contribution of property, or other assets or other consideration, to the Trust. 16 D. Certain Restrictions on Issuances of Units or Other Trust --------------------------------------------------------- Interests. Notwithstanding the foregoing, in no event may the Trustee cause the - --------- Trust to issue to Unitholders (including the Trustee and its Affiliates) or other Persons any Units or other Trust Interests if such issuance would, in the opinion of counsel to the Trust, cause any portion of the assets of the Trust to constitute assets of any ERISA Plan Investor pursuant to 29 C.F.R. (S) 2510.3- 101, or any successor regulation thereto. Section 2.3 Preemptive Rights ----------------- If the Trustee acquires any Class A-2 Units using the proceeds from any exercise of any rights (as defined in the definition of "Shares Amount") issued under a shareholder rights plan (or other arrangement having the same objective and substantially the same effect), then (a) the holders of Common Units at such time (other than the Trustee) as a group shall have the right to acquire, at the same price per Class A-2 Unit paid by the Trustee, a total number of additional Class A-1 Units equal to the product of (i) the total number of Common Units held by such holders, multiplied by (ii) a fraction, the numerator of which is the number of Class A-2 Units issued to the Trustee as a result of the exercise of such rights and the denominator of which is the total number of Class A-2 Units held by the Trustee immediately prior to such issuance (which fraction is referred to as the "Exercise Percentage"), and (b) each holder of a Class A-1 Unit or Class B Unit at such time shall have the right to acquire, at the same price per Class A-2 Unit paid by the Trustee, a number of Class A-1 Units equal to the product of (iii) the aggregate number of Common Units that such holder holds at such time, multiplied by (iv) the Exercise Percentage. (Thus, for example, if the Trustee were to acquire 2,000,000 Class A-2 Units at $5 per Unit from the proceeds of the exercise of outstanding rights issued under a stockholder rights plan at a time when the Trustee already owned 8,000,000 Class A-2 Units out of a total of 12,000,000 outstanding Common Units (which would represent a 25% increase in the number of Class A-2 Units held by the Trustee), then the other holders of Common Units as a group would have the right to purchase a total of 1,000,000 Class A-1 Units at $5 per Class A-1 Unit, and each holder of a Class A-1 Unit or Class B Unit would be entitled to purchase his proportionate share of such Class A-1 Units, or .25 Class A-1 Units for each Class A Unit or Class B Unit then held by such holder.) In the event Units or Trust Interests other than Class A-2 Units are issued to the Trustee using proceeds of any exercise of rights issued under a stockholder rights plan (or other arrangement), the holders of Common Units shall be granted the right to acquire such other Units or Trust Interests at the same price as paid by the Trustee and in such amounts as would be comparable to their rights had Class A-1 Units been issued instead. The Trustee shall provide prompt written notice to the holders of Common Units of its acquisition of Class A-2 Units (or other Units or Trust Interests) using such proceeds and shall establish in good faith such procedures as it deems appropriate (including, without limitation, procedures to eliminate the issuance of fractional Units if the Trustee deems appropriate) to effectuate the rights of the holders of Common Units under the preceding provisions of this Section 2.3. Except to the extent expressly granted by the Trust pursuant to this Section 2.3 or another agreement, no person shall have any preemptive, preferential or other similar right with respect to (i) additional Capital Contributions or loans to the Trust; or (ii) issuance or sale of any Units or other Trust Interests. 17 Section 2.4 Other Contribution Provisions ----------------------------- A. If any Person becomes a Unitholder and is given a Capital Account in exchange for services rendered to the Trust, such transaction shall be treated by the Trust and the affected Unitholder as if the Trust had compensated such Unitholder in cash, and the Unitholder had contributed such cash to the capital of the Trust. B. To the extent the Trust acquires any property (or an indirect interest therein) by the merger of any other Person into the Trust or with or into a Subsidiary of the Trust in a triangular merger, Persons who receive Trust Interests in exchange for their interests in the Person merging into the Trust or with or into a Subsidiary of the Trust shall become Unitholders and shall be deemed to have made Capital Contributions as provided in the applicable merger agreement (or, if not so provided, as determined by the Trustee in its sole discretion), and as set forth in the Trust's books and records. ARTICLE 3 DISTRIBUTIONS Section 3.1 Requirement and Characterization of Distributions ------------------------------------------------- A. General. The Unitholders shall be entitled to receive ------- distributions when, as and if declared by the Trustee, out of funds legally available therefor. Subject to Section 3.1.F, the Trustee shall cause the Trust to distribute at least quarterly an amount equal to one hundred percent (100%) of Available Cash of the Trust during such quarter or shorter period to the Persons who are holders of Units on the respective Trust Record Dates established for distribution to the applicable classes with respect to such quarter or shorter period. The Trustee shall endeavor to cause distributions to be made in the manner provided in Sections 3.1.B, 3.1.C and 3.1.D and in accordance with the respective terms established for each other class of Trust Interests hereafter created. Notwithstanding anything to the contrary contained herein, in no event may a Unitholder receive a distribution of Available Cash with respect to a Unit for a quarter or shorter period if such Unitholder is entitled to receive a distribution with respect to a Share for which such Unit has been redeemed or exchanged. Unless otherwise expressly provided for herein, in Exhibits F-T hereto, with respect to Series A Preferred Units, Series B ------------ Junior Participating Preferred Units, Series C Preferred Units, Series D Preferred Units, Series E Preferred Units, Series F Preferred Units, Series G Preferred Units, Series H Preferred Units, Series I Preferred Units, Series J Preferred Units, Series K Preferred Units, Series L Preferred Units and Series M Preferred Units, respectively, or in the terms established at the time a new class or series of Trust Interests is created in accordance with Article 2 hereof, no Trust Interest shall be entitled to a distribution in preference to any other Trust Interest. The Trustee shall make such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with the qualification of the Parent REIT as a REIT, to distribute Available Cash (a) to the Unitholders other than the Trustee so as to preclude any such distribution or portion thereof from being treated as part of a sale of property to the Trust by such Unitholder under Section 707 of the Code or the Regulations thereunder; provided that, the Trustee and the Trust shall not have - -------- ---- 18 liability to the Unitholder under any circumstances as a result of any distribution to such Unitholder being so treated, and (b) to the Parent REIT in an amount sufficient to enable the Parent REIT to make distributions to its shareholders that will enable the Parent REIT to pay shareholder dividends that will (1) satisfy the requirements for qualification as a REIT under the Code and the Regulations (the "REIT Requirements") and (2) avoid any federal income or excise tax liability for the Parent REIT. B. Priority of Distributions. (i) Distributions to Unitholders ------------------------- holding a class of Trust Interests that is entitled to any preference in distribution (including, without limitation, the preferences in distribution set forth in Exhibits F-T hereto, with respect to Series A Preferred Units, Series B ------------ Junior Participating Preferred Units, Series C Preferred Units, Series D Preferred Units, Series E Preferred Units, Series F Preferred Units, Series G Preferred Units, Series H Preferred Units, Series I Preferred Units, Series J Preferred Units, Series K Preferred Units, Series L Preferred Units and Series M Preferred Units, respectively, shall be made in accordance with the rights of such class of Trust Interests to holders of such Units on the respective Trust Record Date established for the distribution to such class of Trust Interests (and, within such class, pro rata in proportion to the respective Percentage Interests in such class on such Trust Record Date). (ii) Distributions to holders of Class A-1 Units, Class A-2 Units, Class B Units and Units of any other class of Trust Interests that are not entitled to any preference in distribution shall be made quarterly (or more frequently in the sole and absolute discretion of the Trustee), to the extent there is Available Cash remaining after the payment of distributions in respect of any classes of Trust Interests entitled to a preference in distribution in accordance with the foregoing clause (i), in accordance with the terms of such class as set forth in this Agreement or otherwise established by the Trustee pursuant to Section 2.2 to holders of such Units on the respective Trust Record Date established for the distribution to each such class of Trust Interests (and, within each such class, pro rata in proportion to the respective Percentage Interests in such class on such Trust Record Date). C. Distribution When Class B Units Are Outstanding. If for any ----------------------------------------------- quarter or shorter period with respect to which a distribution is to be made (a "Distribution Period") Class B Units are outstanding on the Trust Record Date for such Distribution Period, the Trustee shall allocate the Available Cash with respect to such Distribution Period available for distribution with respect to the Class A-1 Units, Class A-2 Units and Class B Units collectively ("Common Unit Available Cash") between the Unitholders who are holders of Class A-1 Units or Class A-2 Units ("Class A") and the Unitholders who are holders of Class B Units ("Class B") as follows: (1) Class A shall receive that portion of the Common Unit Available Cash (the "Class A Cash Portion") determined by multiplying the amount of Available Cash by the following fraction: A x Y --------------- (A x Y)+(B x X) 19 (1) Class B shall receive that portion of the Common Unit Available Cash (the "Class B Cash Portion") determined by multiplying the amount of Available Cash by the following fraction: B x X --------------- (A x Y)+(B x X) (1) For purposes of the foregoing formulas, (i) "A" equals the number of Class A-1 Units and Class A-2 Units outstanding on the Trust Record Date for such Distribution Period; (ii) "B" equals the number of Class B Units outstanding on the Trust Record Date for such Distribution Period; (iii) "Y" equals the number of days in the Distribution Period; and (iv) "X" equals the number of days in the Distribution Period for which the Class B Units were issued and outstanding. The Class A Cash Portion shall be distributed among Unitholders holding Class A-1 Units or Class A-2 Units on the Trust Record Date for the Distribution Period in accordance with the number of Class A-1 Units or Class A- 2 Units held by each Unitholder on such Trust Record Date; provided that in no event may a Unitholder receive a distribution of Available Cash with respect to a Class A-1 Unit or Class A-2 Units if a Unitholder is entitled to receive a distribution out of such Available Cash with respect to a Share for which such Class A-1 Unit has been redeemed or exchanged. The Class B Cash Portion shall be distributed among the Unitholders holding Class B Units on the Trust Record Date for the Distribution Period in accordance with the number of Class B Units held by each Unitholder on such Trust Record Date. In no event shall any Class B Units be entitled to receive any distribution of Available Cash for any Distribution Period ending prior to the date on which such Class B Units are issued. D. Distributions When Class B Units Have Been Issued on Different -------------------------------------------------------------- Dates. In the event that Class B Units which have been issued on different - ----- dates are outstanding on the Trust Record Date for any Distribution Period, then the Class B Units issued on each particular date shall be treated as a separate series of Common Units for purposes of making the allocation of Common Unit Available Cash for such Distribution Period among the holders of Common Units (and the formula for making such allocation, and the definitions of variables used therein, shall be modified accordingly). Thus, for example, if two series of Class B Units are outstanding on the Trust Record Date for any Distribution Period, the allocation formula for each series, "Series B\\1\\" and "Series B\\2\\," would be as follows: (1) Series B1 shall receive that portion of the Common Unit Available Cash determined by multiplying the amount of Common Unit Available Cash by the following fraction: B1 x X1 ------------------------------------------- (A x Y)+(B1 x X1)+(B2 x X2) 20 (1) Series B2 shall receive that portion of the Common Unit Available Cash determined by multiplying the amount of Common Unit Available Cash by the following fraction: B2 x X2 ------------------------------------------- (A x Y)+(B1 x X1)+(B2 x X2) (1) For purposes of the foregoing formulas the definitions set forth in Section 3.1.C.3 remain the same except that (i) "B1" equals the number of Common Units in Series B1 outstanding on the Trust Record Date for such Distribution Period; (ii) "B2" equals the number of Common Units in Series B2 outstanding on the Trust Record Date for such Distribution Period; (iii) "X1" equals the number of days in the Distribution Period for which the Units in Series B1 were issued and outstanding; and (iv) "X2" equals the number of days in the Distribution Period for which the Common Units in Series B2 were issued and outstanding. (2) Notwithstanding anything to the contrary contained herein, in no event shall a Unitholder receive a distribution of Available Cash with respect to any Common Unit with respect to any quarter or shorter period until such time as the Trust has distributed to the holders of Preferred Units an amount sufficient to pay all distributions payable with respect to such Preferred Units through the last day of such quarter or shorter period, in accordance with the instruments designating such Preferred Units. E. Special Rule if Parent REIT Not Publicly Traded. In addition (and ----------------------------------------------- without regard to the amount of Available Cash), if the Shares of the Parent REIT are not Publicly Traded, the Trustee shall make cash distributions with respect to the Class A-1 Units and Class A-2 Units at least annually for each taxable year of the Trust beginning prior to the twentieth (20th) anniversary of the Effective Date in an aggregate amount with respect to each such taxable year at least equal to 90% of the Trust's taxable income for such year allocable to the Class A-1 Units and Class A-2 Units, with such distributions to be made not later than 60 days after the end of such year. Notwithstanding any limitations set forth in Section 2.2, the holders of Class A-2 Units shall have the right to elect, within five (5) Business Days after the distribution of Available Cash, to reinvest any cash distributed to the holders of Class A-2 Units pursuant to this Section 3.1.E. in exchange for additional Class A-2 Units, with the purchase price payable by such holders for each such Class A-2 Unit being an amount equal to the Value of a Class A-2 Unit at the time such cash is reinvested and with such purchase price being paid in full in cash. F. The Trustee shall have the authority to defer the distribution referred to in Section 3.1E (the "Mandatory Distribution") if, but only if, it shall determine in good faith after diligent exploration of all commercially reasonably available alternatives that after giving effect to the Mandatory Distribution (x) the Trust shall be unable to pay its indebtedness as it becomes 21 due in the usual course of business, or (y) the Trust's assets will be less than the sum of its total liabilities and the amount that would be needed to satisfy all preferential rights of the holders of Preferred Units upon liquidation of the Trust. In making such determination, the Trustee shall consider the Trust's most recently available financial statements, prepared on the basis of generally accepted accounting principles and on fair value principles, and in the event of conflict, base its determination on the methodology that would yield the more favorable result to the Unitholders. If the Trustee determines to defer the Mandatory Distribution, it shall reconsider the authorization of the distribution at least monthly until made and shall use its commercially reasonable best efforts to restructure the Trust assets, operations and indebtedness in a manner that will facilitate the payment of accrued but unpaid distributions under this Section 3.1.F as promptly as practicable and the distribution of amounts reasonably expected to accrue hereunder in subsequent periods. Section 3.2 Amounts Withheld ---------------- All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 8.5 hereof with respect to any allocation, payment or distribution to the Trustee or the Unitholders other than the Trustee shall be treated as amounts distributed to the Trustee or Unitholders other than the Trustee, as the case may be, pursuant to Section 3.1 for all purposes under this Agreement. Section 3.3 Distributions Upon Liquidation ------------------------------ Proceeds from a Terminating Capital Transaction and any other cash received or reductions in reserves made after commencement of the liquidation of the Trust, shall be distributed to the Unitholders in accordance with Section 11.2. ARTICLE 4 ALLOCATIONS Section 4.1 Allocations For Capital Account Purposes ---------------------------------------- For purposes of maintaining the Capital Accounts and in determining the rights of the Unitholders among themselves, the Trust's items of income, gain, loss and deduction (computed in accordance with Exhibit A hereof) shall be --------- allocated among the Unitholders in each taxable year (or portion thereof) as provided herein below. A. Net Income. After giving effect to the special allocations set ---------- forth in Section 1 of Exhibit B hereof, Net Income shall be allocated: --------- (1) first, to the Trustee to the extent that cumulative Net Losses ----- previously allocated the Trustee pursuant to 4.1.B(6) exceed cumulative Net Income previously allocated to the Trustee pursuant to this clause (1); 22 (2) second, to each Protected Unitholder until the cumulative Net ------ Income allocated such Protected Unitholder under this clause (2) equals the cumulative Net Losses allocated such Protected Unitholder under Section 4.1.B(5) (and, within the class of Protected Unitholders, pro rata in proportion to their respective percentages of the cumulative Net Losses allocated all Protected Unitholders pursuant to Section 4.1.B(5) hereof); (3) third, to the Trustee until the cumulative Net Income allocated ----- under this clause (3) equals the cumulative Net Losses allocated the Trustee under Section 4.1.B(4); (4) fourth, to the holders of any Trust Interests that are entitled ------ to any preference upon liquidation until the cumulative Net Income allocated under this clause (4) equals the cumulative Net Losses allocated to such Unitholders under Section 4.1.B(3); (5) fifth, to the holders of any Trust Interests that are entitled ----- to any preference in distribution in accordance with the rights of any such class of Trust Interests until each such Trust Interests have been allocated, on a cumulative basis pursuant to this clause (5), Net Income equal to the aggregate amount of distributions such holders have been entitled to receive (whether or not such holders have actually received such amounts) which are attributable to the preference of such class of Trust Interests (and, within such class, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is being made); and (6) finally, with respect to Trust Interests that are not entitled ------- to any preference in the allocation of Net Income, pro rata to each such class in accordance with the terms of such class (and, within such class, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is being made). B. Net Losses. After giving effect to the special allocations set ---------- forth in Section 1 of Exhibit B, Net Losses shall be allocated: --------- (1) first, to the holders of Trust Interests, in proportion to their ----- share of the Net Income previously allocated pursuant to Section 4.1.A(6), to the extent that any prior allocations of Net Income to such Unitholders pursuant to Section 4.1.A(6) exceed, on a cumulative basis, distributions with respect to such Trust Interests pursuant to clause (ii) of Section 3.1.B; (2) second, with respect to classes of Trust Interests that are not ------ entitled to any preference in distribution upon liquidation, pro rata to each such class in accordance with the terms of such class (and, within such class, pro rata in proportion to the respective Percentage Interests as of the last day of the period for which such allocation is being made); provided that Net Losses 23 shall not be allocated to any Unitholder pursuant to this Section 4.1.B(2) to the extent that such allocation would cause such Unitholder to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) (determined in each case (i) by not including in the Unitholders' Adjusted Capital Accounts any amount that a Unitholder is obligated to contribute to the Trust with respect to any deficit in its Capital Account pursuant to Section 11.3 and (ii) in the case of a Unitholder who also holds classes of Trust Interests that are entitled to any preferences in distribution upon liquidation, by subtracting from such Unitholders' Adjusted Capital Account the amount of such preferred distribution to be made upon liquidation) at the end of such taxable year (or portion thereof); (3) third, with respect to classes of Trust Interests that are ----- entitled to any preference in distribution upon liquidation, in reverse order of the priorities of each such class (and within each such class, pro rata in proportion to their respective Percentage Interests as of the last day of the period for which such allocation is being made; provided that Net Losses shall not ------------- be allocated to any Unitholder pursuant to this Section 4.1.B(3) to the extent that such allocation would cause such Unitholder to have an Adjusted Capital Account Deficit (or increase any existing Adjusted Capital Account Deficit) (determined in each case by not including in the Unitholders' Adjusted Capital Accounts any amount that a Unitholder is obligated to contribute to the Trust with respect to any deficit in its Capital Account pursuant to Section 11.3) at the end of such taxable year (or portion thereof); (4) fourth, to the Trustee in an amount equal to the excess of (a) ------ the amount of the Trust Recourse Liabilities over (b) the Aggregate Protected Amount; (5) fifth, to and among the Protected Unitholders, in proportion to ----- their respective Protected Amounts, until such time as the Protected Unitholders as a group have been allocated cumulative Net Losses pursuant to this clause (5) equal to the Aggregate Protected Amount; and (6) thereafter, to the Trustee. ---------- C. Allocation of Nonrecourse Debt. For purposes of Regulation ------------------------------ Section 1.752-3(a), the Unitholders agree that Nonrecourse Liabilities of the Trust in excess of the sum of (i) the amount of Trust Minimum Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated by the Trustee by taking into account facts and circumstances relating to each Unitholder's respective interest in the profits of the Trust. For this purpose, the Trustee will have discretion in any fiscal year to allocate such excess Nonrecourse Liabilities among the Unitholders in any manner permitted under Code Section 752 and the Regulations thereunder. D. Recapture Income. Any gain allocated to the Unitholders upon the ---------------- sale or other taxable disposition of any Trust asset shall, to the extent possible after taking into account other required allocations of gain pursuant to Exhibit B, be characterized as Recapture Income in --------- 24 the same proportions and to the same extent as such Unitholders have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income. ARTICLE 5 MANAGEMENT AND OPERATIONS OF BUSINESS Section 5.1 Management ---------- A. General. Except as otherwise expressly provided in this ------- Agreement, all management powers over the business and affairs of the Trust are and shall be exclusively vested in the Trustee, and no Unitholder (in its capacity as such) other than the holders of Class A-2 Units shall have any right to participate in or exercise control or management power over the business and affairs of the Trust. The Trustee may not be removed by the Unitholders other than the holders of Class A-2 Units with or without cause. In addition to the powers now or hereafter granted a trustee of a trust under applicable law or which are granted to the Trustee under any other provision of this Agreement, the Trustee, subject to Section 5.3 hereof, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Trust, to exercise all powers set forth in Article I, Section 4 of the Declaration of Trust hereof and to effectuate the purposes set forth in Article I, Section 4 of the Declaration of Trust, including, without limitation: (1) the making of any expenditures, the lending or borrowing of money (including, without limitation, making prepayments on loans and borrowing money to permit the Trust to make distributions to its Unitholders in such amounts as are required under Section 3.1.E or will permit the Trustee (so long as the Trustee qualifies as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Section 4981 of the Code) and to make distributions to its shareholders sufficient to permit the Trustee to maintain REIT status (so long as the Trustee qualifies as a REIT), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of same by deed to secure debt, mortgage, deed of trust or other lien or encumbrance on the Trust's assets) and the incurring of any obligations the Trustee deems necessary for the conduct of the activities of the Trust; (2) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Trust; (3) the acquisition, disposition, sale, conveyance, contribution, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Trust (including the exercise or grant of any conversion, option, privilege, or subscription right or other right available in connection with any 25 assets at any time held by the Trust) or the merger or other combination of the Trust with or into another entity (all of the foregoing subject to any prior approval only to the extent required by Section 5.3 hereof); (4) the use of the assets of the Trust (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms it sees fit, including, without limitation, the financing of the conduct of the operations of the Trustee, the Trust or any of the Trust's Subsidiaries, the lending of funds to other Persons (including, without limitation, the Trustee, its Subsidiaries and the Trust's Subsidiaries) and the repayment of obligations of the Trust and its Subsidiaries and any other Person in which the Trust, the Trustee or any of the Trust's Subsidiaries has an equity investment and the making of capital contributions to their respective Subsidiaries; (5) the management, operation, leasing, landscaping, repair, alteration, demolition or improvement of any real property or improvements owned by the Trust or any Subsidiary of the Trust or any Person in which the Trust has made a direct or indirect equity investment; (6) the negotiation, execution, and performance of any contracts, conveyances or other instruments that the Trustee considers useful or necessary to the conduct of the Trust's operations or the implementation of the Trustee's powers under this Agreement, including contracting with contractors, developers, consultants, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Trust's assets; (7) the mortgage, pledge, encumbrance or hypothecation of any assets of the Trust, and the use of the assets of the Trust (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement and on any terms it sees fit, including, without limitation, the financing of the conduct or the operations of the Trustee or the Trust, the lending of funds to other Persons (including, without limitation, any Subsidiaries of the Trust) and the repayment of obligations of the Trust, any of its Subsidiaries and any other Person in which it has an equity investment; (8) the distribution of Trust cash or other Trust assets in accordance with this Agreement; (9) the holding, managing, investing and reinvesting of cash and other assets of the Trust; (10) the collection and receipt of revenues and income of the Trust; 26 (11) the establishment of one or more divisions of the Trust, the selection, designation of powers, authorities, and duties and the dismissal of employees of the Trust, any division of the Trust, or the Trustee (including, without limitation, employees having titles such as "president," "vice president," "secretary" and "treasurer" of the Trust, any division of the Trust, or the Trustee), and agents, outside attorneys, accountants, consultants and contractors of the Trustee, the Trust or any division of the Trust and the determination of their compensation and other terms of employment or hiring; (12) the maintenance of such insurance for the benefit of the Trust and the Unitholders as it deems necessary or appropriate; (13) the formation of, or acquisition of an interest (including non- voting interests in entities controlled by Affiliates of the Trust or third parties) in, and the contribution of property to, any further limited or general partnerships, joint ventures, limited liability companies or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of funds or property to, or making of loans to, its Subsidiaries and any other Person in which it has an equity investment from time to time, or the incurrence of indebtedness on behalf of such Persons or the guarantee of the obligations of such Persons); provided that, as -------- long as the Trustee has determined to continue to qualify as a REIT, the Trust may not engage in any such formation, acquisition or contribution that would cause the Trustee to fail to qualify as a REIT; (14) the undertaking of any action in connection with the Trust's direct or indirect investment in its Subsidiaries or any other Person (including, without limitation, the contribution or loan of funds by the Trust to such Person); (15) the control of any matters affecting the rights and obligations of the Trust, including the settlement, compromise, submission to arbitration or any other form of dispute resolution or abandonment of any claim, cause of action, liability, debt or damages due or owing to or from the Trust, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the representation of the Trust in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense and the indemnification of any Person against liabilities and contingencies to the extent permitted by law; (16) the determination of the fair market value of any Trust property distributed in kind, using such reasonable method of valuation as the Trustee may adopt; 27 (17) the exercise, directly or indirectly, through any attorney-in- fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any assets or investment held by the Trust; (18) the exercise of any of the powers of the Trustee enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Trust or any other Person in which the Trust has a direct or indirect interest, individually or jointly with any such Subsidiary or other Person; (19) the exercise of any of the powers of the Trustee enumerated in this Agreement on behalf of any Person in which the Trust does not have any interest pursuant to contractual or other arrangements with such Person; (20) the making, executing and delivering of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or other legal instruments or agreements in writing necessary or appropriate in the judgment of the Trustee for the accomplishment of any of the powers of the Trustee enumerated in this Agreement; (21) the distribution of cash to acquire Units held by a Unitholder other than the Trustee in connection with such Unitholder's exercise of its Redemption Right under Section 6.6; and (22) the acquisition of Units in exchange for cash, debt instruments, or other property. B. No Approval By Unitholders other than the Trustee. Each of the ------------------------------------------------- Unitholders agrees that the Trustee is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Trust without any further act, approval or vote of the Unitholders, notwithstanding any other provision of this Agreement (except as provided in Section 5.3), the Act or any applicable law, rule or regulation, to the fullest extent permitted under the Act or other applicable law. The execution, delivery or performance by the Trustee or the Trust of any agreement authorized or permitted under this Agreement shall not constitute a breach by the Trustee of any duty that the Trustee may owe the Trust or the other Unitholders or any other Persons under this Agreement or of any duty stated or implied by law or equity. C. Insurance. At all times from and after the date hereof, the --------- Trustee may or may not, cause the Trust to obtain and maintain (i) casualty, liability and other insurance on the properties of the Trust, (ii) liability insurance for the Indemnitees hereunder and (iii) such other insurance as the Trustee, in its sole and absolute discretion, determines to be necessary. D. Working Capital and Other Reserves. At all times from and after ---------------------------------- the date hereof, the Trustee may cause the Trust to establish and maintain working capital reserves and other similar cash accounts in such amounts as the Trustee, in its sole and absolute discretion, 28 deems appropriate and reasonable from time to time, including upon liquidation of the Trust under Article 11. E. No Obligation to Consider Tax Consequences of other Unitholders. --------------------------------------------------------------- In exercising its authority under this Agreement, the Trustee may, but shall be under no obligation to, take into account the tax consequences to any Unitholder (including the Trustee) of any action taken (or not taken) by any of them. Except as set forth in Exhibit D to this Agreement, the Trustee and the Trust --------- shall not have liability to a Unitholder for monetary damages or otherwise for losses sustained, liabilities incurred or benefits not derived by such Unitholder in connection with such decisions, provided that the Trustee has -------- acted in good faith and pursuant to its authority under this Agreement. Section 5.2 Declaration of Trust -------------------- The Trustee has previously filed the Declaration of Trust with the State Department of Assessments and Taxation of Maryland. To the extent that such action is determined by the Trustee to be reasonable, necessary or appropriate, the Trustee shall file amendments to and restatements of the Declaration of Trust and do all the things to maintain the Trust as a trust under the laws of the State of Maryland and each other state, the District of Columbia or other jurisdiction in which the Trust may elect to do business or own property. The Trustee shall not be required, before or after filing, to deliver or mail a copy of the Declaration of Trust or any amendment thereto to any Unitholder. The Trustee shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a trust in the State of Maryland and any other state, the District of Columbia or other jurisdiction in which the Trust may elect to do business or own property. Section 5.3 Restrictions on Trustee's Authority ----------------------------------- A. Amendment Required. The Trustee may not take any action in ------------------ contravention of any express prohibition or limitation of this Agreement without an amendment of such provision adopted in accordance with Article 12 hereof and the Act. B. Sale or Transfer of All Assets of the Trust. The Trustee may not, ------------------------------------------- directly or indirectly, cause the Trust to sell, exchange, transfer or otherwise dispose of all or substantially all of the Trust's assets in a single transaction or a series of related transactions (including by way of merger (including a triangular merger), or other combination with any other Persons) except as follows: (i) if the transaction is pursuant to a dissolution and liquidation of the Trust in accordance with Article 11; (ii) if such merger, sale or other transaction is in connection with a Termination Transaction permitted under Section 9.2.B hereof and is approved by the Unitholders holding at least a majority of the then outstanding Units entitled to vote thereon (including any Class A-2 Units held by the Trustee), or (iii) otherwise, if such merger, sale or other transaction is approved by the Unitholders holding at least a majority of the then outstanding Class A-1 Units. 29 C. Termination of Election to Be Treated as a Partnership. Prior to ------------------------------------------------------ January 1, 2043, revocation of (or any action that would have the effect of revoking or terminating) the election by the Trust pursuant to Regulation Section 301.7701-3(c) to be treated as a "partnership" for federal income tax purposes shall be treated as a liquidation of the Trust and shall be permitted only if the requisite vote, notice and absence of objection provided for in either Section 11.1(i) or Section 11.1(ii), as applicable, have been satisfied. Section 5.4 Reimbursement of the Trustee ---------------------------- A. No Compensation. Except as provided in this Section 5.4 and --------------- elsewhere in this Agreement (including the provisions of Articles 3 and 4 regarding distributions, payments, and allocations to which it may be entitled), the Trustee shall not be compensated for its services as trustee of the Trust. B. Responsibility for Trust and Trustee Expenses. The Trust shall be --------------------------------------------- responsible for and shall pay all expenses relating to the Trust's organization, the ownership of its assets and its operations (including, without limitation, all expenses related to or incurred in connection with the Merger Agreement). The Trustee shall be reimbursed on a monthly basis, or such other basis as the Trustee may determine in its sole and absolute discretion, for all expenses it incurs relating to the ownership and operation of, or for the benefit of, the Trust (including, without limitation, expenses related to or resulting from the operations of the Trustee and to the management and administration of any Subsidiaries of the Trustee or the Trust or Affiliates of the Trust, such as auditing expenses and filing fees); provided that (i) the amount of any such -------- ---- reimbursement shall be reduced by (x) any interest earned by the Trustee with respect to bank accounts or other instruments or accounts held by it on behalf of the Trust as permitted in Section 5.5.A (which interest is considered to belong to the Trust and shall be paid over to the Trust to the extent not applied to reimburse the Trustee for expenses hereunder); and (y) any amount derived by the Trustee from any investments permitted in Section 5.5.A, (ii) the Trust shall not be responsible for any taxes that the Trustee would not have been required to pay if it qualified as a REIT for federal income tax purposes or any taxes imposed on the Trustee by reason of its failure to distribute to its shareholders an amount equal to its taxable income; (iii) the Trust shall not be responsible for expenses or liabilities incurred by the Trustee in connection with any business or assets of the Trustee other than its ownership of Trust Interests or operation of the business of the Trust or ownership of interests in Qualified REIT Subsidiaries or limited liability companies to the extent permitted in Section 5.5.A; and (iv) the Trust shall not be responsible for any expenses or liabilities of the Trustee that are excluded from the scope of the indemnification provisions of Section 5.7.A by reason of the provisions of clause (i), (ii) or (iii) thereof. The Trustee shall determine in good faith the amount of expenses incurred by it related to the ownership of Trust Interests and operation of, or for the benefit of, the Trust. If certain expenses are incurred that are related both to the ownership of Trust Interests or operation of, or for the benefit of, the Trust and to the ownership of other assets (other than Qualified REIT Subsidiaries or limited liability companies as permitted under Section 5.7.A) or the operation of other businesses, such expenses will be allocated to the Trust and such other entities (including the Trustee) owning such other assets or businesses in such a manner as the Trustee in its sole and absolute discretion deems fair and reasonable. Such reimbursements shall be in addition to 30 any reimbursement to the Trustee pursuant to Section 8.3.C and as a result of indemnification pursuant to Section 5.7. All payments and reimbursements hereunder shall be characterized for federal income tax purposes as expenses of the Trust incurred on its behalf, and not as expenses of the Trustee. C. Trust Interest Issuance Expenses. The Trustee shall also be -------------------------------- reimbursed for all expenses it incurs relating to any issuance of Trust Interests, Shares, Debt of the Trust or Funding Debt or rights, options, warrants or convertible or exchangeable securities pursuant to Article 2 (including, without limitation, all costs, expenses, damages and other payments resulting from or arising in connection with litigation related to any of the foregoing), all of which expenses are considered by the Unitholders to constitute expenses of, and for the benefit of, the Trust. D. Purchases of Shares by the Trustee. If the Parent REIT exercises ---------------------------------- its rights under the Trustee Declaration of Trust to purchase Shares or otherwise elects to purchase from its shareholders Shares in connection with a share repurchase or similar program or for the purpose of delivering such Shares to satisfy an obligation under any dividend reinvestment or equity purchase program adopted by the Parent REIT, any employee equity purchase plan adopted by the Parent REIT or any similar obligation or arrangement undertaken by the Parent REIT in the future, the purchase price paid by the Parent REIT for those Shares and any other expenses incurred by the Parent REIT in connection with such purchase shall be considered expenses of the Trust and shall be reimbursable to the Parent REIT, subject to the conditions that: (i) if those Shares subsequently are to be sold by the Parent REIT, the Parent REIT shall pay to the Trust any proceeds received by the Parent REIT for those Shares (provided -------- that a transfer of Shares for Units pursuant to Section 6.6 would not be considered a sale for such purposes); and (ii) if such Shares are not retransferred by the Parent REIT within thirty (30) days after the purchase thereof, the Parent REIT shall cause the Trust to cancel a number of Units (rounded to the nearest whole Unit) held by the Parent REIT equal to (x) in the case of Common Shares, the product attained by multiplying the number of those Shares by a fraction, the numerator of which is one and the denominator of which is the Conversion Factor, and (y) in the case of any other Shares, the number of such Shares, which Units shall be treated as having been redeemed by the Trust for the payment made by the Trust to the Parent REIT with respect to the corresponding Shares. E. Reimbursement Not a Distribution. If and to the extent any -------------------------------- reimbursement made pursuant to this Section 5.4 is determined for federal income tax purposes not to constitute a payment of expenses of the Trust, the amount so determined shall constitute a guaranteed payment with respect to capital within the meaning of Section 707(c) of the Code, shall be treated consistently therewith by the Trust and all Unitholders and shall not be treated as a distribution for purposes of computing the Unitholders' Capital Accounts. F. Funding Acquisitions. In the event that the Trustee shall -------------------- undertake to acquire (whether by merger, purchase, or otherwise) the assets or equity interests of another Person and such acquisition shall require the payment of cash by the Trustee (whether to such Person or to any other selling party or parties in such transaction or to one or more creditors, if any, of such Person or such selling party or parties), (i) the Trust shall advance to the Trustee the cash required to consummate such acquisition if, and to the extent that, such cash is not to be 31 obtained by the Trustee through an issuance of Shares described in Section 2.2, (ii) the Trustee shall immediately, upon consummation of such acquisition, transfer to the Trust (or cause to be transferred to the Trust), in full and complete satisfaction of such advance and as required by Section 5.5, the assets or equity interests of such Person acquired by the Trustee in such acquisition, and (iii) pursuant to and in accordance with Section 2.2, the Trust shall issue to the Trustee Trust Interests and/or rights, options, warrants or convertible or exchangeable securities of the Trust having designations, preferences and other rights that are substantially the same as those of any additional Shares, other equity securities, New Securities and/or Convertible Funding Debt, as the case may be, issued by the Trustee in connection with such acquisition (whether issued directly to participants in the acquisition transaction or to third parties in order to obtain cash to complete the acquisition). In addition to, and without limiting the foregoing, in the event that the Trustee engages in a transaction in which (x) the Trustee (or a wholly owned direct or indirect Subsidiary of the Trustee) merges with another entity (referred to as the "Parent Entity") that is organized in the "UPREIT format" (i.e., where the Parent Entity holds substantially all of its assets and conducts substantially all of its operations through a partnership, limited liability company or other entity (referred to as an "Operating Entity")) and the Trustee survives such merger, (y) such Operating Entity merges with or is otherwise acquired by the Trust in exchange in whole or in part for Trust Interests, and (z) the Trustee is required or elects to pay part of the consideration in connection with such merger involving the Parent Entity in the form of cash and part of the consideration in the form of Shares, the Trust shall distribute to the Trustee with respect to its existing Trust Interest an amount of cash sufficient to complete such transaction and the Trustee shall cause the Trust to cancel a number of Units (rounded to the nearest whole number) held by the Trust equal to the product attained by multiplying the number of additional Shares of the Trust that the Trust would have issued to the Parent Entity or the owners of the Parent Entity in such transaction if the entire consideration therefor were to have been paid in Shares by a fraction, the numerator of which is one and the denominator of which is the Conversion Factor. Section 5.5 Outside Activities of the Trustee --------------------------------- A. General. Without the approval of the holders of at least a ------- majority of the Class A-1 Units outstanding and entitled to vote thereon, the Trustee shall not, directly or indirectly, enter into or conduct any business other than in connection with the ownership, acquisition and disposition of Trust Interests as Trustee or Unitholder and the management of the business of the Trust and such activities as are incidental thereto. Without the approval of the holders of at least a majority of the Class A-1 Units outstanding and entitled to vote thereon, the assets of the Parent REIT shall be limited to Trust Interests and permitted debt obligations of the Trust (as contemplated by Section 5.5.E), so that Shares and Units are completely fungible except as otherwise specifically provided herein; provided that the Trustee shall be -------- ---- permitted to hold such bank accounts or similar instruments or accounts in its name as it deems necessary to carry out its responsibilities and purposes as contemplated under this Agreement and its organizational documents (provided -------- that accounts held on behalf of the Trust to permit the Trustee to carry out its - ---- responsibilities under this Agreement shall be considered to belong to the Trust and the interest earned thereon shall, subject to Section 5.4.B, be applied for the benefit of the Trust); and, provided further that, the Parent REIT shall be -------- ------- permitted to acquire, directly or 32 through one or more Qualified REIT Subsidiaries or limited liability companies, Qualified Assets. The Parent REIT and any of its Affiliates may acquire Trust Interests and shall be entitled to exercise all rights of a Unitholder relating to such Trust Interests. B. Forfeiture of Shares. If the Trust or the Parent REIT acquires -------------------- Shares as a result of the forfeiture of such Shares under a restricted share, share bonus or other similar share plan, then the Trustee shall cause the Trust to cancel that number of Units equal to the number of Shares so acquired, and, if the Trust acquired such Shares, it shall transfer such Shares to the Trustee for cancellation. C. Issuances of Shares and Other Securities. After the Effective ---------------------------------------- Date, the Trustee or Parent REIT shall not grant, award, or issue any additional Shares (other than Shares issued pursuant to Section 6.6 hereof, pursuant to a dividend or distribution (including any share split) of Shares to all of its shareholders), or in connection with any acquisition permitted by Section 5.5.A hereof of Qualified Assets, other equity securities of the Trustee, New Securities or Convertible Funding Debt unless (i) the Trustee shall cause, pursuant to Section 2.2.A hereof, the Trust to issue to the Trustee Trust Interests or rights, options, warrants or convertible or exchangeable securities of the Trust having designations, preferences and other rights, all such that the economic interests are substantially the same as those of such additional Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be, and (ii) the Trustee transfers to the Trust, as an additional Capital Contribution, the proceeds from the grant, award, or issuance of such additional Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be, or from the exercise of rights contained in such additional Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be. Without limiting the foregoing, the Parent REIT is expressly authorized to issue additional Shares, other equity securities, New Securities or Convertible Funding Debt, as the case may be, for less than fair market value, and the Trustee is expressly authorized, pursuant to Section 2.2.A hereof, to cause the Trust to issue to the Trustee corresponding Trust Interests, as long as (a) the Trustee concludes in good faith that such issuance is in the interests of the Trustee and the Trust (for example, and not by way of limitation, the issuance of Shares and corresponding Units pursuant to a share purchase plan providing for purchases of Shares, either by employees or shareholders, at a discount from fair market value or pursuant to employee share options that have an exercise price that is less than the fair market value of the Shares, either at the time of issuance or at the time of exercise) and (b) the Trustee transfers all proceeds from any such issuance or exercise to the Trust as an additional Capital Contribution. D. Share Option Plan. If at any time or from time to time, the ----------------- Trustee sells Shares pursuant to any Share Option Plan, the Trustee shall transfer the net proceeds of the sale of such Shares to the Trust as an additional Capital Contribution in exchange for an amount of additional Units equal to the number of Shares so sold divided by the Conversion Factor. E. Funding Debt. The Trustee or the Parent REIT may incur a Funding ------------ Debt, including, without limitation, a Funding Debt that is convertible into Shares or otherwise constitutes a class of New Securities ("Convertible Funding Debt"), subject to the condition that the Trustee or the Parent REIT, as the case may be, lend to the Trust the net proceeds of such Funding Debt; provided -------- that Convertible Funding Debt shall be issued pursuant to Section 5.5.C - ---- 33 above; and, provided further that, the Trustee or the Parent REIT shall not be ----------------- obligated to lend the net proceeds of any Funding Debt to the Trust in a manner that would be inconsistent with the Parent REIT's ability to remain qualified as a REIT as long as the Parent REIT has determined to continue to qualify as a REIT. If the Trustee or the Parent REIT enters into any Funding Debt, the loan to the Trust shall be on comparable terms and conditions, including interest rate, repayment schedule and costs and expenses, as are applicable with respect to or incurred in connection with such Funding Debt. Section 5.6 Transactions with Affiliates ---------------------------- A. Transaction with Certain Affiliates. Except as expressly ----------------------------------- permitted by this Agreement, the Trust shall not, directly or indirectly, sell, transfer or convey any property to, or purchase any property from, or borrow funds from, or lend funds to, any Unitholder or any Affiliate of the Trust or the Trustee that is not also a Subsidiary of the Trust, except pursuant to transactions that are determined by the Trustee in good faith, which determination shall be conclusive, to be on terms that are fair and reasonable and no less favorable to the Trust than would be obtained from an unaffiliated third party or that comply with the provisions of Section 2-419 of the Maryland General Corporation Law. B. Conflict Avoidance. The Trustee is expressly authorized to enter ------------------ into, in the name and on behalf of the Trust, a noncompetition arrangement, right of first opportunity arrangement and/or other conflict avoidance agreements with various Affiliates of the Trust and Trustee on such terms as the Trustee, in its sole and absolute discretion, believes are advisable. C. Benefit Plans. The Trustee in its sole and absolute discretion ------------- and without the approval of the other Unitholders, may propose and adopt on behalf of the Trust employee benefit plans funded by the Trust for the benefit of employees of the Trustee, the Trust, or Subsidiaries of the Trust. Section 5.7 Indemnification --------------- A. General. The Trust shall indemnify each Indemnitee to the fullest ------- extent provided by the Act from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorneys fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from or in connection with any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, incurred by the Indemnitee and relating to the Trust or the Trustee or the operation of, or the ownership of property by, the Trust or the Trustee as set forth in this Agreement in which any such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, unless it is established by a final determination of a court of competent jurisdiction that: (i) the act or omission of the Indemnitee was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty, (ii) the Indemnitee actually received an improper personal benefit in money, property or services or (iii) in the case of any criminal proceeding, the Indemnitee had reasonable cause to believe that the act or omission was unlawful. The termination of any proceeding by judgment, 34 order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 5.7.A. The termination of any proceeding by conviction or upon a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the Indemnitee acted in a manner contrary to that specified in this Section 5.7.A with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 5.7 shall be made only out of the assets of the Trust, and any insurance proceeds from the liability policy covering the Trustee and any Indemnitee, and neither the Trustee nor any other Unitholder shall have any obligation to contribute to the capital of the Trust or otherwise provide funds to enable the Trust to fund its obligations under this Section 5.7. B. Advancement of Expenses. Reasonable expenses expected to be ----------------------- incurred by an Indemnitee may be paid or reimbursed by the Trust in advance of the final disposition of any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative made or threatened against an Indemnitee upon receipt by the Trust of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Trust as authorized in Section 5.7.A has been met and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. C. No Limitation of Rights. The indemnification provided by this ----------------------- Section 5.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Unitholders, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity unless otherwise provided in a written agreement pursuant to which such Indemnitee is indemnified. D. Insurance. The Trust may purchase and maintain insurance on --------- behalf of the Indemnitees and such other Persons as the Trustee shall determine against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Trust's activities, regardless of whether the Trust would have the power to indemnify such Person against such liability under the provisions of this Agreement. E. Benefit Plan Fiduciary. For purposes of this Section 5.7, (i) ---------------------- excise taxes assessed on an Indemnitee, or for which the Indemnitee is otherwise found liable, with respect to a Plan pursuant to applicable law shall constitute fines within the meaning of this Section 5.7, and (ii) actions taken or omitted by the Indemnitee with respect to a Plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of such Plan shall be deemed to be for a purpose which is not opposed to the best interests of the Trust. F. No Personal Liability for Unitholders. In no event may an ------------------------------------- Indemnitee subject any of the Unitholders to personal liability by reason of the indemnification provisions set forth in this Agreement. G. Interested Transactions. An Indemnitee shall not be denied ----------------------- indemnification in whole or in part under this Section 5.7 because the Indemnitee had an interest 35 in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. H. Benefit. The provisions of this Section 5.7 are for the benefit ------- of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 5.7, or any provision hereof, shall be prospective only and shall not in any way affect the limitation on the Trust's liability to any Indemnitee under this Section 5.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or related to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. I. Indemnification Payments Not Distribution. If and to the extent ----------------------------------------- any payments to the Trustee pursuant to this Section 5.7 constitute gross income to the Trustee (as opposed to the repayment of advances made on behalf of the Trust), such amounts shall constitute guaranteed payments within the meaning of Section 707(c) of the Code, shall be treated consistently therewith by the Trust and all Unitholders, and shall not be treated as distributions for purposes of computing the Unitholders' Capital Accounts. J. Exception to Indemnification. Notwithstanding anything to the ---------------------------- contrary in this Agreement, the Trustee shall not be entitled to indemnification hereunder for any loss, claim, damage, liability or expense for which the Trustee is obligated to indemnify the Trust under any other agreement between the Trustee and the Trust. Section 5.8 Liability of the Trustee ------------------------ A. General. To the maximum extent that Maryland law in effect from ------- time to time permits limitation of the liability of trustees of a real estate investment trust, the Trustee shall not be liable to the Trust or to any Unitholder for money damages. Neither the amendment nor repeal of this Section 5.8.A, nor the adoption or amendment of any other provision of the Declaration of Trust inconsistent with this Section 5.8.A, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. In the absence of any Maryland statute limiting the liability of trustees of a Maryland real estate investment trust for money damages in a suit by or on behalf of the Trust or by any Unitholder, the Trustee shall not be liable to the Trust or to any Unitholder for money damages except to the extent that (i) the Trustee actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received; or (ii) a judgment or other final adjudication adverse to the Trustee is entered in a proceeding based on a finding in the proceeding that the Trustee's action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. B. No Obligation to Consider Separate Interests of other ----------------------------------------------------- Unitholders. The Unitholders (including the Trustee to the extent that its Trust - ----------- Interest is not in its capacity as Trustee) expressly acknowledge that the Trustee is acting on behalf of the Trust and the Trustee's shareholders collectively, that the Trustee is under no obligation to consider the separate interests 36 of the other Unitholders (including, without limitation, the tax consequences to the other Unitholders) in deciding whether to cause the Trust to take (or decline to take) any actions, and that the Trustee shall not be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by Unitholders in connection with such decisions except as set forth in Exhibit D, unless the Trustee acted in bad faith and the act or omission was - --------- material to the matter giving rise to the loss, liability or benefit not derived. C. Actions of Agents. Subject to its obligations and duties as ----------------- Trustee set forth in Section 5.1.A, the Trustee may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The Trustee shall not be responsible for any misconduct or negligence on the part of any such agent appointed by the Trustee in good faith. D. Effects of Amendment. Notwithstanding any other provision -------------------- contained herein, any amendment, modification or repeal of this Section 5.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Trustee's liability to the Trust and the other Unitholders under this Section 5.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. Section 5.9 Other Matters Concerning the Trustee ------------------------------------ A. Reliance on Documents. The Trustee may rely and shall be --------------------- protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties. B. Reliance on Advisors. The Trustee may consult with legal counsel, -------------------- accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters which such Trustee reasonably believes to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. C. Action Through Agents. The Trustee shall have the right, in --------------------- respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the Trustee in the power of attorney, have full power and authority to do and perform all and every act and duty which is permitted or required to be done by the Trustee hereunder. D. Actions to Maintain REIT Status or Avoid Taxation of Parent REIT. ---------------------------------------------------------------- Notwithstanding any other provisions of this Agreement or the Act, any action of the Trustee on behalf of the Trust or any decision of the Trustee to refrain from acting on behalf of the Trust, undertaken in the good faith belief that such action or omission is necessary or advisable in order 37 (i) to protect the ability of the Parent REIT to continue to qualify as a REIT so long as the Parent REIT has determined to continue to qualify as a REIT or (ii) to allow the Parent REIT to avoid incurring liability for any taxes under Section 857 or Section 4981 of the Code, is expressly authorized under this Agreement, and is deemed approved by all of the Unitholders other than the Trustee. Section 5.10 Title to Trust Assets --------------------- Title to Trust assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Trust as an entity, and no other Unitholder, individually or collectively, shall have any ownership interest in such Trust assets or any portion thereof. Title to any or all of the Trust assets may be held in the name of the Trust, the Trustee or one or more nominees, as the Trustee may determine, including Affiliates of the Trustee. The Trustee hereby declares and warrants that any Trust assets for which legal title is held in the name of the Trustee or any nominee or Affiliate of the Trustee shall be held by such Person for the use and benefit of the Trust in accordance with the provisions of this Agreement. All Trust assets shall be recorded as the property of the Trust in its books and records, irrespective of the name in which legal title to such Trust assets is held. Section 5.11 Reliance by Third Parties ------------------------- Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Trust shall be entitled to assume that the Trustee has full power and authority, without consent or approval of any other Unitholder or Person, to encumber, sell or otherwise use in any manner any and all assets of the Trust and to enter into any contracts on behalf of the Trust, and take any and all actions on behalf of the Trust and such Person shall be entitled to deal with the Trustee as if the Trustee were the Trust's sole party in interest, both legally and beneficially. Each Unitholder hereby waives any and all defenses or other remedies which may be available against such Person to contest, negate or disaffirm any action of the Trustee in connection with any such dealing. In no event shall any Person dealing with the Trustee or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the Trustee or its representatives. Each and every certificate, document or other instrument executed on behalf of the Trust by the Trustee or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Trust and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Trust. 38 ARTICLE 6 RIGHTS AND OBLIGATIONS OF UNITHOLDERS Section 6.1 Limitation of Liability ----------------------- The Unitholders other than the Trustee in its capacity as Trustee shall have no liability under this Agreement except as expressly provided in this Agreement, including Section 8.5 and Section 11.3, or under the Act. Section 6.2 Management of Business ---------------------- No Unitholder (other than the Trustee, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the Trustee, the Trust or any of their Affiliates, in their capacity as such) shall take part in the operation, management or control (within the meaning of the Act) of the Trust's business, transact any business in the Trust's name or have the power to sign documents for or otherwise bind the Trust. The transaction of any such business by the Trustee, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the Trustee, the Trust or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Unitholders (excluding the Trustee) under this Agreement. Section 6.3 Outside Activities of Unitholders --------------------------------- Subject to Section 5.5 hereof, and subject to any agreements entered into pursuant to Section 5.6.B hereof and any other agreements entered into by a Unitholder other than the Trustee or its Affiliates with the Trust or a Subsidiary, any Unitholder other than the Trustee and any officer, director, employee, agent, trustee, Affiliate or shareholder of any Unitholder other than the Trustee shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Trust, including business interests and activities that are in direct competition with the Trust or that are enhanced by the activities of the Trust. Neither the Trust nor any Unitholders shall have any rights by virtue of this Agreement in any business ventures of any other Unitholder. None of the Unitholders (other than the Trustee) nor any other Person shall have any rights by virtue of this Agreement or the Trust relationship established hereby in any business ventures of any other Person (other than the Trustee to the extent expressly provided herein), and such Person shall have no obligation pursuant to this Agreement to offer any interest in any such business ventures to the Trust, any Unitholder or any such other Person, even if such opportunity is of a character which, if presented to the Trust, any Unitholder or such other Person, could be taken by such Person. Section 6.4 Return of Capital ----------------- Except pursuant to the right of redemption set forth in Section 6.6, and except in accordance with the terms of any Preferred Units, no Unitholder shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made 39 pursuant to this Agreement or upon termination of the Trust as provided herein. No Unitholder shall have priority over any other Unitholder either as to the return of Capital Contributions (except as permitted by Article 2 of the Declaration of Trust) or, as to profits, losses, distributions or credits (except to the extent provided by Article IV or Exhibit B or as otherwise --------- expressly provided in this Agreement). Section 6.5 Rights of Unitholders Relating to the Trust ------------------------------------------- A. General. In addition to other rights provided by this Agreement ------- or by the Act, and except as limited by Section 6.5.E, each Unitholder shall have the right, upon written demand: (1) to obtain a copy of the Trustee's federal, state and local income tax returns for each fiscal year; (2) to obtain a copy of the Trust's bylaws, minutes of proceedings of the holders of the Trust's shares of beneficial interest, an annual report of operations prepared in general conformity with Section 8-401 of the Act, and any voting trust agreement on file at the Trust's principal office; and (3) to obtain a copy of the Declaration of Trust and all amendments thereto. In addition, any Unitholder that is a holder of 5% or more of the outstanding Class A-1 Units shall have the right, upon written demand, to obtain a current list of the name and last known business, residence or mailing address of each Unitholder and to obtain such financial and other information to which 5% stockholders of a Maryland corporation are entitled under Section 2-513 of the Maryland General Corporation Law. B. Notice of Conversion Factor. The Trust shall notify each --------------------------- Unitholder, upon request, of the then current Conversion Factor and any changes that have been made thereto. C. Notice of Extraordinary Transactions of the Parent REIT. The ------------------------------------------------------- Parent REIT shall not make any extraordinary distributions of cash or property to its shareholders or effect a merger (including, without limitation, a triangular merger), or other combination with or into another Person, a sale of all or substantially all of its assets or any other similar extraordinary transaction without notifying the Unitholders of its intention to make such distribution or effect such merger, sale or other extraordinary transaction at least twenty (20) Business Days prior to the record date to determine shareholders eligible to receive such distribution or to vote upon the approval of such merger, sale or other extraordinary transaction (or, if no such record date is applicable, at least twenty (20) business days before consummation of such merger, sale or other extraordinary transaction); provided, however, that -------- -------- the Trustee, in its sole discretion, may shorten the required notice period of not less than twenty (20) business days prior to the record date to determine the shareholders eligible to vote upon a merger transaction (but not any of the other transactions covered by this Section 6.5.C.) to a period of not less than ten (10) Business Days (thereby continuing to afford the holders of Units the opportunity to redeem Units under Section 6.6 on or prior to the record date for the shareholder vote on the merger transaction) so 40 long as (i) the Parent REIT will be the surviving entity in such merger transaction, (ii) immediately following the merger transaction, Persons who held voting securities of the Parent REIT immediately prior to such merger transaction will hold, solely by reason of the ownership of voting securities of the Parent REIT immediately prior to the merger transaction, voting securities of the Parent REIT representing not less than fifty one percent (51%) of the total combined voting power of all outstanding voting securities of the Parent REIT after such merger, and (iii) in the event that in connection with such merger transaction the Trust will merge with another entity, the Trust will be the surviving entity in such merger. This provision for such notice shall not be deemed (i) to permit any transaction that otherwise is prohibited by this Agreement or requires the approval by the holders of at least a majority of the Class A-1 Units or (ii) to require the approval on the part of any one or more of the Unitholders to a transaction that does not otherwise require such approval under this Agreement. Parent REIT shall not be required to provide notice pursuant hereto in advance of public disclosure of the transaction giving rise to the requirement therefor, but Parent REIT shall not establish a record date related thereto (or if no record date is applicable, a date for consummation of such merger, sale or other extraordinary transaction) until at least twenty (20) Business Days after the date of notice pursuant hereto unless the proviso in the first sentence is applicable, in which case ten (10) Business Days shall be substituted therefor. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 6.5. D. Agreement Among Unitholders. The Unitholders agree that the --------------------------- provisions of this Annex A are intended to operate both as provisions of the Declaration of Trust and in the nature of a shareholders agreement among each of the Unitholders, and that if one or more provisions is declared not to be an enforceable provision within a declaration of trust under the Act, the provisions shall nonetheless be fully binding on all Unitholders pursuant to the agreement among unitholders. E. Confidentiality. Notwithstanding any other provision of this --------------- Section 6.5, the Trustee may keep confidential from the Unitholder, for such period of time as the Trustee determines in its sole and absolute discretion to be reasonable, any information that (i) the Trustee reasonably believes to be in the nature of trade secrets or other information the disclosure of which the Trustee in good faith believes is not in the best interests of the Trust or could damage the Trust or its business or (ii) the Trust is required by law or by agreements with unaffiliated third parties to keep confidential. Section 6.6 Redemption Right ---------------- A. General. (i) Subject to Section 6.6.C, at any time on or after ------- ----------- the first anniversary date of the issuance of a Common Unit to a Unitholder - --------------------------------------------------------------------------- pursuant to the Declaration of Trust (which one-year period shall commence upon the issuance of such Unit regardless of whether such Unit is designated upon issuance as a Class A-1 Unit or a Class B Unit and shall include the period of time from the date such Unit is issued to such Unitholder as a Class B Unit until the date such Unit is converted automatically to a Class A-1 Unit pursuant to Section 2.2.C hereof), or on or after such date prior to the expiration of such one-year period as the Trustee, in its sole and absolute discretion, designates with respect to any or all Class A-1 Units then 41 outstanding, the holder of a Class A-1 Unit (if other than any Trustee Related ------------------------------ Party) shall have the right (the "Redemption Right") to require the Trust to ---------------- redeem such Class A Unit, from funds legally available therefor, with such redemption to occur on the Specified Redemption Date and at a redemption price equal to and in the form of the Cash Amount to be paid by the Trust (subject to the Trustee's right to pay such redemption price in Shares pursuant to Section 6.6.B). Any such Redemption Right shall be exercised pursuant to a Notice of Redemption delivered to the Trust (with a copy to the Trustee) by the Unitholder who is exercising the Redemption Right (the "Redeeming Unitholder"). A Unitholder other than the Trustee may exercise the Redemption Right from time to time, without limitation as to frequency, with respect to part or all of the Class A-1 Units that it owns, as selected by such Unitholder, provided that a -------- Unitholder may not exercise the Redemption Right for less than one thousand (1,000) Class A-1 Units unless such Redeeming Unitholder then holds less than one thousand (1,000) Class A-1 Units, in which event such Redeeming Unitholder must exercise the Redemption Right for all of the Class A-1 Units held by such Redeeming Unitholder, and provided further that, with respect to a Unitholder ---------------- which is an entity, such Unitholder may exercise the Redemption Right for less than one thousand (1,000) Class A-1 Units without regard to whether or not such Unitholder is exercising the Redemption Right for all of the Class A-1 Units held by such Unitholder as long as such Unitholder is exercising the Redemption Right on behalf of one or more of its equity owners in respect of one hundred percent (100%) of such equity owners' interests in such Unitholder. Notwithstanding any limitation in the first sentence hereof, the Redemption Right with respect to all Class A-1 Units issued in connection with the merger of Charles E. Smith Residential Realty, L.P. into the Trust shall be exercisable immediately on the issuance of such Class A-1 Units without limitation. (ii) The Redeeming Unitholder shall have no right with respect to any Class A-1 Units so redeemed to receive any distributions paid after the Specified Redemption Date with respect to such Class A-1 Units. (iii) If the Parent REIT provides notice to the Unitholders (excluding the Trustee), pursuant to Section 6.5.C hereof, the Redemption Right shall be exercisable, without regard to whether the Units have been outstanding for any specified period, during the period commencing on the date on which the Parent REIT provides such notice and ending on the record date to determine shareholders eligible to receive such distribution or to vote upon the approval of such merger, sale or other extraordinary transaction (or, if no such record date is applicable, at least twenty (20) business days before the consummation of such merger, sale or other extraordinary transaction). If this subparagraph (iii) applies, the Specified Redemption Date is the date on which the Trust and the Trustee receive notice of exercise of the Redemption Right, rather than ten (10) Business Days after receipt of the notice of redemption. B. Trustee Assumption of Right. (i) If a Unitholder other than the --------------------------- Trustee has delivered a Notice of Redemption, the Trustee may, in its sole and absolute discretion (subject to the limitations on ownership and transfer of Shares set forth in the Trustee Declaration of Trust), elect to assume directly and satisfy a Redemption Right by paying to the Redeeming Unitholder either the Cash Amount or the Shares Amount, as the Trustee determines in its sole and absolute discretion (provided that payment of the Redemption Amount in the form -------- of Shares shall be in Shares registered for resale under Section 12 of the Exchange Act and listed 42 for trading on the exchange or national market on which the Shares are Publicly Traded and the issuance of Shares upon redemption shall be registered under the Securities Act or, at the election of the Trustee, resale of the Common Shares issued upon redemption shall be registered (so long as the Redeeming Unitholder provides all information required for such registration) and, provided further ---------------- that, if the Shares are not Publicly Traded at the time a Redeeming Unitholder exercises its Redemption Right, the Redemption Amount shall be paid only in the form of the Cash Amount unless the Redeeming Unitholder, in its sole and absolute discretion, consents to payment of the Redemption Amount in the form of the Shares Amount, on the Specified Redemption Date, whereupon the Trustee shall acquire the Units offered for redemption by the Redeeming Unitholder and shall be treated for all purposes of this Agreement as the owner of such Units. Unless the Trustee, in its sole and absolute discretion, shall exercise its right to assume directly and satisfy the Redemption Right, the Trustee shall not have any obligation to the Redeeming Unitholder or to the Trust with respect to the Redeeming Unitholder's exercise of the Redemption Right. If the Trustee shall exercise its right to satisfy the Redemption Right in the manner described in the first sentence of this Section 6.6.B and shall fully perform its obligations in connection therewith, the Trust shall have no right or obligation to pay any amount to the Redeeming Unitholder with respect to such Redeeming Unitholder's exercise of the Redemption Right, and each of the Redeeming Unitholder, the Trust and the Trustee shall, for federal income tax purposes, treat the transaction between the Trustee and the Redeeming Unitholder as a sale of the Redeeming Unitholder's Units to the Trustee. Nothing contained in this Section 6.6.B shall imply any right of the Trustee to require any Unitholder to exercise the Redemption Right afforded to such Unitholder pursuant to Section 6.6.A. (ii) If the Trustee determines to pay the Redeeming Unitholder the Redemption Amount in the form of Shares, the total number of Shares to be paid to the Redeeming Unitholder in exchange for the Redeeming Unitholder's Class A Units shall be the applicable Shares Amount. If this amount is not a whole number of Shares, the Redeeming Unitholder shall be paid (i) that number of Shares which equals the nearest whole number less than such amount plus (ii) an amount of cash which the Trustee determines, in its reasonable discretion, to represent the fair value of the remaining fractional Share which would otherwise be payable to the Redeeming Unitholder. (iii) Each Redeeming Unitholder agrees to execute such documents as the Trustee may reasonably require in connection with the issuance of Shares upon exercise of the Redemption Right. (iv) Any Shares issued in accordance with this Section 6.6.B will be duly and validly authorized and will be validly issued, fully paid and nonassessable and will not be subject to any preemptive rights. C. Exception to Exercise of the Redemption Right. Notwithstanding --------------------------------------------- the provisions of Sections 6.6.A and 6.6.B, a Unitholder shall not be entitled to exercise the Redemption Right pursuant to Section 6.6.A if (but only as long as) the delivery of Shares to such Unitholder on the Specified Redemption Date (i) would be prohibited under those portions of the Trustee Declaration of Trust relating to restrictions on ownership and transfer of Shares or 43 (ii) would be prohibited under applicable federal or state securities laws or regulations (in each case regardless of whether the Trustee would in fact assume and satisfy the Redemption Right). D. No Liens on Units Delivered for Redemption. Each Unitholder ------------------------------------------ covenants and agrees with the Trustee that all Class A Units delivered for redemption shall be delivered to the Trust or the Trustee, as the case may be, free and clear of all liens, claims and encumbrances; and, notwithstanding anything contained herein to the contrary, neither the Trustee nor the Trust shall be under any obligation to acquire Class A Units which are or may be subject to any liens, claims or encumbrances. Each Unitholder further agrees that, if any state or local property transfer tax is payable as a result of the transfer of its Class A Units to the Trust or the Trustee, such Unitholder shall assume and pay such transfer tax. E. Additional Trust Interests; Modification of Holding Period. If ---------------------------------------------------------- the Trust issues Trust Interests to any Unitholder pursuant to Article 2, the Trustee may provide for any restrictions on the exercise of the Redemption Right with respect to such Trust Interests as it deems appropriate, in its sole and absolute discretion, provided that no such restrictions shall materially -------- adversely affect the rights of any other Unitholder to exercise its Redemption Rights without that Unitholder's prior written consent. In addition, the Trustee may, with respect to any holder or holders of Units, at any time and from time to time, as it shall determine in its sole discretion, reduce or waive the length of the period prior to which such holder or holders may not exercise the Redemption Right. ARTICLE 7 BOOKS, RECORDS, ACCOUNTING AND REPORTS Section 7.1 Records and Accounting ---------------------- The Trustee shall keep or cause to be kept at the principal office of the Trust those records and documents required to be maintained by the Act and other books and records deemed by the Trustee to be appropriate with respect to the Trust's business, including, without limitation, all books and records necessary to provide to the Unitholders any information, lists and copies of documents required to be provided pursuant to Section 7.3 hereof. Any records maintained by or on behalf of the Trust in the regular course of its business may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided that the records -------- ---- so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Trust shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or other such basis as the Trustee determines to be necessary or appropriate. Section 7.2 Fiscal Year ----------- The fiscal year of the Trust shall be the calendar year. 44 Section 7.3 Reports ------- A. Annual Reports. As soon as practicable, but in no event later -------------- than the date on which the Parent REIT mails its annual report to its shareholders, the Parent REIT shall cause to be mailed to each Unitholder an annual report, as of the close of the most recently ended Fiscal Year, containing financial statements of the Trust, or of the Parent REIT if such statements are prepared solely on a consolidated basis with the Trust, for such Fiscal Year, presented in accordance with generally accepted accounting principles, such statements to be audited by a nationally recognized firm of independent public accountants selected by the Parent REIT. B. Quarterly Reports. If and to the extent that the Parent REIT ----------------- mails quarterly reports to its shareholders, as soon as practicable, but in no event later than the date on which such reports are mailed, the Parent REIT shall cause to be mailed to each Unitholder a report containing unaudited financial statements, as of the last day of such calendar quarter, of the Trust, or of the Parent REIT if such statements are prepared solely on a consolidated basis with the Trust, and such other information as may be required by applicable law or regulation, or as the Trustee determines to be appropriate. C. Parent REIT Communications to Equity Holders. The Trustee shall --------------------------------------------- use commercially reasonable efforts to cause to be mailed to each Unitholder a copy of each written report, proxy statement or other communication sent to holders of Shares. Such materials will be sent to each Unitholder on the same date on which they are first sent to holders of Shares. ARTICLE 8 TAX MATTERS Section 8.1 Preparation of Tax Returns -------------------------- The Trustee shall arrange for the preparation and timely filing of all returns of Trust income, gains, deductions, losses and other items required of the Trust for federal and state income tax purposes and shall use all reasonable efforts to furnish, within ninety (90) days of the close of each taxable year, the tax information reasonably required by Unitholders for federal and state income tax reporting purposes. Section 8.2 Tax Elections ------------- Except as otherwise provided herein, the Trustee shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code; provided, however, that the Trustee shall make the -------- ------- election under Section 754 of the Code in accordance with applicable regulations thereunder and the Trustee shall have the right to seek to revoke any such election (including, without limitation, the election under Section 754 of the Code) upon the Trustee's determination in its sole and absolute discretion that such revocation is in the best interests of the Unitholders; provided, however, ------------------ that the Trust shall not affirmatively revoke its - ---- 45 election to be treated as a "partnership" for federal income tax prior to January 1, 2044 except as permitted under Section 5.3.C. Section 8.3 Tax Matters Partner ------------------- A. General. The Trustee shall be the "tax matters partner" of the ------- Trust for federal income tax purposes. Pursuant to Section 6230(e) of the Code, upon receipt of notice from the IRS of the beginning of an administrative proceeding with respect to the Trust, the tax matters partner shall furnish the IRS with the name, address, taxpayer identification number, and profit interest of each of the Unitholders; provided, however, that such information is provided -------- ------- to the Trust by the Unitholders. B. Powers. The tax matters partner is authorized, but not required: ------ (1) to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Trust items required to be taken into account by a Unitholder for income tax purposes (such administrative proceedings being referred to as a "tax audit" and such judicial proceedings being referred to as "judicial review"), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Unitholders, except that such settlement agreement shall not bind any Unitholder (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Unitholder or (ii) who is a "notice partner" (as defined in Section 6231(a)(8) of the Code) or a member of a "notice group" (as defined in Section 6223(b)(2) of the Code); (2) in the event that a notice of a final administrative adjustment at the Trust level of any item required to be taken into account by a Unitholder for tax purposes (a "final adjustment") is mailed to the tax matters partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the Tax Court or the filing of a complaint for refund with the United States Claims Court or the District Court of the United States for the district in which the Trust's principal place of business is located; (3) to intervene in any action brought by any other Unitholder for judicial review of a final adjustment; (4) to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request; 46 (5) to enter into an agreement with the IRS to extend the period for assessing any tax which is attributable to any item required to be taken into account by a Unitholder for tax purposes, or an item affected by such item; and (6) to take any other action on behalf of the Unitholders of the Trust in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations. The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the Trustee set forth in Section 5.7 of this Agreement shall be fully applicable to the tax matters partner in its capacity as such. C. Reimbursement. The tax matters partner shall receive no ------------- compensation for its services. All third party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Trust. Nothing herein shall be construed to restrict the Trust from engaging an accounting firm to assist the tax matters partner in discharging its duties hereunder, so long as the compensation paid by the Trust for such services is reasonable. Section 8.4 Organizational Expenses ----------------------- The Trust shall elect to deduct expenses, if any, incurred by it in organizing the Trust ratably over a sixty (60) month period as provided in Section 709 of the Code. Section 8.5 Withholding ----------- Each Unitholder hereby authorizes the Trust to withhold from or pay on behalf of or with respect to such Unitholder any amount of federal, state, local, or foreign taxes that the Trustee determines that the Trust is required to withhold or pay with respect to any amount distributable or allocable to such Unitholder pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Trust pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any amount paid on behalf of or with respect to a Unitholder shall constitute a loan by the Trust to such Unitholder, which loan shall be repaid by such Unitholder within fifteen (15) days after notice from the Trustee that such payment must be made unless (i) the Trust withholds such payment from a distribution which would otherwise be made to the Unitholder or (ii) the Trustee determines, in its sole and absolute discretion, that such payment may be satisfied out of the available funds of the Trust which would, but for such payment, be distributed to the Unitholder. Any amounts withheld pursuant to the foregoing clause (i) or (ii) shall be treated as having been distributed to such Unitholder. Each Unitholder hereby unconditionally and irrevocably grants to the Trust a security interest in such Unitholder's Trust Interest to secure such Unitholder's obligation to pay to the Trust any amounts required to be paid pursuant to this Section 8.5. In the event that a Unitholder fails to pay any amounts owed to the Trust pursuant to this Section 8.5 when due, the Trustee may, in its sole and absolute 47 discretion, elect to make the payment to the Trust on behalf of such defaulting Unitholder, and in such event shall be deemed to have loaned such amount to such defaulting Unitholder and shall succeed to all rights and remedies of the Trust as against such defaulting Unitholder. Without limitation, in such event the Trustee shall have the right to receive distributions that would otherwise be distributable to such defaulting Unitholder until such time as such loan, together with all interest thereon, has been paid in full, and any such distributions so received by the Trustee shall be treated as having been distributed to the defaulting Unitholder and immediately paid by the defaulting Unitholder to the Trustee in repayment of such loan. Any amounts payable by a Unitholder hereunder shall bear interest at the lesser of (A) the base rate on corporate loans at large United States money center commercial banks, as published from time to time in the Wall Street Journal, plus four (4) percentage ------------------- points, or (B) the maximum lawful rate of interest on such obligation, such interest to accrue from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each Unitholder shall take such actions as the Trust or the Trustee shall request in order to perfect or enforce the security interest created hereunder. ARTICLE 9 TRANSFERS AND WITHDRAWALS Section 9.1 Transfer -------- A. Definition. The term "transfer," when used in this Article 9 with ---------- respect to a Trust Interest or Unit, shall be deemed to refer to a transaction by which the Trustee purports to assign all or any part of its Trust Interest to another Person or by which a Unitholder purports to assign all or any part of its Trust Interest to another Person, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. The term "transfer" when used in this Article 9 does not include any redemption of Units by a Unitholder or acquisition of Units from a Unitholder by the Trustee pursuant to Section 6.6 or otherwise. No part of the interest of a Unitholder shall be subject to the claims of any creditor, any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement or as required by law. B. General. No Trust Interest shall be transferred, in whole or in ------- part, except in accordance with the terms and conditions set forth in this Article 9. Any transfer or purported transfer of a Trust Interest not made in accordance with this Article 9 shall be null and void. Section 9.2 Transfer of Trustee's Trust Interest ------------------------------------ A. General. Except for transfers of Units to the Trust as provided ------- in Section 5.5 or Section 6.6, the Trustee may not transfer any of its Trust Interest except in connection with a transaction described in Section 9.2.B or as otherwise expressly permitted under this 48 Agreement, nor shall the Trustee withdraw as the Trustee except in connection with a transaction described in Section 9.2.B. B. Specific Transaction Prohibited. The Parent REIT shall not engage ------------------------------- in any merger (including a triangular merger), consolidation or other combination with or into another person, sale of all or substantially all of its assets or any reclassification, recapitalization or change of outstanding Shares (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination as described in the definition of "Conversion Factor") ("Termination Transaction"), unless (i) the Termination Transaction has been approved by the Unitholders holding at least a majority of the then outstanding Units (including any Units held by the Trustee), (ii) following such merger or other consolidation, substantially all of the assets of the surviving entity consist of Units, and (iii) in connection with such termination transaction all Unitholders either will receive, or will have the right to elect to receive, for each Unit an amount of cash, securities, or other property equal to the product of the Conversion Factor multiplied by the greatest amount of cash, securities or other property paid to a holder of Shares corresponding to such Unit in consideration of one such Share at any time during the period from and after the date on which the Termination Transaction is consummated; provided that if, in connection with the Termination Transaction, a ------------- purchase, tender or exchange offer shall have been made to and accepted by the holders of more than fifty percent (50%) of the outstanding common shares of beneficial interest (or other comparable equity interest) of the Parent REIT, each holder of Units shall receive, or shall have the right to elect to receive without any right of approval set forth above in this subsection B, the greatest amount of cash, securities, or other property which such holder would have received had it exercised the Redemption Right and received Shares in exchange for its Units immediately prior to the expiration of such purchase, tender or exchange offer and had thereupon accepted such purchase, tender or exchange offer. The Trustee shall not enter into an agreement or other arrangement providing for or facilitating the creation of a Parent REIT other than the Trustee, unless the successor Parent REIT executes and delivers a counterpart to this Agreement in which such Parent REIT successor agrees to be fully bound by all of the terms and conditions contained herein that are applicable to a Parent REIT. Section 9.3 Unitholders' Rights to Transfer ------------------------------- A. General. Except to the extent expressly permitted in Sections ------- 9.3.B and 9.3.C or in connection with the exercise of a Redemption Right pursuant to Section 6.6, a Unitholder may not transfer all or any portion of its Trust Interest, or any of such Unitholder's rights as a Unitholder, without the prior written consent of the Trustee, which consent may be withheld in the Trustee's sole and absolute discretion. Any transfer otherwise permitted under Sections 9.3.B and 9.3.C shall be subject to the conditions set forth in Section 9.3.D, 9.3.E and 9.3.F, and all permitted transfers shall be subject to Section 9.4. B. Incapacitated Unitholders. If a Unitholder is subject to ------------------------- Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Unitholder's estate shall have all the rights of a Unitholder, but not more rights than those enjoyed by other Unitholders, for the purpose of settling or managing the estate and such power 49 as the Incapacitated Unitholder possessed to transfer all or any part of its interest in the Trust. The Incapacity of a Unitholder, in and of itself, shall not dissolve or terminate the Trust. C. Permitted Transfers. A Unitholder may transfer, with or without ------------------- the consent of the Trustee, all or a portion of its Trust Interest (i) in the case of a Unitholder who is an individual, to a member of his Immediate Family, any trust formed for the benefit of himself and/or members of his Immediate Family, or any partnership, limited liability company, joint venture, corporation or other business entity comprised only of himself and/or members of his Immediate Family and entities the ownership interests in which are owned by or for the benefit of himself and/or members of his Immediate Family, (ii) in the case of a Unitholder which is a trust, to the beneficiaries of such trust, (iii) in the case of a Unitholder which is a partnership, limited liability company, joint venture, corporation or other business entity to which Units were transferred pursuant to clause (i) above, to its partners, owners or stockholders, as the case may be, who are members of the Immediate Family of or are actually the Person(s) who transferred Units to it pursuant to clause (i) above, (iv) in the case of a Unitholder which acquired Units as of the date hereof and which is a partnership, limited liability company, joint venture, corporation or other business entity, to its partners, owners, stockholders or Affiliates thereof, as the case may be, or the Persons owning the beneficial interests in any of its partners, owners or stockholders or Affiliates thereof (it being understood that this clause (iv) will apply to all of each Person's Trust Interests whether the Units relating thereto were acquired on the date hereof or hereafter), (v) in the case of a Unitholder which is a partnership, limited liability company, joint venture, corporation or other business entity other than any of the foregoing described in clause (iii) or (iv), in accordance with the terms of any agreement between such Unitholder and the Trust pursuant to which such Trust Interest was issued, (vi) pursuant to a gift or other transfer without consideration, (vii) pursuant to applicable laws of descent or distribution, (viii) to another Unitholder and (ix) pursuant to a grant of security interest or other encumbrance effectuated in a bona fide transaction or ---- ---- as a result of the exercise of remedies related thereto, subject to the provisions of Section 9.3.F hereof. A trust or other entity will be considered formed "for the benefit" of a Unitholder's Immediate Family even though some other Person has a remainder interest under or with respect to such trust or other entity. D. No Transfers Violating Securities Laws. The Trustee may prohibit -------------------------------------- any transfer of Units by a Unitholder unless it receives a written opinion of legal counsel (which opinion and counsel shall be reasonably satisfactory to the Trust) to such Unitholder to the effect that such transfer would not require filing of a registration statement under the Securities Act or would not otherwise violate any federal or state securities laws or regulations applicable to the Trust or the transfer of such Units or, at the option of the Trust, an opinion of legal counsel to the Trust to the same effect. E. No Transfers Affecting Tax Status of Trust. No transfer of Units ------------------------------------------ by a Unitholder (including a redemption or exchange pursuant to Section 6.6) may be made to any Person if (i) in the opinion of legal counsel for the Trust, it would result in the Trust being treated as an association taxable as a corporation for federal income tax purposes (except as a result of the redemption or exchange for Shares of all Units held by all Unitholders other than the Trustee or the Parent REIT or any Subsidiary of either the Trustee or the Parent REIT or pursuant to a transaction expressly permitted under Section 5.3.B or Section 9.2), (ii) in the opinion of legal 50 counsel for the Trust, it could reasonably be expected to cause the Parent REIT to no longer qualify as a REIT or would subject the Parent REIT to any additional taxes under Section 857 or Section 4981 of the Code or (iii) such transfer is effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704 of the Code. F. No Transfers to Holders of Nonrecourse Liabilities. No Pledge or -------------------------------------------------- transfer of any Units may be made to a lender to the Trust or any Person who is related (within the meaning of Section 1.752-4(b) of the Regulations) to any lender to the Trust whose loan constitutes a Nonrecourse Liability unless (i) the Trustee is provided notice thereof, and (ii) the lender enters into an arrangement with the Trust and the Trustee to exchange or redeem for the Redemption Amount any Units in which a security interest is held simultaneously with the time at which such lender would be deemed to be a Unitholder in the Trust for purposes of allocating liabilities to such lender under Section 752 of the Code. Section 9.4 General Provisions ------------------ A. Timing of Transfers. Transfers pursuant to this Article 9 may ------------------- only be made on the first day of a fiscal quarter of the Trust, unless the Trustee otherwise agrees. B. Allocations. If any Trust Interest is transferred or assigned in ----------- compliance with the provisions of this Article 9 or redeemed or transferred pursuant to Section 6.6, on any day other than the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof and all other items attributable to such interest for such Fiscal Year shall be divided and allocated between the transferor Unitholder and the transferee Unitholder by taking into account their varying interests during the Fiscal Year in accordance with Section 706(d) of the Code, using the interim closing of the books method (unless the Trustee, in its sole and absolute discretion, elects to adopt a daily, weekly or monthly proration method, in which event Net Income, Net Losses and each item thereof for such Fiscal Year shall be prorated based upon the applicable period selected by the Trustee). Solely for purposes of making such allocations, each of such items for the calendar month in which the transfer or assignment occurs shall be allocated to the transferee Unitholder, and none of such items for the calendar month in which a redemption occurs shall be allocated to the Redeeming Unitholder. All distributions of Available Cash attributable to such Unit with respect to which the Trust Record Date is before the date of such transfer, assignment or redemption shall be made to the transferor Unitholder or the Redeeming Unitholder, as the case may be, and, in the case of a transfer or assignment other than a redemption, all distributions of Available Cash thereafter attributable to such Unit shall be made to the transferee Unitholder. C. Additional Restrictions. In addition to any other restrictions on ----------------------- transfer herein contained, including without limitation the provisions of this Article 9 and Article 5, in no event may any transfer or assignment of a Trust Interest by any Unitholder (including pursuant to Section 6.6) be made without the express consent of the Trustee, in its sole and absolute discretion, (i) to any person or entity who lacks the legal right, power or capacity to own a Trust Interest; (ii) in violation of applicable law; (iii) of any component portion of a Trust Interest, such as the Capital Account, or rights to distributions, separate and apart from all other components of a Trust Interest; (iv) if in the opinion of legal counsel to the Trust such transfer would cause a 51 termination of the Trust for federal or state income tax purposes (except as a result of the redemption or exchange for Shares of all Units held by all Unitholders other than the Trustee, the Parent REIT, or any Subsidiary of either, or pursuant to a transaction expressly permitted under Section 5.3.B or Section 9.2); (v) if such transfer would, in the opinion of counsel to the Trust, cause any portion of the assets of the Trust to constitute assets of any ERISA Plan Investor pursuant to 29 C.F.R. (S) 2510.3-101, or any successor regulation thereto; (vi) if such transfer subjects the Trust or the activities of the Trust to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended; or (vii) if such transfer could reasonably be expected to cause the Parent REIT to fail to remain qualified as a REIT so long as Parent REIT has determined to continue to qualify as a REIT. D. Avoidance of "Publicly Traded Partnership" Status. The Trustee ------------------------------------------------- shall monitor the transfers of interests in the Trust to determine (i) if such interests are being traded on an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704 of the Code and (ii) whether additional transfers of interests would result in the Trust being unable to qualify for at least one of the "safe harbors" set forth in Regulations Section 1.7704-1 (or such other guidance subsequently published by the IRS setting forth safe harbors under which interests will not be treated as "readily tradable on a secondary market (or the substantial equivalent thereof)" within the meaning of Section 7704 of the Code) (the "Safe Harbors"). The Trustee shall take all steps reasonably necessary or appropriate to prevent any trading of interests or any recognition by the Trust of transfers made on such markets and, except as otherwise provided herein, to insure that at least one of the Safe Harbors is met; provided, however, that the foregoing shall not authorize the Trustee to limit or restrict in any manner the right of any Unitholder to exercise the Redemption Right in accordance with the terms of Section 6.6 unless, and only to the extent that, outside tax counsel provides to the Trustee an opinion to the effect that, in the absence of such limitation or restriction, there is a significant risk that the Trust will be treated as a "publicly traded partnership" and, by reason thereof, will be taxable as a corporation. ARTICLE 10 ADDITIONAL UNITHOLDERS Section 10.1 Additional Unitholders ---------------------- A. General. A Person who makes a Capital Contribution to the Trust in ------- accordance with this Agreement or who exercises an option to receive Units shall become a Unitholder only with the consent of the Trustee and only upon furnishing to the Trustee (i) evidence of acceptance in form satisfactory to the Trustee of all of the terms and conditions of this Agreement, and (ii) such other documents or instruments as may be required in the discretion of the Trustee for such Person to become a Unitholder. Any such Person shall become a Unitholder effective on the date upon which the name of such Person is recorded on the books and records of the Trust, following the consent of the Trustee. 52 B. Allocations to Additional Unitholders. If any Person becomes a ------------------------------------- Unitholder on any day other than the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof and all other items allocable among Unitholders for such Fiscal Year shall be allocated among such Unitholder and all other Unitholders by taking into account their varying interests during the Fiscal Year in accordance with Section 706(d) of the Code, using the interim closing of the books method (unless the Trustee, in its sole and absolute discretion, elects to adopt a daily, weekly or monthly proration method, in which event Net Income, Net Losses, and each item thereof would be prorated based upon the applicable period selected by the Trustee). Solely for purposes of making such allocations, each of such items for the calendar month in which a Person becomes a Unitholder shall be allocated among all the Unitholders, including such new Unitholder. All distributions of Available Cash with respect to which the Trust Record Date is before the date of such admission shall be made solely to Unitholders other than the new Unitholder, and all distributions of Available Cash thereafter shall be made to all the Unitholders, including such new Unitholder. ARTICLE 11 DISSOLUTION, LIQUIDATION AND TERMINATION Section 11.1 Dissolution ----------- The Trust shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following ("Liquidating Events"): (i) from and after the Effective Date through December 31, 2013, an election to dissolve the Trust upon the approval of the Trustee and the holders of at least a majority of the outstanding Class A-2 Units, unless any holder of Class A Units who is a "Smith Original Limited Partner" objects in writing to such dissolution within thirty (30) days of receiving written notice of such election from the Trustee (as used herein the term "Smith Original Limited Partner" refers to each holder of Class A Units (including the Parent REIT, as the successor by merger to Charles E. Smith Residential Realty, Inc.) who received one or more units of limited partnership interest on the formation of Charles E. Smith Residential Realty, L.P. on June 30, 1994 ("Smith Units"), and who received, with respect to such Smith Units, one or more Class A Units upon the merger of Charles E. Smith Residential Realty, L.P. into the Trust on the Effective Date); (ii) from and after January 1, 2014 through December 31, 2043, an election to dissolve the Trust upon the approval of the Trustee and the holders of at least a majority of the outstanding Class A-2 Units, unless any holders of Class A Units who are "Smith Original Limited Partners" and who collectively hold such number of Class A Units (issued on the Effective Date in exchange for such Smith Units) that represents five percent (5%) or more of the total Smith Units originally issued to Smith Original Limited Partners on June 30, 1994 object in writing to such dissolution within thirty (30) days of receiving written notice of such election from the Trustee; 53 (iii) after December 31, 2043, an election to dissolve the Trust upon the approval of the Trustee and the holders of at least a majority of the outstanding Class A-2 Units; or (iv) the sale of all or substantially all of the assets and properties of the Trust for cash or for marketable securities pursuant to a transaction permitted under clause (ii) or clause (iii), as applicable, of Section 5.3.B. Section 11.2 Winding Up ---------- A. General. Upon the occurrence of a Liquidating Event, the Trust ------- shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Unitholders. No Unitholder shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Trust's business and affairs. The Trustee (or, if there is no remaining Trustee, any Person elected by a majority in interest of the Unitholders (the "Liquidator")) shall be responsible for overseeing the winding up and dissolution of the Trust and shall take full account of the Trust's liabilities and property and the Trust property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the Trustee, include equity or other securities of the Trustee or any other entity) shall be applied and distributed in the following order: (1) First, to the payment and discharge of all of the Trust's debts and liabilities to creditors other than the Unitholders; (2) Second, to the payment and discharge of all of the Trust's debts and liabilities to the Trustee; (3) Third, to the payment and discharge of all of the Trust's debts and liabilities to the Unitholders; (4) Fourth, to the holders of Trust Interests that are entitled to any preference in distribution upon liquidation in accordance with the rights of any such class or series of Trust Interests, including without limitation, Series A Preferred Units, Series B Junior Participating Preferred Units, Series C Preferred Units, Series D Preferred Units, Series E Preferred Units, Series F Preferred Units, Series G Preferred Units, Series H Preferred Units, Series I Preferred Units, Series J Preferred Units, Series K Preferred Units, Series L Preferred Units and Series M Preferred Units (and, within each such class or series, to each holder thereof pro rata based on the proportion of the total number of outstanding units of such class or series represented by such holder's units of such series or class); and (5) The balance, if any, to the Unitholders in accordance with their Capital Accounts, after giving effect to all contributions, distributions, and allocations for all periods. 54 The Trustee shall not receive any additional compensation for any services performed pursuant to this Article 11. B. Deferred Liquidation. Notwithstanding the provisions of Section -------------------- 11.2.A which require liquidation of the assets of the Trust, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Trust the Liquidator determines that an immediate sale of part or all of the Trust's assets would be impractical or would cause undue loss to the Unitholders, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Trust (including to those Unitholders as creditors) or distribute to the Unitholders, in lieu of cash, as tenants in common and in accordance with the provisions of Section 11.2.A, undivided interests in such Trust assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Unitholders, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt. Section 11.3 Compliance with Timing Requirements of Regulations; -------------------------------------------------- Restoration of Deficit Capital Accounts --------------------------------------- A. Timing of Distributions. If the Trust is "liquidated" within the ----------------------- meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made under this Article 11 to the Trustee and Unitholders who have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). In the discretion of the Trustee, a pro rata portion of the distributions that would otherwise be made to the Trustee and Unitholders pursuant to this Article 11 may be: (A) distributed to a trust established for the benefit of the Trustee and Unitholders for the purposes of liquidating Trust assets, collecting amounts owed to the Trust and paying any contingent or unforeseen liabilities or obligations of the Trust or of the Trustee arising out of or in connection with the Trust (in which case the assets of any such trust shall be distributed to the Trustee and Unitholders from time to time, in the reasonable discretion of the Trustee, in the same proportions as the amount distributed to such trust by the Trust would otherwise have been distributed to the Trustee and Unitholders pursuant to this Agreement); or (B) withheld to provide a reasonable reserve for Trust liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Trust; provided that such -------- withheld amounts shall be distributed to the Trustee and Unitholders as soon as practicable. B. Restoration of Deficit Capital Accounts Upon Liquidation of the --------------------------------------------------------------- Trust. If any Unitholder has a deficit balance in its Capital Account (after - ----- giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Unitholder shall have no obligation to make any contribution to the capital of the Trust with respect to such deficit, and such deficit shall not be considered a debt owed to the Trust or to any other Person for any purpose whatsoever, except as otherwise set forth in this Section 11.3.B, or as otherwise expressly agreed in writing by the affected 55 Unitholder and the Trust after the date hereof. Notwithstanding the foregoing, (i) if the Trustee has a deficit balance in its Capital Account (after giving effect to all contributions, distributions, and allocations for all Fiscal Years or portions thereof, including the year during which such liquidation occurs), the Trustee shall contribute to the capital of the Trust the amount necessary to restore such deficit balance to zero in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(3); (ii) if a Protected Unitholder has a deficit balance in its Capital Account (after giving effect to all contributions, distributions, and allocations for all Fiscal Years or portions thereof, including the year during which such liquidation occurs), such Protected Unitholder shall be obligated to make a contribution to the Trust with respect to any such deficit balance in such Protected Unitholder's Capital Account upon a liquidation of the Trust in an amount equal to the lesser of such deficit balance or such Protected Unitholder's Protected Amount; and (iii) the first sentence of this Section 11.3.B shall not apply with respect to any other Unitholder to the extent, but only to such extent, that such Unitholder previously has agreed in writing, with the consent of the Trustee, to undertake an express obligation to restore all or any portion of a deficit that may exist in its Capital Account upon a liquidation of the Trust. No Unitholder shall have any right to become a Protected Unitholder, to increase its Protected Amount, or otherwise agree to restore any portion of any deficit that may exist in its Capital Account, without the express written consent of the Trustee, in its sole and absolute discretion, except as provided for in Exhibit D. Any contribution --------- required of a Unitholder under this Section 11.3.B. shall be made on or before the later of (i) the end of the Fiscal Year in which the interest is liquidated or (ii) the ninetieth (90th) day following the date of such liquidation. The proceeds of any contribution to the Trust made by a Protected Unitholder with respect to a deficit in such Protected Unitholder's Capital Account balance shall be treated as a Capital Contribution by such Protected Unitholder and the proceeds thereof shall be treated as assets of the Trust to be applied as set forth in Section 11.2.A. C. Restoration of Deficit Capital Accounts Upon a Liquidation of a --------------------------------------------------------------- Unitholder's Interest by Transfer. If a Protected Unitholder's interest in the - --------------------------------- Trust is "liquidated" within the meaning of Regulations Section 1.704- 1(b)(2)(ii)(g) (other than in connection with a liquidation of the Trust) which term shall include a redemption by the Trust of such Protected Unitholder's interest upon exercise of the Redemption Right, and such Protected Unitholder is designated on Exhibit C as a Part II Protected Unitholder, such Protected --------- Unitholder shall be required to contribute cash to the Trust equal to the lesser of (i) the amount required to increase its Capital Account balance as of such date to zero, or (ii) such Protected Unitholder's Protected Amount. For this purpose, (i) the Protected Unitholder's deficit Capital Account balance shall be determined by taking into account all contributions, distributions, and allocations for the portion of the Fiscal Year ending on the date of the liquidation or redemption, and (ii) solely for purposes of determining such Protected Unitholder's Capital Account balance, the Trustee shall redetermine the Carrying Value of the Trust's assets on such date based upon the principles set forth in Sections 1.D.(3) and (4) of Exhibit A hereto, and shall take into --------- account the Protected Unitholder's allocable share of any Unrealized Gain or Unrealized Loss resulting from such redetermination in determining the balance of its Capital Account. The amount of any payment required hereunder shall be due and payable within the time period specified in the second to last sentence of Section 11.3.B. 56 D. Effect of the Death of a Protected Unitholder. After the death of --------------------------------------------- a Protected Unitholder who is an individual, the executor of the estate of such Protected Unitholder may elect to reduce (or eliminate) the Protected Amount of such Protected Unitholder. Such elections may be made by such executor by delivering to the Trustee within two hundred and seventy (270) days of the death of such Unitholder, a written notice setting forth the maximum deficit balance in its Capital Account that such executor agrees to restore under this Section 11.3, if any. If such executor does not make a timely election pursuant to this Section 11.3 (whether or not the balance in the applicable Capital Account is negative at such time), then the Protected Unitholder's estate (and the beneficiaries thereof who receive distributions of Trust Interests therefrom) shall be deemed a Protected Unitholder with a Protected Amount in the same amount as the deceased Protected Unitholder. Any Protected Unitholder which is a partnership may likewise elect, after the date of its partner's death to reduce (or eliminate) its Protected Amount by delivering a similar notice to the Trustee within the time period specified above, and in the absence of any such notice the Protected Amount of such Protected Unitholder shall not be reduced to reflect the death of any of its partners. Section 11.4 Rights of Unitholders --------------------- Except as otherwise provided in this Agreement, each Unitholder shall look solely to the assets of the Trust for the return of its Capital Contributions and shall have no right or power to demand or receive property other than cash from the Trust. Except as otherwise expressly provided in this Agreement, no Unitholder shall have priority over any other Unitholder as to the return of its Capital Contributions, distributions, or allocations. Section 11.5 Notice of Dissolution --------------------- If a Liquidating Event occurs or an event occurs that would, but for provisions of an election or objection by one or more Unitholders pursuant to Section 11.1, result in a dissolution of the Trust, the Trustee shall, within thirty (30) days thereafter, provide written notice thereof to each of the Unitholders. Section 11.6 Reasonable Time for Winding-Up ------------------------------ A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Trust and the liquidation of its assets pursuant to Section 11.2 hereof, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect among the Unitholders during the period of liquidation. Section 11.7 Waiver of Partition ------------------- Each Unitholder hereby waives any right to partition of the Trust property. 57 Section 11.8 Liability of the Liquidator --------------------------- The Liquidator shall be indemnified and held harmless by the Trust in the same manner and to the same degree as an Indemnitee may be indemnified pursuant to Section 5.7. ARTICLE 12 AMENDMENT OF AGREEMENT Section 12.1 General ------- Except as provided in Section 12.2, 12.3 or 12.4, a proposed amendment shall be adopted and be effective as an amendment hereto if it is approved by the Trustee and it receives the approval of Unitholders holding a majority of the Units then outstanding and entitled to vote thereon. Section 12.2 Amendments Requiring Approval of Class A-2 Unitholders ------------------------------------------------------ Notwithstanding Section 12.1 or 12.3, this Agreement may be amended, after the Trustee has declared such amendment advisable, by the holders of at least a majority of the Class A-2 Units then outstanding and entitled to vote thereon, as may be required to facilitate or implement any of the following purposes: (A) to add to the obligations of the Trustee or surrender any right or power granted to the Trustee or any Affiliate of the Trustee for the benefit of the Unitholders; (B) to reflect any changes in the status of Unitholders in accordance with this Agreement. (C) to set forth the designations, rights, powers, duties, and preferences of the holders of any additional Trust Interests issued pursuant to Article 2; (D) to reflect a change that does not adversely affect the Unitholders in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions of this Agreement, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; and (E) to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulation of a federal, state or local agency or contained in federal, state or local law. 58 The Trustee shall notify the Unitholders when any action under this Section 12.2 is taken in the next regular communication to the Unitholders; provided, however, that no notice need be given of any amendment of this - -------- ------- Agreement to reflect any change in the status of Unitholders in accordance with this Agreement that does not alter the contract rights of the Unitholder's Units. For purposes of the immediately preceding sentence, notwithstanding any other means by which the Trustee may provide any such notice to the Unitholders, such notice requirement shall be deemed to have been satisfied upon the filing with the Securities and Exchange Commission by the Trust or the Trustee of any amendment to this Agreement permitted under this Section 12.2(B) as an exhibit to (i) a registration statement filed by the Trust or the Trustee under the Securities Act or (ii) any report or other document filed by the Trust or the Trustee under the Exchange Act. Section 12.3 Amendments Requiring Approval of Class A-1 Unitholders ------------------------------------------------------ Notwithstanding anything in this Article 12 to the contrary, Sections 2.2.A, Section 3.1.E, Section 5.3.B, Section 5.5, Section 5.6, Section 5.8, Section 6.5, Section 9.2, Section 11.1 (other than Section 11.1(i)-(iii), which may be amended as set forth in Section 12.4) and this Section 12.3 of this Agreement may only be amended with the approval of the holders of at least a majority of the Class A-1 Units outstanding and entitled to vote thereon. Section 12.4 Other Amendments Requiring Certain Unitholder Approval ------------------------------------------------------ Notwithstanding anything in this Article 12 to the contrary, this Agreement shall not be amended with respect to any Unitholder adversely affected thereby without the approval of such Unitholder, if such amendment would (i) convert a Unitholder's interest in the Trust into a trustee's interest, (ii) modify the limited liability of a Unitholder or require the Unitholder to make additional Capital Contributions, (iii) amend Section 5.3.A, (iv) amend Article 3 or Article 4 (except as permitted pursuant to Sections 2.2, 3.1.E and 12.2(C)), (v) amend Section 6.6 or any defined terms set forth in Article 1 that relate to the Redemption Right (except as permitted in Section 6.6.E), (vi) amend Sections 9.3 or 9.4, or add any additional restrictions to those provided in Section 9.6.E, (vii) amend Section 11.1(i)-(iii) to cause a termination of the Trust prior to the time set forth therein or amend Section 5.3.C to permit a termination of the Trust's status as a "partnership" for federal income tax purposes prior to the time set forth therein (as to which matters only original holders of Class A-1 Shares who are "Original Smith Limited Partners" (as defined in Section 11.1(i)) have a right of approval), (viii) amend this Section 12.4, or (ix) amend Section 13.1. This Section 12.4 does not require unanimous approval of all Unitholders adversely affected unless the amendment is to be effective against all Unitholders adversely affected. 59 ARTICLE 13 GENERAL PROVISIONS Section 13.1 Addresses and Notice -------------------- Any notice, demand, request or report required or permitted to be given or made to a Unitholder under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the Unitholder at the address set forth in the Trust's books and records or such other address as the Unitholders shall notify the Trustee in writing. Section 13.2 Titles and Captions ------------------- All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to "Articles" "Sections" and "Exhibits" are to Articles, Sections and Exhibits of this Agreement. Section 13.3 Pronouns and Plurals -------------------- Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. Section 13.4 Further Action -------------- The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. Section 13.5 Binding Effect -------------- This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. Section 13.6 Creditors --------- Other than as expressly set forth herein with regard to any Indemnitee, none of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Trust. 60 Section 13.7 Waiver ------ No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. Section 13.8 Counterparts ------------ This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto. Section 13.9 Applicable Law -------------- This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Maryland, without regard to the principles of conflicts of law. Section 13.10 Invalidity of Provisions ------------------------ If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. Section 13.11 Entire Agreement ---------------- This Agreement constitutes not only an integral part of the Declaration of Trust but also constitutes a separate agreement among all of the holders of Units of the Trust, each of whom is identified on in the Trust's books and records. Such holders agree to be treated as Unitholders as defined herein and be bound by the terms and to comply with the provisions of this Agreement with respect to the Units and the rights, powers and duties in connection therewith. This Agreement contains the entire understanding and agreement among the Unitholders with respect to the subject matter hereof and supersedes any other prior written or oral understandings or agreements among them with respect thereto. Section 13.12 No Rights as Shareholders ------------------------- Nothing contained in this Agreement shall be construed as conferring upon the holders of the Units any rights whatsoever as shareholders of the Parent REIT, including without limitation any right to receive dividends or other distributions made to shareholders of the Parent REIT or to vote or to consent or to receive notice as shareholders in respect of any meeting of shareholders for the election of directors of the Parent REIT or any other matter. 61 [Signature Page to Follow] 62 IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date first written above. TRUSTEE ________________________________________ By:_____________________________________ Name: __________________________________ Title:__________________________________ UNITHOLDERS By:____________________ as Attorney-in-Fact for the unitholders of _____________ By: _____________________________________ Name:___________________________________ 63 EXHIBIT A CAPITAL ACCOUNT MAINTENANCE 1. Capital Accounts of the Unitholders ----------------------------------- A. The Trust shall maintain for each Unitholder a separate Capital Account in accordance with the rules of Regulations Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of all Capital Contributions and any other deemed contributions made by such Unitholder to the Trust pursuant to this Agreement and (ii) all items of Trust income and gain (including income and gain exempt from tax) computed in accordance with Section 1.B hereof and allocated to such Unitholder pursuant to Section 4.1.A of the Agreement and Exhibit B thereof, and decreased by (x) the amount of cash or --------- Agreed Value of all actual and deemed distributions of cash or property made to such Unitholder pursuant to this Agreement and (y) all items of Trust deduction and loss computed in accordance with Section 1.B hereof and allocated to such Unitholder pursuant to Section 4.1.B of the Agreement and Exhibit B hereof. --------- B. For purposes of computing the amount of any item of income, gain, deduction or loss to be reflected in the Unitholders' Capital Accounts, unless otherwise specified in this Agreement, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes determined in accordance with Section 703(a) of the Code (for this purpose all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments: (1) Except as otherwise provided in Regulations Section 1.704- 1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Trust, provided that the amounts of any adjustments to the adjusted bases of the assets of the Trust made pursuant to Section 734 of the Code as a result of the distribution of property by the Trust to a Unitholder (to the extent that such adjustments have not previously been reflected in the Unitholders' Capital Accounts) shall be reflected in the Capital Accounts of the Unitholders in the manner and subject to the limitations prescribed in Regulations Section 1.704-1(b)(2)(iv)(m)(4). (2) The computation of all items of income, gain, and deduction shall be made without regard to the fact that items described in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not includable gross income or are neither currently deductible nor capitalized for federal income tax purposes. (3) Any income, gain or loss attributable to the taxable disposition of any Trust property shall be determined as if the adjusted basis of such property as of such date of disposition were equal in amount to the Trust's Carrying Value with respect to such property as of such date. 1 (4) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such fiscal year. (5) In the event the Carrying Value of any Trust Asset is adjusted pursuant to Section 1.D hereof, the amount of any such adjustment shall be taken into account as gain or loss from the disposition of such asset. (6) Any items specially allocated under Section 2 of Exhibit B to the --------- Agreement hereof shall not be taken into account. C. A transferee of a Unit shall succeed to a pro rata portion of the Capital Account of the transferor. D. (1) Consistent with the provisions of Regulations Section 1.704- 1(b)(2)(iv)(f), and as provided in Section 1.D (2), the Carrying Values of all Trust assets shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Trust property, as of the times of the adjustments provided in Section 1.D (2) hereof, as if such Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each such property and allocated pursuant to Section 4.1 of the Agreement. (2) Such adjustments shall be made as of the following times: (a) immediately prior to the acquisition of an additional interest in the Trust by any new or existing Unitholder in exchange for more than a de minimis Capital Contribution; (b) immediately prior to the distribution by the Trust to a Unitholder of more than a de minimis amount of property as consideration for an interest in the Trust; and (c) immediately prior to the liquidation of the Trust within the meaning of Regulations Section 1.704- 1(b)(2)(ii)(g), provided however that adjustments pursuant to -------- ------- clauses (a) and (b) above shall be made only if the Trustee determines that such adjustments are necessary or appropriate to reflect the relative economic interests of the Unitholders of the Trust. (3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e), the Carrying Value of Trust assets distributed in kind shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Trust property, as of the time any such asset is distributed. (4) In determining Unrealized Gain or Unrealized Loss for purposes of this Exhibit A, the aggregate cash amount and fair market value --------- of all Trust assets (including cash or cash equivalents) shall be determined by the Trustee using such reasonable method of valuation as it may adopt, or in the case of a liquidating distribution pursuant to Article 11 of the Agreement, shall be determined and allocated by the Liquidator using such reasonable methods of valuation as it may adopt. The Trustee, or the 2 Liquidator, as the case may be, shall allocate such aggregate fair market value among the assets of the Trust (in such manner as it determines in its sole and absolute discretion to arrive at a fair market value for individual properties). E. The provisions of the Agreement (including this Exhibit A and the other --------- Exhibits to the Agreement) relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. In the event the Trustee shall determine that it is prudent to modify the manner in which the Capital Accounts, or any debits or credits thereto (including, without limitation, debits or credits relating to liabilities which are secured by contributed or distributed property or which are assumed by the Trust, the Trustee, or the Unitholders) are computed in order to comply with such Regulations, the Trustee may make such modification without regard to Article 12 of the Agreement, provided that it is not likely to have a material effect on -------- ---- the amounts distributable to any Person pursuant to Article 11 of the Agreement upon the dissolution of the Trust. The Trustee also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Unitholders and the amount of Trust capital reflected on the Trust's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section l.704-1(b). 2. No Interest ----------- No interest shall be paid by the Trust on Capital Contributions or on balances in Unitholders' Capital Accounts. 3. No Withdrawal ------------- No Unitholder shall be entitled to withdraw any part of its Capital Contribution or his Capital Account or to receive any distribution from the Trust, except as provided in Articles 2, 3 and 11 of the Agreement. EXHIBIT B SPECIAL ALLOCATION RULES 1. Special Allocation Rules. ------------------------ Notwithstanding any other provision of the Agreement or this Exhibit B, the --------- following special allocations shall be made in the following order: A. Minimum Gain Chargeback. Notwithstanding the provisions of Section 4.1 ----------------------- of the Agreement or any other provisions of this Exhibit B, if there is a net --------- decrease in Trust Minimum Gain during any Fiscal Year, each Unitholder shall be specially allocated items of Trust income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Unitholder's share of the net decrease in Trust Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Unitholder pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(f) (6). This Section 1.A is intended to comply with the minimum gain chargeback requirements in Regulations Section 1.704-2(f) and for purposes of this Section 1.A only, each Unitholder's Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 4.1 of this Agreement with respect to such Fiscal Year and without regard to any decrease in Unitholder Minimum Gain during such Fiscal Year. B. Unitholder Minimum Gain Chargeback. Notwithstanding any other ---------------------------------- provision of Section 4.1 of this Agreement or any other provisions of this Exhibit B (except Section 1.A hereof), if there is a net decrease in Unitholder - --------- Minimum Gain attributable to a Unitholder Nonrecourse Debt during any Fiscal Year, each Unitholder who has a share of the Unitholder Minimum Gain attributable to such Unitholder Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i) (5), shall be specially allocated items of Trust income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Unitholder's share of the net decrease in Unitholder Minimum Gain attributable to such Unitholder Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i) (5). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Trustee and other Unitholder pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(i) (4). This Section 1.B is intended to comply with the minimum gain chargeback requirement in such Section of the Regulations and shall be interpreted consistently therewith. Solely for purposes of this Section 1.B, each Unitholder's Adjusted Capital Account Deficit shall be determined prior to any other allocations pursuant to Section 4.1 of the Agreement or this Exhibit with respect to such Fiscal Year, other than allocations pursuant to Section 1.A hereof. C. Qualified Income Offset. In the event any Unitholder unexpectedly ----------------------- receives any adjustments, allocations or distributions described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704- 1(b)(2)(ii)(d)(6), and after giving effect to the allocations required under Sections 1.A and 1.B hereof with respect to such Fiscal Year hereof, such Unitholder has an Adjusted Capital Account Deficit, items of Trust income and gain (consisting of a pro rata portion of each item of Trust income, including gross income and gain for the Fiscal Year) and shall be specifically allocated to such Unitholder in an amount and manner sufficient to eliminate, to the extent required by the Regulations, its Adjusted Capital Account Deficit created by such adjustments, allocations or distributions as quickly as possible. This Section 1.C is intended to constitute a "qualified income offset" under Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. D. Gross Income Allocation. In the event that any Unitholder has an ----------------------- Adjusted Capital Account Deficit at the end of any Fiscal Year (after taking into account allocations to be made under the preceding paragraphs hereof with respect to such Fiscal Year), each such Unitholder shall be specially allocated items of Trust income and gain (consisting of a pro rata portion of each item of Trust income, including gross income and gain for the Fiscal Year) in an amount and manner sufficient to eliminate, to the extent required by the Regulations, its Adjusted Capital Account Deficit. E. Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year ---------------------- shall be allocated to the Unitholders in accordance with their respective Percentage Interests. If the Trustee determines in its good faith discretion that the Trust's Nonrecourse Deductions must be allocated in a different ratio to satisfy the safe harbor requirements of the Regulations promulgated under Section 704(b) of the Code, the Trustee is authorized, upon notice to the other Unitholders, to revise the prescribed ratio for such Fiscal Year to the numerically closest ratio which would satisfy such requirements. F. Unitholder Nonrecourse Deductions. Any Unitholder Nonrecourse --------------------------------- Deductions for any Fiscal Year shall be specially allocated to the Unitholder who bears the economic risk of loss with respect to the Unitholder Nonrecourse Debt to which such Unitholder Nonrecourse Deductions are attributable in accordance with Regulations Sections 1.704-2(b)(4) and 1.704-2(i). G. Code Section 754 Adjustments. To the extent an adjustment to the ---------------------------- adjusted tax basis of any Trust asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Unitholders in a manner consistent with Exhibit B and the --------- manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Regulations. 2. Allocations for Tax Purposes ---------------------------- A. Except as otherwise provided in this Section 2, for federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Unitholders in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Section 4.1 of the Agreement and Section 1 of this Exhibit B. --------- 2 B. In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, and deduction shall be allocated for federal income tax purposes among the Unitholders as follows: (1) (a) In the case of a Contributed Property, such items attributable thereto shall be allocated among the Unitholders consistent with the principles of Section 704(c) of the Code to take into account the variation between the 704(c) Value of such property and its adjusted basis at the time of contribution (taking into account Section 2.C of this Exhibit B; and --------- (b) any item of Residual Gain or Residual Loss attributable to a Contributed Property shall be allocated among the Unitholders in the same manner as its correlative item of "book" gain or loss is allocated pursuant to Section 4.1 of the Agreement and Section 1 of this Exhibit B. --------- (2) (a) In the case of an Adjusted Property, such items shall (1) first, be allocated among the Unitholders in a manner consistent with the principles of Section 704(c) of the Code to take into account the Unrealized Gain or Unrealized Loss attributable to such property and the allocations thereof pursuant to Exhibit A, and --------- (2) second, in the event such property was originally a Contributed Property, be allocated among the Unitholders in a manner consistent with Section 2.B(1) of this Exhibit B; --------- and (b) any item of Residual Gain or Residual Loss attributable to an Adjusted Property shall be allocated among the Unitholders in the same manner as its correlative item of "book" gain or loss is allocated pursuant to Section 4.1 of the Agreement and Section 1 of this Exhibit B. --------- (3) all other items of income, gain, loss and deduction shall be allocated among the Unitholders in the same manner as their correlative item of "book" gain or loss is allocated pursuant to Section 4.1 of the Agreement and Section 1 of this Exhibit B. --------- C. To the extent Treasury Regulations promulgated pursuant to Section 704(c) of the Code permit a partnership to utilize alternative methods to eliminate the disparities between the Carrying Value of property and its adjusted basis, the Trustee shall, subject to the following, have the authority to elect the method to be used by the Trust and such election shall be binding on all Unitholders provided that, to the extent that the Trustee has agreed to -------- ---- use a particular method 3 with respect to a Contributed Property, the Trustee shall be bound by such agreement (including, without limitation, the agreements set forth in Exhibit C --------- hereto) pursuant to the terms thereof. 4 EXHIBIT C PROTECTED PARTNERS AND PROTECTED AMOUNTS PART I PROTECTED PARTNERS PROTECTED AMOUNT ------------------------- ---------------- PART II PROTECTED PARTNERS -------------------------- 1 EXHIBIT D TAX PROTECTION AGREEMENT 1 Exhibit D to Annex A to Archstone-Smith Operating Trust Articles of Amendment and Restatement Amended and Restated Declaration of Trust ("Declaration of Trust") Background In connection with the closing of the merger of Charles E. Smith Residential Realty, L.P. ("SRW Partnership"), with and into the Trust pursuant to the Agreement and Plan of Merger, dated as of May 3, 2001, by and among the Trustee, the Trust, Charles E. Smith Residential Realty, Inc. ("SRW") and SRW Partnership (the "Merger Agreement") (the "SRW Merger"), the Trust is making certain undertakings to the former limited partners of SRW Partnership who became Unitholders of the Trust as a result of the SRW Merger (the "Former SRW Limited Partners"). The specific agreements between the Trust and SRW Partnership with respect to these various matters are described below. Specific Agreements 1. Definitions. All capitalized terms used and not otherwise defined in this Exhibit D shall have the meaning set forth in the Declaration of Trust. As used herein, the following terms have the following meanings: 704(c) Value: Means the fair market value of each of the Protected Properties as agreed to by the Trust and the SRW Partnership and as set forth in Schedule 3 to this Exhibit D. Curative Allocation: Means, for each Fiscal Year through 2028, an amount of income per Protected Unit equal to $0._____ ([to be $5,000,000 divided by the total number of Protected Units outstanding immediately after consummation of the SRW Merger]) (which amount per Protected Unit shall be pro rated (i) for the Fiscal Year in which the SRW Merger occurs based upon the number of days in such Fiscal Year following the SRW Merger divided by 365 and (ii) with respect to a Protected Unit that ceases to be a Protected Unit in any Fiscal Year, based upon the number of days in such Fiscal Year prior to the day on which such Protected Unit ceased to be a Protected Unit divided by 365). Existing Nonrecourse Debt: Means all of the outstanding indebtedness of the SRW Partnership at the time of the Closing of the Merger that is treated as either Partner Nonrecourse Debt or a Nonrecourse Liability and that is secured by any of the Protected Properties (or is treated for purposes of Treasury Regulation (S) 1.752-3(a)(2) as secured by any of the Protected Properties, determined taking into account the IRS Private Letter Ruling). The Existing Nonrecourse Debt that is a Partner Nonrecourse Debt or a Nonrecourse Liability, the Protected Properties secured (or deemed secured) thereby, and in the case of Partner Nonrecourse Debt, the SRW Partners with financial liability therefor is set forth on Schedules 4-1 and 4-2 to this Exhibit D). IRS Private Letter Ruling: The ruling received by the SRW Partnership from the Internal Revenue Service dated November 6, 1997. Protected Units: Means only those Units issued to the SRW Partners in connection with the SRW Merger, or any Units thereafter issued by the Trust to the SRW Partners in exchange for such Protected Units or with respect to such Protected Units. The term Protected Units shall not include any other Units hereafter acquired by an SRW Partner, whether from the Trust or otherwise. Protected Properties: Means, except as otherwise specifically provided in this Exhibit D, only those properties and assets set forth on Schedule 2 to this Exhibit D 1/ and any other properties or assets hereafter acquired by the Trust received as "substituted basis property" as defined in Section 7701(a)(42) of the Code with respect to such Protected Properties. Protected Period: Means the period ending at 12:01 A.M. on January 1, 2022. SRW Partners: Means the Former SRW Limited Partners as set forth on Schedule 1 to this Exhibit D 2/, and any Person who holds Protected Units who acquires such Protected Units from an SRW Partner in a transaction in which gain or loss is not recognized in whole for federal income tax purposes and in which such transferee's adjusted basis, as determined for federal income tax purposes, is determined in whole or in part by reference to the adjusted basis of the SRW Partner in such Protected Units. Subsidiary: Means any partnership, limited liability company, trust or other entity whose disposition of a Protected Property or any direct or indirect interest therein would result in the allocation of taxable gain to one or more SRW Partners pursuant to Section 704(c) of the Code and the Treasury Regulations thereunder. 2. Restrictions on Dispositions of Protected Properties. (a) The Trust agrees for the benefit of each SRW Partner, for the term of the Protected Period, not to directly or indirectly sell, exchange, transfer, or otherwise dispose of any Protected Property or any interest therein (without regard to whether such - --------- /1/ The Protected Properties will include all buildings in which SRW Partnership owns a direct or indirect interest at the time of the SRW Merger and all stock or securities of (including debt outstanding to) Smith Realty Company. The Protected Properties will not include stock or securities of (including debt outstanding to) Consolidated Engineering Services, Inc. and Smith Management Construction, Inc. /2/ These Partners will be each SRW Partner that receives Units in the SRW Merger, other than SRW (or the Trustee as successor to SRW). disposition is voluntary or involuntary) to the extent that such disposition would cause an SRW Partner to recognize part or all of the gain that would have been recognized for federal income tax purposes upon a fully taxable disposition of one or more Protected Properties at the time of the SRW Merger. Without limiting the foregoing, the term "sale, exchange, transfer or disposition" by the Trust shall be deemed to include, and the prohibition shall extend to, (i) any disposition by any Subsidiary of the Trust of any Protected Property or any interest therein, and (ii) any direct or indirect disposition by the Trust or any Subsidiary of the Trust of all or any portion of its interest in any entity that was a subsidiary of the SRW Partnership (which shall include, without limitation, any transaction involving a distribution or deemed distribution by a Subsidiary to the Trust under Section 731 of the Code) to the extent that such disposition would cause an SRW Partner to recognize part or all of the gain that would have been recognized for federal income tax purposes upon a fully taxable disposition of one or more Protected Properties at the time of the SRW Merger. Notwithstanding the foregoing, a disposition by a Subsidiary of a Protected Property will not violate this Section 2(a) if (but only if) immediately prior to the closing of the SRW Merger, an owner of an interest in such Subsidiary that is not an Affiliate of SRW Partnership or SRW had (or would have had in the future) the ability to cause such Subsidiary to effect such disposition of such Protected Property notwithstanding the objection of, or without the consent of, the SRW Partnership, provided that such ability will not be considered to exist if under the applicable operative legal documents relating to the organization and operation of the Subsidiary or any other agreement or arrangement between the parties, the SRW Partnership or one of its Subsidiaries would have been able to take an action that would have been effective to prevent the recognition of gain with respect to the Protected Property, including, without limitation, a "right of first refusal" or "first offer" as to either the Protected Property or the outside investor's interest in the Subsidiary, or a "buy-sell" or similar arrangement as to either the Protected Property or the outside investor's interest in the Subsidiary. Without limiting the foregoing, a disposition shall include any transfer, voluntary or involuntary, in a foreclosure proceeding, pursuant to a deed in lieu of foreclosure, or in a bankruptcy proceeding. (b) Notwithstanding the restriction set forth in Section 2(a), the Trust (or any Subsidiary) may dispose of a Protected Property if such disposition qualifies as a like-kind exchange under Section 1031 of the Code, or an involuntary conversion under Section 1033 of the Code, or other transaction (including, but not limited to, a contribution of property to any entity that qualifies for the nonrecognition of gain under Section 721 or Section 351 of the Code, or a merger or consolidation of the Trust with or into another entity that qualifies for taxation as a "partnership" for federal income tax purposes (a "Successor Partnership")) that does not result in the recognition of any taxable income or gain to an SRW Partner with respect to any of the Protected Units; provided, however, that: (1) in the event of a disposition under Section 1031 or Section 1033 of the Code, any property that is acquired in exchange for or as a replacement for a Protected Property shall thereafter be considered a Protected Property for purposes of this Section 2; (2) in the case of a Section 1031 like- kind exchange, if such exchange is with a "related party" within the meaning of Section 1031(f)(3) of the Code, any direct or indirect disposition by such related party of the Protected Property or any other transaction prior to the expiration of the two (2) year period following such exchange that would cause Section 1031(f)(1) to apply with respect to the Protected Property (including by reason of the application of Section 1031(f)(4)) shall be considered a violation of Section 2(a) by the Trust; (3) if the Protected Property is transferred to another entity in a transaction in which gain or loss is not recognized, the interest of the Trust in such entity shall thereafter be considered a Protected Property for purposes of this Section 2, and if the acquiring entity's disposition of the Protected Property would cause an SRW Partner to recognize gain or loss as a result thereof, the transferred Protected Property still shall be considered a Protected Property for purposes of this Section 2 and the transferee shall have agreed to be jointly and severally liable for any payments required under Section 2(c) hereof; and (4) in the event of a merger or consolidation involving the Trust and a Successor Partnership, the Successor Partnership shall have agreed in writing for the benefit of the SRW Partners that all of the restrictions of this Section 2 shall apply with respect to the Protected Properties. (c) Any merger or consolidation involving the Trust or any Subsidiary of the Trust, whether or not the Trust is the surviving entity in such merger or consolidation, that results in an SRW Partner being required to recognize part or all of the gain that would have been recognized for federal income tax purposes upon a fully taxable disposition of one or more Protected Properties at the time of the SRW Merger shall be deemed to be a disposition of the Protected Properties for purposes of Section 2(a). 3. Prohibition on Repayment or Prepayment of Existing Nonrecourse Debt. (a) Except as otherwise expressly permitted in this Section, during the term of the Protected Period, the Trust shall not, directly or indirectly, cause or permit the Trust or any Subsidiary to repay or prepay any of the Existing Nonrecourse Debt. 3/ (b) (i) Without limiting Section 3(a), the Trust shall cause each Existing Nonrecourse Debt that is identified on Schedule 4-1 to this Exhibit D as qualifying as a Nonrecourse Liability allocable to one or more specified Protected Properties immediately prior to the time of the Merger to qualify throughout the term of the Protected Period as (i) a "nonrecourse liability" (as defined in Treasury Regulation (S) 1.752-1(a)(2)) (a "Nonrecourse Liability") that is allocable to those specified Protected Properties for purposes of Treasury Regulation (S) 1.752-3(a) and (ii) "qualified nonrecourse financing" (as defined in Section 465(b)(6)(B) of the Code) ("Qualified Nonrecourse Financing") allocable to the applicable Protected Properties, except to the extent that the failure to so qualify is a result of any action taken by any SRW Partner or any affiliate of an SRW Partner, unless such action requires the consent or assistance of the Trust or Trustee and the Trust or Trustee granted such consent or provided such assistance, including without limitation, any such SRW Partner or any of their affiliates being or becoming the lender or otherwise considered to "bear the economic risk of loss" (within the meaning of Treasury Regulation (S) 1.752-2) with respect to such Existing Nonrecourse Debt or any Replacement Debt. In determining whether the requirements of this Section 3(b)(i) are met as to an Existing Nonrecourse Debt, the Trust shall be entitled to assume that immediately following the SRW Merger such Existing Nonrecourse Debt is considered to be a Nonrecourse Liability and Qualified Nonrecourse Financing allocable to those specified Protected Properties in - --------- /3/ Prior to the closing of the SRW Merger, SRW will provide to the Trust debt amortization schedules for each Existing Nonrecourse Debt. This Section 3 will apply only to the unamortized balance of the Existing Nonrecourse Debt existing as the effective time of the SRW Merger. the amounts set forth on Schedule 4-1 to this Exhibit D at the time of the Merger, and the Trust shall be entitled to rely on the IRS Private Letter Ruling. (ii) Without limiting Section 3(a), the Trust shall cause each Existing Nonrecourse Debt that is identified on Schedule 4-2 to this Exhibit D as qualifying as a Partner Nonrecourse Debt allocable to one or more specified SRW Partners immediately prior to the time of the Merger to qualify throughout the term of the Protected Period as (i) a "partner nonrecourse debt" as defined in Treasury Regulation (S) 1.704-2(b)(4) (a "Partner Nonrecourse Debt") that is allocable to those specified SRW Partners for purposes of Treasury Regulation (S) 1.752-2(a) and (ii) a debt for which those specified SRW Partners are considered "at risk" for purposes of Section 465(b) of the Code ("At Risk Indebtedness"), except to the extent that the failure to so qualify is a result of any action taken by any SRW Partner or any affiliate of an SRW Partner, unless such action requires the consent or assistance of the Trust or Trustee and the Trust or Trustee granted such consent or provided such assistance, including without limitation, any such SRW Partner or any of their affiliates being or becoming the lender or otherwise considered to "bear the economic risk of loss" (within the meaning of Treasury Regulation (S) 1.752-2) with respect to such Existing Nonrecourse Debt or any Replacement Debt. In determining whether the requirements of this Section 3(b)(ii) are met as to an Existing Nonrecourse Debt, the Trust shall be entitled to assume that immediately following the SRW Merger such Existing Nonrecourse Debt is considered a Partner Nonrecourse Debt and At Risk Indebtedness at the time of the Merger allocable to the specified SRW Partners in the amounts set forth on Schedule 4-2 to this Exhibit D. (c) The requirements in Section 3(a) and Section 3(b) above shall not apply in the case of: (i) a payment or repayment that consists solely of a required principal amortization payment made with respect to an Existing Nonrecourse Debt or Replacement Debt (as defined in clause (ii) below) in accordance with the principal amortization schedules in effect at the effective time of the SRW Merger with respect to such Existing Nonrecourse Debt (or in the case of Replacement Debt, a principal amortization schedule that meets the conditions set forth in subclause (z) of clause (ii) below; provided that a required payment of principal at the scheduled maturity of any indebtedness shall not be considered within the scope of this clause (i) (and, accordingly, the Trust shall be required to refinance such maturing indebtedness with debt that would be considered qualifying Replacement Debt under clause (ii) below); or (ii) a payment of principal made from proceeds of new indebtedness incurred to refinance Existing Nonrecourse Debt (such new indebtedness incurred pursuant to the refinancing that meets the conditions set forth below in this clause (ii) is referred to in this Agreement as "Replacement Debt"), provided that (x) such refinancing is made on a basis that the Replacement Debt would meet the requirements of Section 3(b)(i) or Section 3(b)(ii), as applicable (assuming in the case of Existing Nonrecourse Debt or Replacement Debt subject to Section 3(b)(ii) that the affected SRW Partners execute guarantees of such Replacement Debt in such form as may be requested by the Trust and/or the applicable lender, subject to the condition that such debt have collateral that has a value (as determined in good faith by the Trustee) that is not less than the value (as determined in good faith by the Trustee) of the collateral for the Existing Nonrecourse Debt or Replacement Debt being refinanced and that the guarantee arrangement meets the criteria set forth in Section 3(g) for an "acceptable guarantee"; (y) that the principal amount of the Replacement Debt is at least equal to the principal amount of the Existing Nonrecourse Debt on the date of such refinancing; and (z) (I) with respect to the refinancing of an Existing Nonrecourse Debt, provides either for "interest-only" payments or for level payments of principal and interest that would not result in amortization of the remaining principal balance over a period shorter than twenty-five years (plus, if the Existing Nonrecourse Debt to be refinanced is being refinanced prior to maturity, the number of years remaining to its maturity); and (II) with respect to the refinancing of Replacement Debt previously incurred to refinance an Existing Nonrecourse Debt, provides either for "interest-only" payments or for level payments of principal and interest that would not result in amortization of the remaining principal balance of the new Replacement Debt over a period shorter than twenty-five years (plus the number of years referred to in the preceding parenthetical for the Replacement Debt being refinanced, less the number of years of permitted principal amortization that have occurred with respect to the Replacement Debt being refinanced). (d) For the purposes of this Section 3, any transaction or other event, including, without limitation, any modification of indebtedness, in which any Unitholder or any affiliate of any such Unitholder would become personally liable for, or would bear or incur, directly or indirectly, the "risk of loss" with respect to any Existing Nonrecourse Debt or any Replacement Debt that either (i) would cause such Debt not to be considered a Nonrecourse Liability or Qualified Nonrecourse Financing (except to the extent such Existing Nonrecourse Debt and any Replacement Debt with respect thereto is described in Section 3(b)(ii)) or (ii) if such Existing Nonrecourse Debt is described in Section 3(b)(ii), would cause the amount of such Debt that is considered Partner Recourse Debt or At Risk Indebtedness with respect to any SRW Partner to be reduced, shall be considered a refinancing of such Debt and shall be subject to the requirements set forth in this Section 3, except to the extent that the failure to so qualify is a result of any action taken by any SRW Partner or any affiliate of an SRW Partner, unless such action requires the consent or assistance of the Trust or Trustee and the Trust or Trustee granted such consent or provided such assistance, including without limitation, any such SRW Partner or any of their affiliates being or becoming the lender or otherwise considered to "bear the economic risk of loss" (within the meaning of Treasury Regulation (S) 1.752-2) with respect to such Existing Nonrecourse Debt or any Replacement Debt. (e) For the purposes of this Section 3, any sale, exchange or other disposition (including an exchange to which Section 1031 or 1033 of the Code applies) of a property that is subject to an Existing Nonrecourse Debt or Replacement Debt shall be considered a repayment of such Debt and shall be subject to the provisions of this Section 3, unless in connection with such sale, exchange or other disposition, (i) the Trust incurs Replacement Debt that would meet the requirements of Section 3(b)(i) or (b)(ii), as applicable, in an amount equal to the amount of Debt that is considered to be a refinancing under this Section 3(e) and (ii) the SRW Partners who were pursuant to the Treasury Regulations under Section 752 of the Code allocated a share of the Existing Nonrecourse Debt or Replacement Debt considered repaid would be allocated at all times necessary to avoid any deemed distribution of cash to any of the SRW Partners under Section 731 of the Code an amount of the new Replacement Debt that is at least equal to such amount previously allocated to them. (f) If an Existing Nonrecourse Debt or Replacement Debt shall mature during the term of the Protection Period, the Trust shall, prior to the stated maturity of the Existing Nonrecourse Debt or Replacement Debt (the "Maturing Debt"), cause the Trust to refinance the Maturing Debt with Replacement Debt that (i) would meet the requirements of Section 3(b)(i) or Section 3(b)(ii), as applicable (assuming in the case of Existing Nonrecourse Debt or Replacement Debt subject to Section 3(b)(ii) that the affected SRW Partners execute guarantees of such Replacement Debt in such form as may be requested by the Trust and/or the applicable lender, subject to the condition that such debt have collateral that has a value (as determined in good faith by the Trustee) that is not less than the value (as determined in good faith by the Trustee) of the collateral for the Existing Nonrecourse Debt or Replacement Debt being refinanced and that the guarantee meets the criteria set forth in Section 3(g) for an "acceptable guarantee", (ii) that would have a principal amount not less than the principal amount of the Existing Nonrecourse Debt on the date of the refinancing; and (iii) (x) with respect to the refinancing of an Existing Nonrecourse Debt, provides either for "interest-only" payments or for level payments of principal and interest that would not result in amortization of the remaining principal balance over a period shorter than twenty-five years (plus, if the Existing Nonrecourse Debt to be refinanced is being refinanced prior to maturity, the number of years remaining to its maturity); and (y) with respect to the refinancing of Replacement Debt previously incurred to refinance an Existing Nonrecourse Debt, provides either for "interest-only" payments or for level payments of principal and interest that would not result in amortization of the remaining principal balance of the new Replacement Debt over a period shorter than twenty-five years (plus the number of years referred to in the preceding parenthetical for the Replacement Debt being refinanced, less the number of years of permitted principal amortization that have occurred with respect to the Replacement Debt being refinanced). (g) For purposes of Section 3(c)(ii) and Section 3(f), a guarantee is an "acceptable guarantee" if it meets the following criteria: (1) the guarantee agreement is substantially in the form of the guarantee agreement that the SRW Partner had in effect with respect to the Partner Nonrecourse Debt that is being refinanced, with such changes that may be required by the lender and that do not have the effect of reducing the economic and legal exposure of the guarantor under the guarantee agreement; (2) the guarantee must be given as consideration to a lender in connection with the making of a new loan or in connection with the refinancing, extension or other material modification favorable to the borrower of an existing loan; (3) the guarantee must be executed and delivered to the lender, (4) the aggregate amount of guarantees, indemnities and other similar undertakings made with respect to the applicable debt must not exceed the face amount of the debt, and (5) as to each SRW Partner that is executing a guarantee pursuant hereto, there must be no other Person that would be considered to "bear the economic risk of loss," within the meaning of Treasury Regulation (S) 1.752-2, or would be considered to be "at risk" for purposes of Section 465(b) with respect to that portion of such debt for which such SRW Partner is being made liable for purposes of satisfying the Trust's obligations to such SRW Partner under Section 3(c)(ii) and Section 3(f). 4. Remedies for Breach. (a) In the event that the Trust breaches its obligations set forth in Section 2, Section 3, Section 6, Section 7 or Section 9 with respect to an SRW Partner during the Protected Period, the SRW Partner's sole right shall be to receive from the Trust, and the Trust shall pay to such SRW Partner as damages, an amount equal to the aggregate federal, state and local income taxes incurred by the SRW Partner as a result of the income or gain actually recognized by such SRW Partner with respect to its Protected Units (after giving effect to adjustments pursuant to Section 754 of the Code) by reason of such breach, plus an amount equal to the aggregate federal, state, and local income taxes payable by the SRW Partner as a result of the receipt of any payment required under this Section 4(a). For purposes of computing the amount of federal, state, and local income taxes required to be paid by an SRW Partner, (i) any deduction allowed in computing federal income taxes for state income taxes payable as a result thereof shall be taken into account, and (ii) an SRW Partner's tax liability shall be computed using the highest federal, state and local marginal income tax rates that would be applicable to such SRW Partner's taxable income (taking into account the character of such income or gain) for the year with respect to which the taxes must be paid, without regard to any deductions, losses or credits that may be available to such SRW Partner that would reduce or offset its actual taxable income or actual tax liability if such deductions, losses or credits could be utilized by the SRW Partner to offset other income, gain or taxes of the SRW Partner, either in the current year, in earlier years, or in later years). In the event that an SRW Partner shall acquire any additional Units subsequent to the SRW Merger by reason of a contribution of additional money or property to the Trust, the income and gain that shall be taken into account for purposes of computing the damages payable under this Section 4(a) would not exceed the gain that such SRW Partner would have recognized by reason of the Trust's breach of its obligation set forth in Section 2, Section 3, Section 6, Section 7 or Section 9, as applicable, had such SRW Partner not acquired such additional Units. In addition, in the case of a breach of Section 2, in no event shall the gain taken into account for purposes of computing the damages payable under this Section 4(a) exceed the amount of gain that would have been recognized by the SRW Partner with respect to the Protected Units if the Trust had sold the Protected Property in a fully taxable transaction on the day following the closing of the SRW Merger for a purchase price equal to the 704(c) Value of such Protected Property. (b) Notwithstanding any provision of this Exhibit D, the sole and exclusive rights and remedies of any SRW Partner for a breach or violation of the covenants set forth in Section 2 or Section 3 shall be a claim for damages against the Trust, computed as set forth in Section 4(a), and no SRW Partner shall be entitled to pursue a claim for specific performance of the covenant set forth in Section 2 or Section 3 or bring a claim against any Person that acquires a Protected Property from the Trust in violation of Section 2 (other than a Successor Partnership that has agreed in writing to be bound by the terms of this Exhibit D or that has otherwise succeeded to all of the assets and all of the liabilities of the Trust, but then only for damages computed as set forth in Section 4(a)). If the Trust has breached or violated any of the covenants set forth in Section 2, Section 3, Section 6, Section 7 or Section 9 (or an SRW Partner asserts that the Trust has breached or violated any of the covenants set forth in Section 2, Section 3, Section 6, Section 7 or Section 9, the Trust and the SRW Partner agree to negotiate in good faith to resolve any disagreements regarding any such breach or violation and the amount of damages, if any, payable to such SRW Partner under Section 4(a). If any such disagreement cannot be resolved by the Trust and such SRW Partner within sixty (60) days after the receipt of notice from the Trust of such breach and the amount of income to be recognized by reason thereof, the Trust and the SRW Partner shall jointly retain a nationally recognized independent public accounting firm ("an Accounting Firm") to act as an arbitrator to resolve as expeditiously as possible all points of any such disagreement (including, without limitation, whether a breach of any of the covenants set forth Section 2, Section 3, Section 6, Section 7 or Section 9 has occurred and, if so, the amount of damages to which the SRW Partner is entitled as a result thereof, determined as set forth in Section 4(a)). All determinations made by the Accounting Firm with respect to the resolution of any breach or violation of any of the covenants set forth in Section 2, Section 3, Section 6, Section 7 or Section 9 and the amount of damages payable to the SRW Partner under Section 4(a) shall be final, conclusive and binding on the Trust and the SRW Partner. The fees and expenses of any Accounting Firm incurred in connection with any such determination shall be shared equally by Trust and the SRW Partner, provided that if the amount determined by the Accounting Firm to be owed by the Trust to the SRW Partner is not less than ninety percent (90%) of the amount asserted by the SRW Partner to be owed, then all of the fees and expenses of any Accounting Firm incurred in connection with any such determination shall be paid by the Trust. (The exception in the proviso in the preceding sentence shall not apply to Robert H. Smith, Robert P. Kogod, members of their respective Immediate Families, and entities that are Affiliates of Robert H Smith, Robert P. Kogod, and/or members of their respective Immediate Families.) (c) For purposes of this Section 4, if any SRW Partner is, for federal income tax purposes, a partnership, an S corporation, "real estate investment trust" or a trust, then all computations of amounts of taxes required to be paid by the SRW Partner and the payments due from the Trust as a result thereof shall be made by computing the taxes required to be paid by the partners, shareholders or beneficiaries of such partnership, S corporation, "real estate investment trust" or trust (or to the extent that any partner, shareholder or beneficiary of such partnership S corporation or trust is itself a partnership, S corporation or trust, the same principles shall apply in determining the taxes required to be paid by such partner, shareholder or beneficiary). (d) In the event that there has been a breach of Section 2, Section 3, Section 6, or Section 7, the Trustee shall provide to the SRW Partner notice of the transaction or event giving rise to such breach not later than at such time as the Trustee provides to the SRW Partners the Schedule K-1's to the Trust's federal income tax return as required in accordance with Section 8.1 of Annex A of the Declaration of Trust. All payments required under this Section 4 to any SRW Partner shall be made to such SRW Partner not later than seven (7) days after receipt by the Trust of a written claim from such SRW Partner therefor, unless the Trust disagrees with the computation of the amount required to be paid in respect of such breach, in which event the procedures in Section 4(b) shall apply and the payment shall be due within seven (7) days after the earlier of a determination by the Accounting Firm or an agreement between the Trust and the SRW Partner as to the amount required to be paid, with interest accruing on the aggregate amount required to be paid from the date that is seven (7) days after receipt by the Trust of a claim from such SRW Partner to the date of actual payment at a rate equal to the "prime rate" of interest, as published in the Wall Street Journal (or if no longer published there, as announced by Citibank) effective as of the date the payment is required to be made. 5. Opportunity for SRW Partners to Enter into Deficit Restoration Obligations. Without limiting any of the obligations of the Trust under this Agreement, the Trust shall consider in good faith a request by an SRW Partner to enter into an agreement with the Trust to bear the economic risk of loss as to a portion of the Trust's recourse indebtedness by undertaking an obligation to restore a portion of its negative capital account balance upon liquidation of such SRW Partner's interest in the Trust, if such SRW Partner shall provide information from its professional tax advisor satisfactory to the Trust showing that, in the absence of such agreement, such SRW Partner likely would not be allocated from the Trust sufficient indebtedness under Section 752 of the Code and the at-risk provisions under Section 465 of the Code to avoid the recognition of gain (other than gain required to be recognized by reason of actual cash distributions from the Trust). The Trust and its professional tax advisors shall cooperate in good faith with such SRW Partner and its professional tax advisors to provide such information regarding the allocation of the Trust liabilities and the nature of such liabilities as is reasonably necessary in order to determine the SRW Partner's adjusted tax basis in its Units and at-risk amount. In deciding whether or not to grant such a request, the Trust shall be entitled to take into account all factors related to the Trust, including, without limitation, the existing and anticipated debt structure of the Trust, the tax situations of all other Unitholders, including the Trustee (individually and as a group), and the effect that granting such a request might have on their tax situation, and the anticipated long-term business needs of the Trust. The Trust's only obligation with respect to any such request from an SRW Partner pursuant to this Section 5 shall be to act in good faith. In the event the Trust fails to act in good faith with respect to any such request, the exclusive remedy of the SRW Partner who made such request shall be an action for specific performance, with no entitlement to monetary damages. 6. Section 708 Termination; Section 704(c) Method. (a) The Trust shall treat the merger of SRW into the Trustee as a transfer of a greater than fifty percent (50%) interest in the capital and profits of SRW Partnership that resulted in a termination of SRW Partnership pursuant to Section 708(b)(1)(B) of the Code at the effective time of the merger of SRW into the Trustee. (b) Notwithstanding Paragraph 2.C of Exhibit C to Annex A of the Declaration of Trust, the Trust shall use the "traditional method" under Regulations (S) 1.704-3(b) for purposes of making allocations under Section 704(c) of the Code (with no "curative allocations" to offset the effect of a "Ceiling Rule Disparity" as described in Section 6(c) below, except as set forth in Section 6(d) below) with respect to (i) each of the assets acquired by the Trust from the SRW Partnership in the SRW Merger (including, without limitation, all assets owned by any direct or indirect Subsidiaries of the SRW Partnership that are treated either as a partnership or as a disregarded entity for federal income tax purposes), except to the extent that the Trust expressly would be required to use a different method under a SRW Tax Protection Agreement assumed by the Trust pursuant to the Merger Agreement and the affected SRW Partner has not executed an agreement to waive its right to such different method following the SRW Merger, and (ii) with respect to each of the other assets acquired by the Trust or deemed acquired by the Trust from the Trustee or its Affiliates in connection with the SRW Merger. The 704(c) Values of the Protected Properties shall be as determined by agreement between SRW Partnership and the Trust prior to the effective time of the SRW Merger, or in the absence of such agreement, as determined by the Trustee in good faith for purposes of preparing the financial statements of the Trust and the Trustee reflecting the results of the SRW Merger so long as the outside accountants of the Trustee and the Trust have approved such financial statements as being in accordance with general accepted accounting procedures. 4/ The Trust shall, for purposes of Treasury Regulations (S)(S) 1.704-3 and 1.704-1(b)(2)(iv)(g)(3), elect to use a 27 1/2 year useful life with respect to any property constituting "residential real property" within the meaning of Section 168(c) of the Code that is part of the Protected Properties, except where such a useful life is not permitted under the Code. (c) For purposes of Section 6(b) and Section 6(d), the term "Ceiling Rule Disparity" shall mean the excess, if any, of (i) the aggregate amount of Depreciation with respect to any asset allocated to the "non-contributing partners" (that is, the holders of Units who are not subject to Section 704(c) of the Code and Treasury Regulations (S) 1.704-3 with respect to such asset), over (ii) the aggregate amount of depreciation deductions with respect to such asset allocated to the "non-contributing partners" for federal income tax purposes from the Effective Date to the date of the disposition of such asset. (d) In order to offset the effect of Ceiling Rule Disparities, the Trust shall make the Curative Allocation with respect to each Protected Unit each Fiscal Year, which Curative Allocation shall be considered to offset first any Ceiling Rule Disparities that exist with respect to a Protected Unit that are attributable to appreciation in the Protected Properties and depreciation claimed with respect to the Protected Properties that is attributable to periods after the Protected Properties were acquired by SRW Partnership, and only after all such Ceiling Rule Disparities have been eliminated with respect to a particular SRW Partner would such allocation be considered to offset any Ceiling Rule Disparities that exist with respect to a Protected Unit that are attributable to appreciation in the Protected Properties and depreciation claimed with respect to the Protected Properties that is attributable to periods before the Protected Properties (or the applicable predecessor properties) were acquired by SRW Partnership. To the extent that the Curative Allocation is not sufficient to eliminate the effect of all Ceiling Rule Disparities with respect to a particular Protected Property, the Trust shall make a "curative allocation" upon a disposition of that particular Protected Property to offset the remaining balance, if any, of the Ceiling Rule Disparity with respect to that particular Protected Property. 7. Allocations of Liabilities Pursuant to Regulations Under Section 752. All tax returns prepared by the Trust during the Protected Period shall allocate liabilities of the Trust for purposes of Section 752 and the Treasury Regulations thereunder taking into account the following: (i) for purposes of allocating any Existing Nonrecourse Debt or Replacement Debt that is identified on Schedule 4-1 as a Nonrecourse Liability, the Trust, - ---------------- /4/ Smith and Archstone agree to negotiate in good faith to agree upon these amounts prior to the closing of the SRW Merger. for purposes of Treasury Regulations (S)(S) 752-3(a)(2) and 1.752-3(a)(3), shall treat such Existing Nonrecourse Debt (or any Replacement Debt therefor) as allocable to those specified Protected Properties in amounts not less than the amounts set forth on Schedule 4-1 to this Exhibit D at the time of the SRW Merger (subject to reduction as and to the extent permitted under Section 3), and, absent a change to the Code or the Treasury Regulations, the Trust shall follow the methodology set forth in the IRS Private Letter Ruling;. (ii) the Trust shall allocate any Existing Nonrecourse Debt or Replacement Debt that constitutes "excess nonrecourse liabilities" of the Trust to the SRW Partners in the manner set forth in sentence five of Treasury Regulations (S) 1.752-3(a)(3) following the SRW Merger; (iii) the Trust shall allocate to each SRW Partner who is shown on Schedule 4-2 to this Exhibit D as having liability for a specified dollar amount of an Existing Nonrecourse Debt that is a Partner Nonrecourse Debt a dollar amount of such Partner Nonrecourse Debt equal to the amount shown on Schedule 4- 2 with respect to such SRW Partner (subject to reduction as and to the extent permitted under Section 3); and (iv) in making allocations of debt under Treasury Regulation (S) 1.752-3(a)(2) with respect to a specific Protected Property, the Trust shall make an allocation (I) first to the SRW Partners in an amount equal to the lesser of (x) the "Section 704(c) minimum gain" that such SRW Partner would have been allocated by SRW Partnership under Treasury Regulation (S) 1.752-3(a)(2) immediately prior to the SRW Merger or (y) the "Section 704(c) minimum gain" that such SRW Partner would have been allocated by SRW Partnership under Treasury Regulation (S) 1.752-3(a)(2) immediately after such SRW Partner acquired an interest in SRW Partnership by reason of the contribution of an interest in the Protected Property (or a predecessor asset) to SRW Partnership in exchange for an interest in SRW Partnership, and (II) thereafter pro rata among the SRW Partners based upon the number of Protected Units that they hold and their proportionate shares of the "Section 704(c) minimum gain" existing immediately after the SRW Merger in excess of the amounts described in (y). In addition, the Trust shall not make available after the date of the SRW Merger, whether pursuant to an agreement entered into after such date or otherwise, to any other Unitholder a method of allocating "excess nonrecourse liabilities" of the Trust that is more favorable than that made available to such SRW Partners without making such method available to the SRW Partners on a pro rata basis with such other Unitholders. Notwithstanding the provision of this Exhibit D, the Trust shall not be required to make allocations of Nonrecourse Liabilities or Partner Nonrecourse Debt to the SRW Partners as set forth in this Exhibit D if and to the extent that, as a result of a change in Section 752 of the Code or the Treasury Regulations occurring after the date hereof, the Trust obtains an opinion of Mayer Brown & Platt or KPMG Peat Marwick (or another comparable firm of attorneys or accountants) to the effect that, as a result of such change, there no longer is "substantial authority" (within the meaning of Section 6662(d)(2)(B)(i)) of the Code for such allocation; provided that the Trust shall provide to Mr. Robert H. Smith and Mr. Robert P. Kogod (or in the event of their death or disability, their executor, guardian or custodian, as applicable), notice of such determination, together with a copy of such opinion, and if, within forty five (45) days after the receipt thereof, the Trust is provided an opinion of Hogan & Hartson LLP or Arthur Andersen LLP (or another comparable firm of attorneys or accountants) to the effect that, notwithstanding such change, there continues to be "substantial authority" (within the meaning of Section 6662(d)(2)(B)(i) of the Code) for such allocations, the Trust shall continue to make allocations of Nonrecourse Liabilities or Partner Nonrecourse Debt to the SRW Partners as set forth in this Exhibit D. If a change in the Trust's allocations of Nonrecourse Liabilities or Partner Nonrecourse Debt to the SRW Partners is required by reason of circumstances described in the preceding sentence, the Trust and its professional tax advisors shall cooperate in good faith with Messrs. Robert H. Smith and Robert P. Kogod (or in the event of their death or disability, their executor, guardian or custodian, as applicable) and their professional tax advisors to develop alternative allocation arrangements and/or other mechanisms that protect the federal income tax positions of the SRW Partners in the manner contemplated by the allocations of Nonrecourse Liabilities or Partner Nonrecourse Debt to the SRW Partners as set forth in this Exhibit D. 8. Other Agreements With SRW Partners. Pursuant to the Merger Agreement, the Trustee, the Trust, SRW, and SRW Partnership entered into an Assignment and Assumption Agreement, dated as of ____ __, 2001, pursuant to which the Trust assumed certain obligations of SRW Partnership made pursuant to certain tax protection agreements (the "SRW Tax Protection Agreements"). A list of those SRW Tax Protection Agreements is set forth on Schedule 5 to this Exhibit D. 9. Requirement for Delivery of Evidence of Filing of Form 8832. Within 30 days following the SRW Merger, the Trustee shall provide to Messrs. Smith and Kogod, as representatives of the SRW Partners, evidence, in the form of a certified mail return receipt, that the Trust filed with the Internal Revenue Service Form 8832 electing pursuant to Treasury Regulation (S) 301.7701- 3(c)(1)(i) to be treated either as a domestic eligible entity with a single owner electing to be disregarded as a separate entity or a partnership, as applicable, not later than one day prior to the closing of the SRW Merger. 10. Amendment of this Agreement. This Agreement may not be amended, directly or indirectly (including by reason of a merger between the Trust and another entity), except by a written instrument signed by the Trustee and approved by the SRW Partners holding seventy-six percent (76%) of the then outstanding Protected Units; provided, however, that any amendment that would permit a sale of a Protected Property in violation of Section 2 or the refinancing of debt in violation of Section 3, shall not be permitted without the written approval of holders of seventy-six percent (76%) of the then outstanding Protected Units held by SRW Partners that would be adversely affected by such actions. 11. Modification of Section 5.8 of Annex A With Respect to Holders of Protected Units. For purposes of applying Section 5.8.B. of Annex A to the Declaration of Trust with respect to all SRW Partners who hold Protected Units, that Section shall be applied by substituting the phrase "provided that the Trustee has acted in good faith and pursuant to its authority under this Agreement" for the phrase "unless the Trustee has acted in bad faith and the act or omission was material to the matter giving rise to the loss, liability or benefit pursuant to its authority under the Agreement." For purposes of applying Section 5.8.A to the Declaration of Trust with respect to all SRW Partners who hold Protected Units, that Section shall be applied by substituting the following therefore: "The Trustee shall not be liable for monetary damages to the Trust or any Unitholder for losses sustained or incurred as a result of errors in judgment or of any act or omission if the Trustee acted in good faith. EXHIBIT E NOTICE OF REDEMPTION The undersigned hereby irrevocably (i) redeems _________ Units in ____________ in accordance with the terms of the Agreement A to the Declaration of Trust of ______________________, as amended, and the Redemption Right referred to therein, (ii) surrenders such Units and all right, title and interest therein and (iii) directs that the Cash Amount or Shares Amount (as determined by the Trustee) deliverable upon exercise of the Redemption Right be delivered to the address specified below, and if Shares are to be delivered, such Shares be registered or placed in the name(s) and at the address(es) specified below. The undersigned hereby represents, warrants, and certifies that the undersigned (a) has marketable and unencumbered title to such Units, free and clear of the rights of or interests of any other person or entity, (b) has the full right, power and authority to redeem and surrender such Units as provided herein and (c) has obtained the consent or approval of all persons or entities, if any, having the right to consult or approve such redemption and surrender. Dated: ------------------ Name of Unitholder: ---------------------------- ---------------------------- (Signature of Unitholder) ---------------------------- (Street Address) ---------------------------- (City) (State) (Zip Code) Signature Guaranteed by: 1 ---------------------------- If Shares are to be issued, issue to: Name: Please insert social security or identifying number: 2 EXHIBIT 2.1(B) EXHIBIT F DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO SERIES A PREFERRED UNITS The Series A Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit F shall have the respective meanings set forth below: - --------- "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series A Preferred Shares. "Distribution Period" means quarterly periods commencing on January 1, ------------------- April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period. "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding over which the Series A Preferred Units have a preference or priority in both (i) the payment of distributions and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which the Series A Preferred ---------- Units were issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series A Preferred Units have a preference or priority in the payment of distributions or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 7(B). ------------ "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of distributions or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, however, that if any funds for any class or series of Junior Units or any class or series of Units ranking on a parity with the Series A Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series A Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. F-1 (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series A Preferred Units, shall be entitled to receive, when, as and if declared by the Trustee out of funds legally available for such purpose, distributions payable in cash in an amount per Series A Preferred Unit equal to the greater of (a) $1.75 per annum or (b) the distributions (determined on each Distribution Date) paid on the number of Class A-2 Units, or portion thereof, into which a Series A Preferred Unit is convertible. The distributions referred to in clause (b) of the preceding sentence shall equal the number of Class A-2 Units, or portion thereof, into which a Series A Preferred Unit is convertible, multiplied by the most recent quarterly distribution on a Class A-2 Unit on or before the applicable Distribution Date. If the Trust pays an ordinary cash distribution on the Class A-2 Units with respect to a Distribution Period after the date on which the Distribution Date is declared pursuant to clause (ii) of the definition of Distribution Date and the distribution calculated with respect to clause (b) of the first sentence of this Section 2(A) is greater than the distribution previously declared on the Series A Preferred Units with respect to such Distribution Period, the Trust shall pay an additional distribution in respect of the Series A Preferred Units on the date on which the distribution on the Class A-2 Units is paid, in an amount equal to the difference between (y) the distribution calculated pursuant to clause (b) of the first sentence of this Section 2(A) and (z) the amount of distributions previously declared on the Series A Preferred Units with respect to such Distribution Period. Distributions shall begin to accrue and shall be fully cumulative from [INSERT MOST RECENT DIVIDEND PAYMENT DATE PRIOR TO CONSUMMATION OF THE MERGER], whether or not in any Distribution Period or Periods there shall be funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on each Distribution Date commencing on the first Distribution Date after the Issue Date. Accrued and unpaid distributions for any past Distribution Periods may be declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series A Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series A Preferred Shares. (B) The amount of distributions for each full Distribution Period shall be equal to $0.4375. The amount of distribution for any Distribution Period on the Series A Preferred Units that represents less than a full quarter of a year shall be computed on the basis of a 360-day year of twelve 30-day months Holders of Series A Preferred Units shall not be entitled to any distributions, whether payable in cash, property or securities, in excess of cumulative distributions, as herein provided, on the Series A Preferred Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series A Preferred Units that may be in arrears. (C) So long as any Series A Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any Parity Units for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series A Preferred Units for all Distribution Periods terminating on or prior to the distribution payment date for such class or series of Parity Units. When distributions are not paid in full or a sum sufficient for such payment is not set apart, as F-2 aforesaid, all distributions declared upon Series A Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series A Preferred Units and accumulated and unpaid on such Parity Units. (D) So long as any Series A Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared, or paid or set apart for payment or other distribution declared or made upon Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such Junior Units) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) the full cumulative distributions on all outstanding Series A Preferred Units and any other Parity Units of the Trust shall have been paid or declared and set apart for payment for all past Distribution Periods with respect to the Series A Preferred Units and all past distribution periods with respect to such Parity Units and (ii) sufficient funds shall have been paid or set apart for the payment of the distribution for the current Distribution Period with respect to the Series A Preferred Units and the current distribution period with respect to such Parity Units. (3) Liquidation Preference. ---------------------- (A) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets (whether capital or surplus) of the Trust shall be made to or set apart for the holders of Junior Units, the Trustee, in its capacity as holder of the Series A Preferred Units, shall be entitled to receive Twenty Five Dollars ($25.00) per Series A Preferred Unit plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series A Preferred Units, shall not be entitled to any further payment; provided that the distribution payable with respect to the Distribution Period containing the date of final distribution shall be equal to the greater of (i) the distribution provided in clause (a) of the first sentence of Section 2(A) or (ii) the distribution determined pursuant to clause (b) of the first sentence of Section 2(A) for the preceding Distribution Period. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series A Preferred Units, shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series A Preferred Units, and the holders of such other Parity Units ratably in accordance with the respective amounts that would be payable on such Series A Preferred Units and such other Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 3, (x) a consolidation or merger of the Trust with one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property F-3 or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (B) Subject to the rights of the holders of any series or class of Units ranking on a parity with or prior to the Series A Preferred Units upon liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the Trustee, in its capacity as the holder of the Series A Preferred Units, as provided in this Section 3, any other series or class or classes of Junior Units shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Trustee, in its capacity as the holder of the Series A Preferred Units, shall not be entitled to share therein. (4) Redemption Right. ---------------- (A) Except as provided in Section 4(B), the Series A Preferred Units shall not be redeemable prior to November 30, 2003. On and after such date, the Trustee, at its option, may cause the Trust to redeem the Series A Preferred Units, in whole at any time or from time to time in part at the option of the Trustee, (x) for Class A-2 Units, subject to the conditions set forth in paragraph (i) below, or (y) for cash in an amount per Series A Preferred Unit at a redemption price of Twenty-Five Dollars ($25.00) per Series A Preferred Unit, plus the amounts indicated in Section 4(A)(iii) below. (i) The Series A Preferred Units shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of shares of Series A Preferred Shares for cash. Such redemption of Series A Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series A Preferred Shares (such date of redemption the "Redemption Date"). (ii) In the event that the Trustee redeems Series A Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series A Preferred Units in exchange for the amount of cash that the Trustee is required to pay pursuant to the terms of the Series A Preferred Shares in connection with such redemption. (iii) Upon any redemption of Series A Preferred Units pursuant to this Section 4, the Trust shall pay any accrued and unpaid distributions in arrears with respect to the Series A Preferred Units being redeemed for any Distribution Period ending on or prior to the Redemption Date. If the Redemption Date falls after a Trust Record Date and prior to the corresponding Distribution Date, then the Trustee, in its capacity as the holder of the Series A Preferred Units being redeemed, shall be entitled to distributions payable on the corresponding Distribution Date notwithstanding the redemption of such Series A Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series A Preferred Units called for redemption. (B) In the event that the Trustee is required to redeem any shares of Series A Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of F-4 Series A Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series A Preferred Shares. (5) Conversion to Class A-2 Units. ----------------------------- (A) In the event that a holder of Series A Preferred Shares exercises its right to convert such Series A Preferred Shares into Shares, then, concurrently therewith, an equivalent number of Series A Preferred Units shall be automatically converted into a number of Class A-2 Units equal to (x) the number of Shares issued upon conversion of such Series A Preferred Shares divided by (y) the Conversion Factor. Any such conversion will be effective at the same time as the conversion of Series A Preferred Shares into Shares is effective. (B) The Trustee, as the holder of the Series A Preferred Units, at the close of business on a dividend payment record date with respect to the Series A Preferred Shares shall be entitled to receive the distribution payable on such Series A Preferred Units on the corresponding Distribution Date notwithstanding the conversion thereof following such dividend payment record date and prior to such Distribution Date. However, Series A Preferred Units surrendered for conversion during the period between the close of business on any dividend payment record date with respect to the Series A Preferred Shares and the opening of business on the corresponding Distribution Date (except Series A Preferred Units converted upon conversion of Series A Preferred Shares after the issuance of notice of redemption with respect to a redemption date for such Series A Preferred Shares during such period, such Series A Preferred Units being entitled to such distribution on the Distribution Date) must be accompanied by payment of an amount equal to the distribution payable on such Series A Preferred Units on such Distribution Date. A holder of Series A Preferred Units on a dividend payment record date with respect to Series A Preferred Shares who converts into Class A-2 Units on the corresponding Distribution Date shall receive the distribution payable by the Trust on such Series A Preferred Units on such date, and the Trustee, as the holder of the Series A Preferred Units being converted, need not include payment of the amount of such distribution upon surrender of Series A Preferred Units for conversion. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on converted Series A Preferred Units or for distributions on the Class A-2 Units issued upon such conversion. (6) Units to be Retired. All Series A Preferred Units which shall have ------------------- been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units, without designation as to class or series. (7) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series A Preferred Units, in the payment of distributions and in the distribution of assets upon liquidation, dissolution or winding up of the Trust, if the holders of such class or series of Units shall be entitled to the receipt of distributions or of amounts distributable upon liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series A Preferred Units; (B) on a parity with the Series A Preferred Units, in the payment of distributions and in the distribution of assets upon liquidation, dissolution or winding up of the F-5 Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit thereof are different from those of the Series A Preferred Units, if the holders of such class or series of Units and the holders of the Series A Preferred Units are entitled to the receipt of distributions and amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of distributions accrued and unpaid per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series A Preferred Units, in the payment of distributions or the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; and (D) junior to the Series A Preferred Units, in the payment of distributions and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units; (8) Voting. Except as required by law, the Trustee, in its capacity as the ------ holder of the Series A Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (9) Restriction on Ownership. The Series A Preferred Units shall be owned ------------------------ and held solely by the Trustee. (10) General. The rights of the Trustee, in its capacity as the holder of ------- the Series A Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit F shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series A Preferred Units. * * * * F-6 EXHIBIT G DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO SERIES B JUNIOR PARTICIPATING UNITS [To Come] G-1 EXHIBIT H DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO SERIES C PREFERRED UNITS The Series C Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit H shall have the respective meanings set forth below: - --------- "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series C Preferred Shares. "Distribution Period" means quarterly periods commencing on January 1, ------------------- April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period. "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding as to which the Series C Preferred Units have a preference or priority in both (i) the payment of distributions and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which Series C Preferred ---------- Units were issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series C Preferred Units have a preference or priority in the payment of distributions or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 6(B). ------------ "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of distributions or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, however, that if any funds for any class or series of Junior Units or any class or series of Units ranking on a parity with the Series C Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series C Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. H-1 (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series C Preferred Units, shall be entitled to receive for such purpose, when, as and if authorized or declared by the Trustee, out of funds legally available for such purpose, cash distributions in an amount per Series C Preferred Unit equal to 8.625% of the Series C Liquidation Preference (as defined below) per annum (equivalent to $2.15625 per share). Distributions shall begin to accrue and shall be fully cumulative from [INSERT MOST RECENT DIVIDEND PAYMENT DATE PRIOR TO CONSUMMATION OF THE MERGER], whether or not in any Distribution Period or Periods there shall be funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on each Distribution Date commencing with the first Distribution Date following the Issue Date. Accrued and unpaid distributions for any past Distribution Periods may be declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series C Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series C Preferred Shares. (B) The amount of distributions for each full Distribution Period shall be equal to $0.5390625. The amount of distributions for any Distribution Period on the Series C Preferred Units that represents less than a full quarter of a year shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series C Preferred Units shall not be entitled to any distributions, whether payable in cash, property or securities, in excess of cumulative distributions, as provided herein, on the Series C Preferred Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series C Preferred Units that may be in arrears. (C) So long as any Series C Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any Parity Units for any period unless (i) full cumulative distributions have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Distribution Periods with respect to the Series C Preferred Units and (ii) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the distribution for the current Distribution Period with respect to the Series C Preferred Units. When distributions are not paid in full, or a sum sufficient for such payment is not set apart for payment on the Series C Preferred Units and any Parity Units as provided above, all distributions declared on the Series C Preferred Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accrued and unpaid on the Series C Preferred Units and on such Parity Units. (D) So long as any Series C Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution, shall be declared or made on Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made H-2 available for a sinking fund for the redemption of any Junior Units) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) full cumulative distributions have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Distribution Periods with respect to the Series C Preferred Units and all past distribution periods with respect to any Parity Units and (ii) a sum sufficient for the payment thereof has been or contemporaneously is set apart for the payment of the distribution for the current Distribution Period with respect to the Series C Preferred Units and the current distribution period with respect to any Parity Units. (E) No distributions on the Series C Preferred Units shall be paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) is made to or set apart for the holders of the Common Units or any other class or series of Units of the Trust now or hereafter issued and outstanding to which the Series C Preferred Units have preference or priority in the distribution of assets on any liquidation, dissolution or winding up of the Trust, the Trustee, in its capacity as holder of the Series C Preferred Units, shall be entitled to receive out of the assets of the Trust legally available for such purpose, liquidating distributions in the amount of Twenty Five Dollars ($25.00) (the "Series C Liquidation Preference") per Series C Preferred Unit, plus an amount equal to all distributions (whether or not earned or authorized or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series C Preferred Units shall not be entitled to any further payment. If, upon any such liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series C Preferred Units, are insufficient to pay in full such preferential amount and the corresponding amounts with respect to all Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series C Preferred Units, and the holders of such other Parity Units in proportion to the full liquidation distributions to which they would otherwise be respectively entitled. (B) Subject to the rights of the holders of Units of any class or series of Units ranking on a parity with or senior to the Series C Preferred Units in the distribution of assets on any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, after payment has been made in full to the Trustee, in its capacity as the holder of the Series C Preferred Units, as provided in this Section 3, the holders any Junior Units shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Trustee, in its capacity as the holder of the Series C Preferred Units, shall not be entitled to share therein. H-3 (C) For the purposes of this Section 3, (x) a consolidation or merger of the Trust with or into one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary. (4) Redemption Right. ---------------- (A) Except as provided in Section 4(B), the Series C Preferred Units shall not be redeemable prior to August 20, 2002. On and after such date, the Trustee may cause the Trust, at its option, to redeem the Series C Preferred Units, in whole at any time, or in part from time to time, for cash at a redemption price of $25.00 per Series C Preferred Unit, plus the amounts indicated in Section 4(A)(iii) below. (i) The Series C Preferred Units shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of shares of Series C Preferred Shares for cash. Such redemption of Series C Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series C Preferred Shares (such date of redemption the "Redemption Date"). (ii) In the event that the Trustee redeems Series C Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series C Preferred Units in exchange for the amount of cash that the Trustee is required to pay pursuant to the terms of the Series C Preferred Shares in connection with such redemption. (iii) Upon any redemption of Series C Preferred Units pursuant to this Section 4, the Trust shall pay all distributions accrued and unpaid, if any, in arrears with respect to the Series C Preferred Units being redeemed for any Distribution Period ending on or prior to the Redemption Date. If the Redemption Date falls after a Trust Record Date and prior to the corresponding Distribution Date, then the Trustee, in its capacity as the holder of the Series C Preferred Units being redeemed, shall be entitled to distributions payable on the corresponding Distribution Date notwithstanding the redemption of such Series C Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series C Preferred Units called for redemption. (B) In the event that the Trustee is required to redeem any shares of Series C Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of Series C Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series C Preferred Shares. (5) Shares to be Retired. All Series C Preferred Units which are issued -------------------- and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. H-4 (6) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series C Preferred Units, in the payment of distributions and in the distribution of assets upon liquidation, dissolution or winding up of the Trust, if the holders of such class or series of Units shall be entitled to the receipt of distributions or of amounts distributable upon liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series C Preferred Units; (B) on a parity with the Series C Preferred Units in the payment of distributions and as to the distribution of assets upon liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit thereof are different from those of the Series C Preferred Units, if the holders of such class or series of Units and the Series C Preferred Units are entitled to the receipt of distributions and amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of distributions accrued and unpaid per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series C Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; and (D) junior to the Series C Preferred Units, in the payment of distributions and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units; (7) Voting. Except as required by law, the Trustee, in its capacity as the ------ holder of the Series C Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (8) Restriction on Ownership. The Series C Preferred Units shall be owned ------------------------ and held solely by the Trustee. (9) General. The rights of the Trustee, in its capacity as the holder of ------- the Series C Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit H shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series C Preferred Units. * * * * H-5 EXHIBIT I DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO SERIES D PREFERRED UNITS The Series D Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit I shall have the respective meanings set forth below: - --------- "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series D Preferred Shares. "Distribution Period" means quarterly periods commencing on January 1, ------------------- April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period. "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding as to which the Series D Preferred Units have a preference or priority in both (i) the payment of distributions and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which Series D Preferred ---------- Units were issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series D Preferred Units have a preference or priority in the payment of distributions or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 6(B). ------------ "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of distributions or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, however, that if any funds for any class or series of Junior Units or any class or series of Units ranking on a parity with the Series D Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series D Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. I-1 (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series D Preferred Units, shall be entitled to receive, when, as and if declared by the Trustee, out of funds legally available for that purpose, distributions payable in cash in an amount per Series D Preferred Unit equal to $2.1875 per annum. Distributions shall begin to accrue and shall be fully cumulative from [INSERT MOST RECENT DIVIDEND PAYMENT DATE PRIOR TO CONSUMMATION OF THE MERGER], whether or not in any Distribution Period or Periods there shall be funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on each Distribution Date commencing on the first Distribution Date following the Issue Date. Accrued and unpaid distributions on the Series D Preferred Units for any past Distribution Periods may be declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series D Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series D Preferred Shares. (B) The amount of distributions for each full Distribution Period shall be equal to $0.546875. The amount of distributions for any Distribution Period on the Series D Preferred Units that represents less than a full quarter of a year shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series D Preferred Units shall not be entitled to any distributions, whether payable in cash, property or securities, in excess of cumulative distributions, as herein provided, on the Series D Preferred Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series D Preferred Units that may be in arrears. (C) So long as any Series D Preferred Units are outstanding, no full distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any Parity Units for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series D Preferred Units for all past Distribution Periods terminating on or prior to the distribution payment date for such class or series of Parity Units. When distributions are not paid in full (or a sum sufficient for such full payment is not so set apart), as aforesaid, all distributions declared upon Series D Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series D Preferred Units and accumulated and unpaid on such Parity Units. (D) So long as any Series D Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution, shall be declared or made or set apart for payment upon Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such Junior Units) by the I-2 Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) the full cumulative distributions on all outstanding Series D Preferred Units and any other Parity Units of the Trust shall have been paid or declared and set apart for payment for all past Distribution Periods with respect to the Series D Preferred Units and all past distribution periods with respect to such Parity Units and (ii) sufficient funds shall have been paid or declared and set apart for the payment of the distribution for the current Distribution Period with respect to the Series D Preferred Units and the current distribution period with respect to such Parity Units. Any distribution payment on the Series D Preferred Units shall first be credited against the earliest accrued but unpaid distribution due which remains payable. (E) No distributions on the Series D Preferred Units shall be declared by the Trustee or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior Units, the Trustee, in its capacity as holder of the Series D Preferred Units, shall be entitled to receive Twenty Five Dollars ($25.00) per Series D Preferred Unit plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series D Preferred Units shall not be entitled to any further payment. If, upon any such liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series D Preferred Units, shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series D Preferred Units, and the holders of such other Parity Units ratably in accordance with the respective amounts that would be payable on such Series D Preferred Units and such other Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 3, (x) a consolidation or merger of the Trust with one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (B) Subject to the rights of the holders of Units of any series or class or classes ranking on a parity with or senior to the Series D Preferred Units upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the Trustee, in its capacity as the holder of the Series D Preferred Units, as provided in this Section 3, any other series or class or classes of Junior Units shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any I-3 and all assets remaining to be paid or distributed, and the Trustee, in its capacity as the holder of the Series D Preferred Units, shall not be entitled to share therein. (4) Redemption Right. ---------------- (A) The Series D Preferred Units shall not be redeemable prior to August 6, 2004. On and after such date, the Trustee may cause the Trust, at its option, to redeem the Series D Preferred Units, in whole at any time or from time to time in part, at the option of the Trust at a redemption price of Twenty-Five Dollars ($25.00) per Series D Preferred Unit, plus the amounts indicated in Section 4(A)(iii) below. (i) The Series D Preferred Units shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of shares of Series D Preferred Shares for cash. Such redemption of Series D Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series D Preferred Shares (such date of redemption the "Redemption Date"). (ii) In the event that the Trustee redeems shares of Series D Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series D Preferred Units in exchange for the amount of cash that the Trustee is required to pay pursuant to the terms of the Series D Preferred Shares in connection with such redemption. (iii) Upon any redemption of Series D Preferred Units pursuant to this Section 4, the Trust shall pay any accrued and unpaid distributions in arrears with respect to the Series D Preferred Units being redeemed for any Distribution Period ending on or prior to the Redemption Date. If the Redemption Date falls after a Trust Record Date and prior to the corresponding Distribution Date, then the Trustee, in its capacity as the holder of the Series D Preferred Units being redeemed, shall be entitled to the distribution payable on such on the corresponding Distribution Date notwithstanding the redemption of such Series D Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series D Preferred Units called for redemption. (B) In the event that the Trustee is required to redeem any shares of Series D Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of Series D Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series D Preferred Shares. (5) Shares to be Retired. All Series D Preferred Units which shall have -------------------- been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. (6) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) prior to the Series D Preferred Units, in the payment of distributions or in the distribution of assets upon liquidation, dissolution or winding, if the holders of such class or I-4 series shall be entitled to the receipt of distributions or of amounts distributable upon liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series D Preferred Units; (B) on a parity with the Series D Preferred Units in the payment of distributions and in distribution of assets upon liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit are different from those of the Series D Preferred Units, if the holders of such class or series of Units and the holders of the Series D Preferred Units are entitled to the receipt of distributions and amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of distributions accrued and unpaid per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series D Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; and (D) junior to the Series D Preferred Units, in the payment of distributions in to the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units; (7) Voting. Except as required by law, the Trustee, in its capacity as the ------ holder of the Series D Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (8) Restriction on Ownership. The Series D Preferred Units shall be owned ------------------------ and held solely by the Trustee. (9) General. The rights of the Trustee, in its capacity as the holder of ------- the Series D Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit I shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series D Preferred Units. * * * * I-5 EXHIBIT J DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO SERIES E PREFERRED UNITS The Series E Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit J shall have the respective meanings set forth below: - --------- "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series E Preferred Shares. "Distribution Period" means quarterly periods commencing on January 1, ------------------- April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period. "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding over which the Series E Preferred Units have a preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which Series E Preferred ---------- Units are issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series E Preferred Units have a preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 7(B). ------------ "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of distributions or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, however, that if any funds for any class or series of Junior Units or any class or series of Units ranking on a parity with the Series E Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series E Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. J-1 (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series E Preferred Units, shall be entitled to receive when, as and if authorized or declared by the Trustee out of funds legally available for such purpose, cash distributions in an amount per Series E Preferred Unit equal to 8.375% of the Series E Liquidation Preference (as defined below) per annum (equivalent to $2.09375 per share). Distributions shall begin to accrue and shall be fully cumulative from the Issue Date, whether or not in any Distribution Period or Periods there are funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on each Distribution Date. Accrued and unpaid distributions for any past Distribution Periods may be authorized or declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series E Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series E Preferred Shares. (B) The amount of distributions for each full Distribution Period shall be equal to $0.5234375. The amount of distribution for any Distribution Period on the Series E Preferred Units that represents less than a full quarter of a year shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series E Preferred Units shall not be entitled to any distributions, whether payable in cash, property or securities, in excess of cumulative distributions, as herein provided, on the Series E Preferred Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series E Preferred Units that may be in arrears. (C) So long as any Series E Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any Parity Units for any period unless (i) full cumulative distributions have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Distribution Periods with respect to the Series E Preferred Units and (ii) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the distribution for the current Distribution Period with respect to the Series E Preferred Units. When distributions are not paid in full, or a sum sufficient for the payment thereof is not set apart for payment, on the Series E Preferred Units and any Parity Units as provided above, all distributions declared on the Series E Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accrued and unpaid on the Series E Preferred Units and accrued and unpaid on such Parity Units. (D) So long as any Series E Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution shall be declared or made on Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Units) by the Trust, directly or J-2 indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) full cumulative distributions have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Distribution Periods with respect to the Series E Preferred Units and (ii) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the distribution for the current Distribution Period with respect to any Parity Units. Any distribution payment on the Series E Preferred Units shall first be credited against the earliest accrued but unpaid distribution due which remains payable. (E) No distributions on the Series E Preferred Units shall be declared by the Trustee or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration, payment or setting apart for payment is restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) Upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) is made to or set apart for the holders of Common Units or any other class or series of Units of the Trust now or hereafter issued and outstanding to which the Series E Preferred Units have preference or priority in the distribution of assets on any liquidation, dissolution or winding up of the Trust, the Trustee, in its capacity as holder of the Series E Preferred Units, shall be entitled to receive out of the assets of the Trust legally available for such purpose, liquidating distributions in the amount of Twenty Five Dollars ($25.00) (the "Series E Liquidation Preference") per Series E Preferred Unit plus an amount equal to all distributions (whether or not earned or authorized or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series E Preferred Units shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series E Preferred Units, are insufficient to pay in full such preferential amount with respect to the Series E Preferred Units and the corresponding amount with respect to all Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series E Preferred Units, and the holders of such Parity Units in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (B) Subject to the rights of the holders of Units of any series or class ranking on a parity with or senior to the Series E Preferred Units in the distribution of assets on any liquidation, dissolution or winding up of the Trust, upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, after payment has been made in full to the Trustee, in its capacity as the holder of the Series E Preferred Units, as provided in this Section 3, the holders of any Junior Units shall, subject to any respective terms and provisions applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the J-3 Trustee, in its capacity as the holder of the Series E Preferred Units, shall not be entitled to share therein. (C) For the purposes of this Section 3, (x) a consolidation or merger of the Trust with or into one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary. (4) Redemption Right. ---------------- (A) Except as provided in Section 4(B), the Series E Preferred Units are not redeemable by the Trust prior to August 13, 2004. On and after such date, the Trustee may cause the Trust, at its option, to redeem the Series E Preferred Units, in whole at any time or in part from time to time, for cash at a redemption price and $25.00 per Series E Preferred Unit, plus the amounts indicated in Section 4(A)(iii) below. (i) The Series E Preferred Units shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of shares of Series E Preferred Shares for cash. Such redemption of Series E Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series E Preferred Shares (such date of redemption the "Redemption Date"). (ii) In the event that the Trustee redeems shares of Series E Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series E Preferred Units in exchange for the amount of cash that the Trustee is required to pay pursuant to the terms of the Series E Preferred Shares in connection with such redemption. (iii) Upon any redemption of Series E Preferred Units pursuant to this Section 4, the Trust shall pay all distributions accrued and unpaid thereon, if any, in arrears for any Distribution Period ending on or prior to the Redemption Date. If the Redemption Date falls after a Trust Record Date and prior to the corresponding Distribution Date, then the Trustee, in its capacity as the holder of the Series E Preferred Units being redeemed, shall be entitled to distributions payable on the corresponding Distribution Date notwithstanding the redemption of such Series E Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series E Preferred Units called for redemption. (B) In the event that the Trustee is required to redeem any shares of Series E Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of Series E Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series E Preferred Shares. (5) Shares to be Retired. All Series E Preferred Units which are issued -------------------- and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. J-4 (6) Conversion of Partnership Units. Upon the exercise by any limited ------------------------------- partner of Archstone Communities Limited Partnership, a Delaware limited partnership ("ACLP") of its Exchange Right to exchange such partner's Series E Preferred Limited Partnership Interests in ACLP for Series E Preferred Units, the Series E Preferred Units so issued upon exchange shall automatically, and without further action on the part of the Trustee, the Trust or any such partner, be converted into Series E Preferred Shares and the Trustee shall thereafter own all of the Series E Preferred Units so issued. (7) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series E Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of distributions or amounts distributable on any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series E Preferred Units; (B) on a parity with the Series E Preferred Units in the payment of distributions or in the distribution of assets upon liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit be different from those of the Series E Preferred Units, if the holders of such class or series of Units and the Series E Preferred Units are entitled to the receipt of distributions and amounts distributable on any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of distributions accrued and unpaid per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series E Preferred Units, in the payment of distributions or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; an (D) junior to the Series E Preferred Units, as to the payment of distributions in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units; (8) Voting. Except as required by law, the Trustee, in its capacity as the ------ holder of the Series E Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (9) Restriction on Ownership. The Series E Preferred Units shall be owned ------------------------ and held solely by the Trustee. J-5 (10) General. The rights of the Trustee, in its capacity as the holder of ------- the Series E Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit K shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series E Preferred Units. * * * * J-6 EXHIBIT K DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO SERIES F PREFERRED UNITS The Series F Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit K shall have the respective meanings set forth below: - --------- "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series F Preferred Shares. "Distribution Period" means quarterly periods commencing on January 1, ------------------- April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period. "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding over which the Series F Preferred Units have a preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which Series F Preferred ---------- Units are issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series F Preferred Units have a preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 7(B). ------------ "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of distributions or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, however, that if any funds for any class or series of Junior Units or any class or series of Units ranking on a parity with the Series F Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series F Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. K-1 (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series F Preferred Units, shall be entitled to receive, when, as and if declared by the Trustee, out of funds legally available for such purpose, cash distributions in an amount per Series F Preferred Unit equal to 8.125% of the Series F Liquidation Preference (as defined below) per annum (equivalent to $2.03125 per share). Distributions shall begin to accrue and shall be fully cumulative from the Issue Date, whether or not in any Distribution Period or Periods there are funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on each Distribution Date. Accrued and unpaid distributions for any past Distribution Periods may be authorized or declared and paid at any time for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series F Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series F Preferred Shares. (B) The amount of distributions for each full Distribution Period shall be equal to $0.5078125. The distribution for any Distribution Period on the Series F Preferred Units that represents less than a full quarter of a year shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series F Preferred Units shall not be entitled to any distributions, whether payable in cash, property or securities, in excess of cumulative distributions, as herein provided, on the Series F Preferred Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series F Preferred Units that may be in arrears. (C) So long as any Series F Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any Parity Units for any period unless (i) full cumulative distributions have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Distribution Periods with respect to the Series F Preferred Units and (ii) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the distribution for the current Distribution Period with respect to the Series F Preferred Units. When distributions are not paid in full, or a sum sufficient for the payment thereof is not set apart for payment, on the Series F Preferred Units and any Parity Units as provided above, all distributions declared on the Series F Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accrued and unpaid on the Series F Preferred Units and accrued and unpaid on such Parity Units. (D) So long as any Series F Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution, shall be declared or made on Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Units) by the Trust, directly or K-2 indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) full cumulative distributions have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Distribution Periods with respect to the Series F Preferred Units and (ii) has been or contemporaneously is set apart for the payment of the distribution for the current Distribution Period with respect to any Parity Units. (E) No distributions on the Series F Preferred Units shall be declared by the Trustee or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration, payment or setting apart for payment is restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) Upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) is made to or set apart for the holders of the Common Units or any other class or series of Units of the Trust now or hereafter issued and outstanding to which the Series F Preferred Units have preference or priority in the distribution of assets on any liquidation, dissolution or winding up of the Trust, the Trustee, in its capacity as holder of the Series F Preferred Units, shall be entitled to receive out of assets of the Trust legally available for such purpose, liquidating distributions in the amount of $25.00 (the "Series F Liquidation Preference") per Series F Preferred Unit, plus an amount equal to all distributions (whether or not earned or authorized or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series F Preferred Units, shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series F Preferred Units, are insufficient to pay in full such preferential amount with respect to the Series F Preferred Units and the corresponding amounts with respect to all Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series F Preferred Units, and the holders of all such Parity Units in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (B) Subject to the rights of the holders of Units of any series or class ranking on a parity with or senior to the Series F Preferred Units in the distribution of assets on any liquidation, dissolution or winding up of the Trust, upon any liquidation, dissolution or winding up the Trust, whether voluntary or involuntary, after payment shall have been made in full to the Trustee, in its capacity as the holder of the Series F Preferred Units, as provided in this Section 3, the holders of any Junior Units shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Trustee, in its capacity as the holder of the Series F Preferred Units, shall not be entitled to share therein. K-3 (C) For the purposes of this Section 3, (x) a consolidation or merger of the Trust with or into one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary. (4) Redemption Right. ---------------- (A) Except as provided in Section 4(B), the Series F Preferred Units are not redeemable by the Trust prior to September 27, 2004. On and after such date, the Trustee may cause the Trust, at its option, to redeem the Series F Preferred Units, in whole at any time or in part from time to time, for cash at a redemption price of $25.00 per Series F Preferred Unit, plus the amounts indicated in Section 4(A)(iii) below. (i) The Series F Preferred Units shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of shares of Series F Preferred Shares for cash. Such redemption of Series F Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series F Preferred Shares (such date of redemption the "Redemption Date"). (ii) In the event that the Trustee redeems shares of Series F Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series F Preferred Units in exchange for the amount of cash that the Trustee is required to pay pursuant to the terms of the Series F Preferred Shares in connection with such redemption. (iii) Upon any redemption of Series F Preferred Units pursuant to this Section 4, the Trust shall pay any distributions accrued and unpaid thereon, if any, in arrears for any Distribution Period ending on or prior to the Redemption Date. If the Redemption Date falls after a Trust Record Date and prior to the corresponding Distribution Date, then the Trustee, in its capacity as the holder of the Series F Preferred Units being redeemed, shall be entitled to receive the distribution payable on the corresponding Distribution Date notwithstanding the redemption of such Series F Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series F Preferred Units called for redemption. (B) In the event that the Trustee is required to redeem any shares of Series F Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of Series F Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series F Preferred Shares. (5) Shares to be Retired. All Series F Preferred Units which are issued -------------------- and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. (6) Conversion of Partnership Units. Upon the exercise by any limited ------------------------------- partner of Archstone Communities Limited Partnership II, a Delaware limited partnership ("ACLP-2") of K-4 its Exchange Right to exchange such partner's Series F Preferred Limited Partnership Interests in ACLP-2 for Series F Preferred Units, the Series F Preferred Units so issued upon exchange shall automatically, and without further action on the part of the Trustee, the Trust or any such partner, be converted into Series F Preferred Shares and the Trustee shall thereafter own all of the Series F Preferred Units so issued. (7) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series F Preferred Units, in the payment of distributions or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if the holders of such class or series of Units are entitled to the receipt of distributions or of amounts distributable on any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series F Preferred Units; (B) on a parity with the Series F Preferred Units, in the payment of distributions or the distribution of assets on any liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit are different from those of the Series F Preferred Units, if the holders of such class or series of Units and the holders of Series F Preferred Units are entitled to the receipt of distributions and amounts distributable on any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of distributions accrued and unpaid per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series F Preferred Units, in the payment of distributions or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; an (D) junior to the Series F Preferred Units, in the payment of distributions and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units; (8) Voting. Except as required by law, the Trustee, in its capacity as ------ the holder of the Series F Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (9) Restriction on Ownership. The Series F Preferred Units shall be owned ------------------------ and held solely by the Trustee. (10) General. The rights of the Trustee, in its capacity as the holder of ------- the Series F Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit K shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series F Preferred Units. * * * * K-5 EXHIBIT L DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS AND LIMITATIONS AS TO SERIES G PREFERRED UNITS The Series G Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit L shall have the respective meanings set forth below: - --------- "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series G Preferred Shares. "Distribution Period" means quarterly periods commencing on December ------------------- 26, March 26, June 26 and September 26 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period. "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding over which the Series G Preferred Units have a preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which Series G Preferred ---------- Units are issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series G Preferred Units have a preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 7(B). ------------ "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of distributions or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, however, that if any funds for any class or series of Junior Units or any class or series of Units ranking on a parity with the Series G Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series G Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. L-1 (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series G Preferred Units, shall be entitled to receive, when, as and if declared by the Trustee, out of funds legally available therefor for such purpose, cash distributions per Series G Preferred Unit equal to 8.625% of the Series G Liquidation Preference (as defined below) (equivalent to $2.15625 per share) per annum. Distributions shall begin to accrue and shall be fully cumulative from the Issue Date, whether or not in any Distribution Period or Periods there are funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on each Distribution Date. Accrued and unpaid distributions for any past Distribution Periods may be authorized declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series G Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series G Preferred Shares. (B) The amount of distributions for each full Distribution Period shall be equal to $0.5390625. The distribution for any Distribution Period on the Series G Preferred Units that represents less than a full quarter of a year shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series G Preferred Units shall not be entitled to any distributions, whether payable in cash, property or securities, in excess of cumulative distributions, as herein provided, on the Series G Preferred Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series G Preferred Units that may be in arrears. (C) So long as any Series G Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any Parity Units for any period unless (i) full cumulative distributions have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Distribution Periods with respect to the Series G Preferred Units and (ii) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the distribution for the current Distribution Period with respect to the Series G Preferred Units. When distributions are not paid in full, or a sum sufficient for such payment is not set apart for payment, on the Series G Preferred Units and any Parity Units as provided above, all distributions declared on the Series G Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accrued and unpaid on the Series G Preferred Units and accrued and unpaid on such Parity Units. (D) So long as any Series G Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution shall be declared or made on Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such Junior Units) by the Trust, directly or L-2 indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) full cumulative distributions have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Distribution Periods with respect to the Series G Preferred Units and all past distribution periods with respect to Parity Units and (ii) a sum sufficient for the payment thereof has been paid or contemporaneously is set apart for payment of the distribution for the current Distribution Period with respect to any Parity Units. Any distribution payment on the Series G Preferred Units shall first be credited against the earliest accrued but unpaid distribution due which remains payable. (E) No distributions on the Series G Preferred Units shall be declared by the Trustee or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration, payment or setting apart for payment shall be restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) Upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) made to or set apart for the holders of Common Units or any other class or series of Units of the Trust now or hereafter issued and outstanding to which the Series B Preferred Units have preference or priority in the distribution of assets on any liquidation, dissolution or winding up of the Trust, the Trustee, in its capacity as holder of the Series G Preferred Units, shall be entitled to receive out of assets of the Trust legally available for such purpose, liquidating distributions in the amount of $25.00 (the "Series G Liquidation Preference") per Series G Preferred Unit, plus an amount equal to all distributions (whether or not earned or authorized or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series G Preferred Units shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series G Preferred Units, are insufficient to pay in full such preferential amount with respect to the Series G Preferred Units and the corresponding amounts with respect to all Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series G Preferred Units, and the holders of such other Parity Units in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (B) Subject to the rights of the holders of Units of any series or class ranking on a parity with or senior to the Series G Preferred Units in the distribution of assets on any liquidation, dissolution or winding up of the Trust, upon any liquidation, dissolution or winding up of the Trust, after payment has been made in full to the Trustee, in its capacity as the holder of the Series G Preferred Units, as provided in this Section 3, the holders of any other series or class or classes of Junior Units shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the L-3 Trustee, in its capacity as the holder of the Series G Preferred Units, shall not be entitled to share therein. (C) For the purposes of this Section 3, (x) a consolidation or merger of the Trust with or into one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary. (4) Redemption Right. ---------------- (A) Except as provided in Section 4(B), the Series G Preferred Units are not redeemable prior to March 3, 2005. On and after such date, the Trustee may cause the Trust, at its option, to redeem the Series G Preferred Units, in whole at any time or in part from time to time, for cash at a redemption price of $25.00 per Series G Preferred Unit, plus the amounts indicated in Section 4(A)(iii) below. (i) The Series G Preferred Units shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of shares of Series G Preferred Shares for cash. Such redemption of Series G Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series G Preferred Shares (such date of redemption the "Redemption Date"). (ii) In the event that the Trustee redeems shares of Series G Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series G Preferred Units in exchange for the amount of cash that the Trustee is required to pay pursuant to the terms of the Series G Preferred Shares in connection with such redemption. (iii) Upon any redemption of Series G Preferred Units pursuant to this Section 4, the Trust shall pay all distributions accrued and unpaid thereon if any, in arrears for any Distribution Period ending on or prior to the Redemption Date. If the Redemption Date falls after a Trust Record Date and prior to the corresponding Distribution Date, then the Trustee, in its capacity as the holder of the Series G Preferred Units being redeemed, shall be entitled to receive the distributions payable on the corresponding Distribution Date notwithstanding the redemption of such Series G Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series G Preferred Units called for redemption. (B) In the event that the Trustee is required to redeem any shares of Series G Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of Series G Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series G Preferred Shares. (5) Shares to be Retired. All Series G Preferred Units which are issued -------------------- and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. L-4 (6) Conversion of Partnership Units. Upon the exercise by any limited ------------------------------- partner of Archstone Communities Limited Partnership II, a Delaware limited partnership ("ACLP-2") of its Exchange Right to exchange such partner's Series G Preferred Limited Partnership Interests in ACLP-2 for Series G Preferred Units, the Series G Preferred Units so issued upon exchange shall automatically, and without further action on the part of the Trustee, the Trust or any such partner, be converted into Series G Preferred Shares and the Trustee shall thereafter own all of the Series G Preferred Units so issued. (7) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series G Preferred Units, in the payment of distributions or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if the holders of such class or series of Units are entitled to the receipt of distributions or amounts distributable on any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series G Preferred Units; (B) on a parity with the Series G Preferred Units, in the payment of distributions and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit thereof are different from those of the Series G Preferred Units, if the holders of such class or series of Units and the holders of Series G Preferred Units are entitled to the receipt of distributions and amounts distributable on any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of distributions accrued and unpaid per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series G Preferred Units, in the payment of distributions or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; and (D) junior to the Series G Preferred Units, in the payment of distributions and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units; (8) Voting. Except as required by law, the Trustee, in its capacity as the ------ holder of the Series G Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (9) Restriction on Ownership. The Series G Preferred Units shall be owned ------------------------ and held solely by the Trustee. L-5 (10) General. The rights of the Trustee, in its capacity as the holder of ------- the Series G Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit L shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series G Preferred Units. * * * * L-6 EXHIBIT M DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO SERIES H PREFERRED UNITS The Series H Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit M shall have the respective meanings set forth below: - --------- "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series H Preferred Shares. "Distribution Period" means quarterly periods commencing on January 1, ------------------- April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period, and other than the Distribution Period during which any Series H Preferred Units shall be redeemed pursuant to Section 4, which shall end on and include the date of such redemption. "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding over which the Series H Preferred Units have a preference or priority in both (i) the payment of distributions and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which the Series H Preferred ---------- Units were issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series H Preferred Units have a preference or priority in the payment of distributions or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 7(B). ------------ "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, -------- however, that if any funds for any class or series of Junior Units or any class - ------- or series of Units ranking on a parity with the Series H Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series H Preferred Units shall mean M-1 placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series H Preferred Units, shall be entitled to receive, when, as and if declared by the Trustee, out of funds legally available for the payment of distributions, cumulative preferential distributions payable in cash in an amount per Series H Preferred Unit equal to the greater of (a) 7.549% of the Series H Liquidation Preference (as defined below) per annum (equivalent to $2.02 per Series H Preferred Unit), or (b) the ordinary cash distributions (determined on each Distribution Date) paid on the number of Class A-2 Units, or portion thereof, into which a Series H Preferred Unit is convertible. The distributions referred to in clause (b) of the preceding sentence shall equal the number of Class A-2 Units, or portion thereof, into which a Series H Preferred Unit is convertible, multiplied by the most recent quarterly distribution on a Class A-2 Unit on or before the applicable Distribution Date. If the Trust pays an ordinary cash distribution on the Class A-2 Units with respect to a Distribution Period after the date on which the Distribution Date is declared pursuant to clause (ii) of the definition of Distribution Date and the distribution calculated with respect to clause (b) of the first sentence of this Section 2(A) is greater than the distribution previously declared on the Series H Preferred Units with respect to such Distribution Period, the Trust shall pay an additional distribution in respect of the Series H Preferred Units on the date on which the distribution on the Class A-2 Units is paid, in an amount equal to the difference between (y) the distribution calculated pursuant to clause (b) of the first sentence of this Section 2(A) and (z) the amount of distributions previously declared on the Series H Preferred Units with respect to such Distribution Period. Distributions shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Distribution Period or Periods there shall be funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on each Distribution Date. Accrued and unpaid distributions for any past Distribution Periods may be declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series H Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series H Preferred Shares. Any distribution made on the Series H Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to Series H Preferred Units which remains payable. (B) The amount of distributions for each full Distribution Period shall be equal to $0.505. The amount of distribution for any Distribution Period on the Series H Preferred Units that represents less than a full quarter of a year shall be computed on the basis of a 360-day year of twelve 30-day months. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series H Preferred Units that may be in arrears. (C) So long as any Series H Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart M-2 for payment on any class or series of Parity Units for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series H Preferred Units for all Distribution Periods terminating on or prior to the distribution payment date for such class or series of Parity Units. When distributions are not paid full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions declared upon Series H Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series H Preferred Units and accumulated and unpaid on such Parity Units. (D) So long as any Series H Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such Junior Units) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) the full cumulative distributions on all outstanding Series H Preferred Units and any other Parity Units of the Trust shall have been paid or declared and set apart for payment for all past Distribution Periods with respect to the Series H Preferred Units and all past distribution periods with respect to such Parity Units and (ii) sufficient funds shall have been paid or set apart for the payment of the distribution for the current Distribution Period with respect to the Series H Preferred Units and the current distribution period with respect to such Parity Units. (E) No distributions on the Series H Preferred Units shall be declared by the Trustee or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust shall be made to or set apart for the holders of Junior Units, the Trustee, in its capacity as holder of the Series H Preferred Units, shall be entitled to receive Twenty Seven Dollars and Eight Cents ($27.08) (the "Series H Liquidation Preference") per Series H Preferred Unit plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series H Preferred Units shall not be entitled to any further payment; provided that the distribution payable with respect to the Distribution Period containing the date of final distribution shall be equal to the greater of (i) the distribution provided in clause (a) of M-3 the first sentence of Section 2(A) or (ii) the distribution determined pursuant to clause (b) of the first sentence of Section 2(A) for the preceding Distribution Period. If, upon any such liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series H Preferred Units, shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series H Preferred Units, and the holders of such other Parity Units ratably in accordance with the respective amounts that would be payable on such Series H Preferred Units and such other Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 3, (x) a consolidation or merger of the Trust with one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (B) Subject to the rights of the holders of Units of any series or class ranking on a parity with or prior to the Series H Preferred Units upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the Trustee, in its capacity as the holder of the Series H Preferred Units, as provided in this Section 3, any other series or class or classes of Junior Units shall, subject to any respective terms and provisions applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Trustee, in its capacity as the holder of the Series H Preferred Units, shall not be entitled to share therein. (4) Redemption Right. ---------------- (A) Except as provided in Section 4(B), the Series H Preferred Units shall not be redeemable prior to May 15, 2003. On and after May 15, 2003, the Trustee may cause the Trust, at its option, to redeem the Series H Preferred Units, from funds legally available therefor, in whole at any time or from time to time in part, (x) for Class A-2 Units, subject to the conditions set forth in paragraph (i) below, or (y) for cash in an amount per Series H Preferred Unit equal to the Series H Liquidation Preference plus accrued and unpaid distributions (the "Redemption Price"), in each case subject to the conditions set forth below. (i) The Series H Preferred Units shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of shares of Series H Preferred Shares for Shares or cash, as the case may be. Such redemption of Series H Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series H Preferred Shares (such date of redemption the "Redemption Date"). (ii) In the event that the Trustee redeems shares of Series H Preferred Shares in exchange for Shares, an equivalent number of Series H Preferred Units shall be converted into a number of Class A-2 Units equal to (x) the number of Shares issued by the Trustee in redemption of such shares of Series H Preferred Shares divided by (y) the Conversion Factor. M-4 (iii) In the event that the Trustee redeems shares of Series H Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series H Preferred Units in exchange for the amount of cash that the Trustee is required to pay pursuant to the terms of the Series H Preferred Shares in connection with such redemption. (iv) Upon any redemption of Series H Preferred Units pursuant to this Section 4, the Trust shall pay all accrued and unpaid distributions thereon, if any, to the Redemption Date, without interest. If the Redemption Date falls after a Trust Record Date and prior to the corresponding Distribution Date, then the Trustee, in its capacity as the holder of the Series H Preferred Units being redeemed, shall be entitled to distributions payable on the corresponding Distribution Date notwithstanding the redemption of such Series H Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series H Preferred Units called for redemption. (v) Any Class A-2 Unit issued upon redemption of the Series H Preferred Units shall be validly issued, fully paid and non-assessable. (B) In the event that the Trustee is required to redeem any shares of Series H Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of Series H Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series H Preferred Shares. (5) Shares to be Retired. All Series H Preferred Units which are issued -------------------- and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. (6) Conversion to Class A-2 Units. ----------------------------- (A) In the event that a holder of Series H Preferred Shares exercises its right to convert such Series H Preferred Shares into Shares, then, concurrently therewith, an equivalent number of Series H Preferred Units shall be automatically converted into a number of Class A-2 Units equal to (x) the number of Shares issued upon conversion of such Series H Preferred Shares divided by (y) the Conversion Factor. Any such conversion will be effective at the same time as the conversion of Series H Preferred Shares into Shares is effective. (B) The Trustee, in its capacity as the holder of Series H Preferred Units that are converted pursuant to this Section 4 effective during the period after a Trust Record Date and prior to the opening of business on the corresponding Distribution Date, shall not be entitled to receive the distribution payable on such Series H Preferred Units on such Distribution Date notwithstanding such conversion thereof following the corresponding Trust Record Date and prior to such Distribution Date. M-5 (7) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series H Preferred Units, in the payment of distributions or in the distribution of assets upon liquidation, dissolution or winding up of the Trust, if the holders of such class or series of Units shall be entitled to the receipt of distributions or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series H Preferred Units; (B) on a parity with the Series H Preferred Units in the payment of distributions and in the distribution of assets upon liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit are different from those of the Series H Preferred Units, if the holders of such class or series of Units and the holders of the Series H Preferred Units are entitled to the receipt of distributions and of amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of distributions accrued and unpaid per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series H Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; and (D) junior to the Series H Preferred Units, in the payment of distributions and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units; (8) Voting. Except as required by law, the Trustee, in its capacity as ------ the holder of the Series H Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (9) Restriction on Ownership. The Series H Preferred Units shall be owned ------------------------ and held solely by the Trustee. (10) General. The rights of the Trustee, in its capacity as the holder of ------- the Series H Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit M shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series H Preferred Units. * * * * M-6 EXHIBIT N DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO SERIES I PREFERRED UNITS The Series I Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit N shall have the respective meanings set forth below: - --------- "Distribution Date" means shall mean the 15th day (or if such day is ----------------- not a Business Day, the next Business Day thereafter) of February, May, August and November of each year, commencing February 15, 1998. "Distribution Period" means the periods commencing on, and including, ------------------- February 15, May 15, August 15, and November 15 of each year and ending on the date prior to the next succeeding Distribution Date (other than the Distribution Period during which any Series I Preferred Units shall be redeemed pursuant to Section 5, which shall end on and include the date of such redemption). "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding over which the Series I Preferred Units have a preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which the Series I Preferred ---------- Units were issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series I Preferred Units have a preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 6(B). ------------ "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, -------- however, that if any funds for any class or series of Junior Units or any class - ------- or series of Units ranking on a parity with the Series I Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series I Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. N-1 (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series I Preferred Units, shall be entitled to receive, when, as and if declared by the Trustee, out of funds legally available for the payment of distributions, cumulative preferential distributions payable in cash in an amount per Series I Preferred Unit equal to $7,660 per Unit per annum (the "Distribution Rate"). Distributions shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Distribution Period or Periods there shall be funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on each Distribution Date. Accrued and unpaid distributions for any past Distribution Periods may be declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series I Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series I Preferred Shares. Any distribution made on the Series I Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to Series I Preferred Units which remains payable. (B) The amount of distributions for each full Distribution Period relating to the Series I Preferred Units shall be equal to $1,915. The amount of distribution for any period on the Series I Preferred Units that represents less than a full quarter of a year shall be computed on the basis of a 360-day year of twelve 30-day months. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series I Preferred Units that may be in arrears. (C) So long as any Series I Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Units for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series I Preferred Units for all Distribution Periods terminating on or prior to the distribution payment date for such class or series of Parity Units. When distributions are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions declared upon Series I Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series I Preferred Units and accumulated and unpaid on such Parity Units. (D) So long as any Series I Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such Junior Units) by the N-2 Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) the full cumulative distributions on all outstanding Series I Preferred Units and any other Parity Units of the Trust shall have been paid or declared and set apart for payment for all past Distribution Periods with respect to the Series I Preferred Units and all past distribution periods with respect to such Parity Units and (ii) sufficient funds shall have been paid or set apart for the payment of the distribution for the current Distribution Period with respect to the Series I Preferred Units and the current distribution period with respect to such Parity Units. (F) No distributions on the Series I Preferred Units shall be declared by the Trustee or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust shall be made to or set apart for the holders of Junior Units, the Trustee, in its capacity as holder of the Series I Preferred Units, shall be entitled to the sum of (i) $100,000 per Series I Preferred Unit (the "Series I Liquidation Preference") plus (ii) an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series I Preferred Units shall not be entitled to any further payment. If, upon any such liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series I Preferred Units, shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series I Preferred Units, and the holders of such other Parity Units ratably in accordance with the respective amounts that would be payable on such Series I Preferred Units and such other Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 3, (x) a consolidation or merger of the Trust with one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (B) Subject to the rights of the holders of Units of any series or class or classes of Units ranking on a parity with or prior to the Series I Preferred Units upon any liquidation, dissolution or winding up of the Trust, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the Trustee, in its capacity as the holder of the Series I Preferred Units, as provided in this Section 3, any other series or class or classes of Junior Units shall, subject to the respective terms and provisions (if any) applying thereto, be N-3 entitled to receive any and all assets remaining to be paid or distributed, and the Trustee, in its capacity as the holder of the Series I Preferred Units, shall not be entitled to share therein. (4) Redemption Right. ---------------- In the event that the Trustee is required to redeem or repurchase any shares of Series I Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of Series I Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series I Preferred Shares. (5) Shares to be Retired. All Series I Preferred Units which are issued -------------------- and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. (6) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series I Preferred Units, in the payment of distributions or in the distribution of assets upon liquidation, dissolution or winding up of the Trust, if the holders of such class or series of Units shall be entitled to the receipt of distributions or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series I Preferred Units; (B) on a parity with the Series I Preferred Units, in the payment of distributions and in the distribution of assets upon liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit be different from those of the holders of the Series I Preferred Units, if the holders of such class or series of Units and the holders of the Series I Preferred Units are entitled to the receipt of distributions and of amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of distributions accrued and unpaid per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); the outstanding Series H Preferred Units of the Trustee are Parity Units; (C) junior to the Series I Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; and (D) junior to the Series I Preferred Units, in the payment of distributions and in the distribution of assets upon liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units. (7) Voting. Except as required by law, the Trustee, in its capacity as ------ the holder of the Series I Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (8) Restriction on Ownership. The Series I Preferred Units shall be owned ------------------------ and held solely by the Trustee. N-4 (9) General. The rights of the Trustee, in its capacity as the holder of ------- the Series I Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit N shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series I Preferred Units. * * * * N-5 EXHIBIT O DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS AND LIMITATIONS AS TO SERIES J PREFERRED UNITS The Series J Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit O shall have the respective meanings set forth below: - --------- "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series J Preferred Shares, which date shall not be later than the forty-fifth calendar day after the end of the applicable Distribution Period. "Distribution Period" means quarterly periods commencing on January 1, ------------------- April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period (other than the Distribution Period during which any Series J Preferred Units shall be redeemed pursuant to Section 4, which shall end on and include the date of such redemption). "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding over which the Series J Preferred Units have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which the first Series J ---------- Preferred Units were issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series J Preferred Units have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, -------- however, that if any funds for any class or series of Junior Units or any class - ------- or series of Units ranking on a parity with the Series J Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series J Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. O-1 "Parity Units" has the meaning ascribed thereto in Section 7(B). ------------ (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series J Preferred Units, shall be entitled to receive, when, as and if declared by the Trustee, out of funds legally available for the payment of distributions, cumulative preferential distributions payable in cash in an amount per Series J Preferred Unit equal to the greater of (a) $3.1025 per annum, or (b) the ordinary cash distributions (determined on each Distribution Date) paid on the number of Class A-2 Units, or portion thereof, into which a Series J Preferred Unit is convertible. The distributions referred to in clause (b) of the preceding sentence shall equal the number of Class A-2 Units, or portion thereof, into which a Series J Preferred Unit is convertible, multiplied by the most recent quarterly distribution on a Class A-2 Unit on or before the applicable Distribution Date. If the Trust pays an ordinary cash distribution on the Class A-2 Units with respect to a Distribution Period after the date on which the Distribution Date is declared pursuant to clause (ii) of the definition of Distribution Date and the distribution calculated with respect to clause (b) of the first sentence of this Section 2(A) is greater than the distribution previously declared on the Series J Preferred Units with respect to such Distribution Period, the Trust shall pay an additional distribution in respect of the Series J Preferred Units on the date on which the distribution on the Class A-2 Units is paid, in an amount equal to the difference between (y) the distribution calculated pursuant to clause (b) of the first sentence of this Section 2(A) and (z) the amount of distributions previously declared on the Series J Preferred Units with respect to such Distribution Period. Distributions shall begin to accrue and shall be fully cumulative from the [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Distribution Period or Periods there shall be funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on Distribution Dates. Accrued and unpaid distributions for any past Distribution Periods may be declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series J Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series J Preferred Shares. Any distribution made on the Series J Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to Series J Preferred Units which remains payable. (B) The amount of distributions referred to in clause (a) of the first sentence of Section 2(A) for each full Distribution Period shall be $0.775625. The amount of distributions payable for any period shorter than a full Distribution Period, on the Series J Preferred Units shall be computed on the basis of a 360-day year of twelve 30-day months. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series J Preferred Units that may be in arrears. (C) So long as any Series J Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Units for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum O-2 sufficient for the payment thereof set apart for such payment on the Series J Preferred Units for all Distribution Periods terminating on or prior to the distribution payment date for such class or series of Parity Units. When distributions are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions declared upon Series J Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series J Preferred Units and accumulated and unpaid on such Parity Units. (D) So long as any Series J Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such Junior Units) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) the full cumulative distributions on all outstanding Series J Preferred Units and any other Parity Units of the Trust shall have been paid or declared and set apart for payment for all past Distribution Periods with respect to the Series J Preferred Units and all past distribution periods with respect to such Parity Units and (ii) sufficient funds shall have been paid or set apart for the payment of the distribution for the current Distribution Period with respect to the Series J Preferred Units and the current distribution period with respect to such Parity Units. (E) No distributions on the Series J Preferred Units shall be declared by the Trustee or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust shall be made to or set apart for the holders of Junior Units, the Trustee, in its capacity as holder of the Series J Preferred Units, shall be entitled to receive Thirty-Six Dollars and Fifty Cents ($36.50) (the "Series J Liquidation Preference") per Series J Preferred Unit plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series J Preferred Units, shall not be entitled to any further payment; provided that the distribution payable with respect to the Distribution Period containing the date of final distribution shall be equal to the greater of (i) the distribution provided in clause (a) of the first sentence of Section 2(A) or (ii) the distribution determined pursuant to clause (b) of the first sentence of Section 2(A) for the preceding Distribution Period. If, upon any liquidation, O-3 dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series J Preferred Units, shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series J Preferred Units, and the holders of such other Parity Units ratably in accordance with the respective amounts that would be payable on such Series J Preferred Units and such other Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 3, (x) a consolidation or merger of the Trust with one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (B) Subject to the rights of the holders of Units of any series or class ranking on a parity with or prior to the Series J Preferred Units upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the Trustee, in its capacity as the holder of the Series J Preferred Units, as provided in this Section 3, any other series or class or classes of Junior Units shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Trustee, in its capacity as the holder of the Series J Preferred Units, shall not be entitled to share therein. (4) Redemption Right. ---------------- (A) Except as provided in Section 4(B), the Series J Preferred Units shall not be redeemable by the Trust prior to July 13, 2002. On and after July 13, 2002, the Trustee may cause the Trust, at its option, to redeem the Series J Preferred Units, in whole at any time or from time to time in part, from funds legally available therefor, (x) for Class A-2 Units, subject to the conditions set forth in paragraph (i) below, or (y) for cash in an amount per Series J Preferred Unit equal to the Series J Liquidation Preference plus accrued and unpaid distributions (the "Redemption Price"), in each case subject to the conditions set forth below. (i) The Series J Preferred Units shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of shares of Series J Preferred Shares for Shares or cash, as the case may be. Such redemption of Series J Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series J Preferred Shares (such date of redemption the "Redemption Date"). (ii) In the event that the Trustee redeems shares of Series J Preferred Shares in exchange for Shares, an equivalent number of Series J Preferred Units shall be converted into a number of Class A-2 Units equal to (x) the number of Shares issued by the Trustee in redemption of such shares of Series J Preferred Shares divided by (y) the Conversion Factor. (iii) In the event that the Trustee redeems shares of Series J Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series J Preferred Units in exchange for the amount of cash that the Trustee is O-4 required to pay pursuant to the terms of the Series J Preferred Shares in connection with such redemption. (iv) Upon any redemption of Series J Preferred Units pursuant to this Section 4, the Trust shall pay any accrued and unpaid distributions if any, thereon to the Redemption Date, without interest. If the Redemption Date falls after a Trust Record Date and prior to the corresponding Distribution Date, then the Trustee, in its capacity as the holder of the Series J Preferred Units being redeemed, shall be entitled to distributions payable on the corresponding Distribution Date notwithstanding the redemption of such Series J Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series J Preferred Units called for redemption. (v) Any Class A-2 Unit issued upon redemption of the Series J Preferred Units shall be validly issued, fully paid and non-assessable. (B) In the event that the Trustee is required to redeem any shares of Series J Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of Series J Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series J Preferred Shares. (5) Shares to be Retired. All Series J Preferred Units which are issued -------------------- and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. (6) Conversion to Class A-2 Units. ----------------------------- (A) In the event that a holder of Series J Preferred Shares exercises its right to convert such Series J Preferred Shares into Shares, then, concurrently therewith, an equivalent number of Series J Preferred Units shall be automatically converted into a number of Class A-2 Units equal to (x) the number of Shares issued upon conversion of such Series J Preferred Shares divided by (y) the Conversion Factor. Any such conversion will be effective at the same time as the conversion of Series J Preferred Shares into Shares is effective. (B) The Trustee, in its capacity as the holder of Series J Preferred Units that are converted pursuant to this Section 5 effective during the period after a Trust Record Date and prior to the opening of business on the corresponding Distribution Date, shall not be entitled to receive the distribution payable on such Series J Preferred Units on such Distribution Date notwithstanding such conversion thereof following the corresponding Trust Record Date and prior to such Distribution Date. (7) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series J Preferred Units, in the payment of distributions or in the distribution of assets upon liquidation, dissolution or winding up of the Trust, if the holders of such class or series of Units are entitled to the receipt of distributions or of amounts O-5 distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series J Preferred Units; (B) on a parity with the Series J Preferred Units, in the payment of distributions and in the distribution of assets upon liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit be different from those of the Series J Preferred Units, if the holders of such class or series of Units and the Series J Preferred Units are entitled to the receipt of distributions and of amounts distributable upon any liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid distributions per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series J Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; and (D) junior to the Series J Preferred Units, in the payment of distributions and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units; (8) Voting. Except as required by law, the Trustee, in its capacity as ------ the holder of the Series J Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (9) Restriction on Ownership. The Series J Preferred Units shall be owned ------------------------ and held solely by the Trustee. (10) General. The rights of the Trustee, in its capacity as the holder of ------- the Series J Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit O shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series J Preferred Units. * * * * O-6 EXHIBIT P DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS AND LIMITATIONS AS TO SERIES K PREFERRED UNITS The Series K Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit P shall have the respective meanings set forth below: - --------- "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series K Preferred Shares, which date shall not be later than the forty-fifth calendar day after the end of the applicable Distribution Period. "Distribution Period" means quarterly periods commencing on January 1, ------------------- April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period (other than the Distribution Period during which any Series K Preferred Units shall be redeemed pursuant to Section 4, which shall end on and include the date of such redemption). "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding over which the Series K Preferred Units have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which the first Series K ---------- Preferred Units were issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series K Preferred Units have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 7(B). ------------ "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, -------- however, that if any funds for any class or series of Junior Units or any class - ------- or series of Units ranking on a parity with the Series K Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series K Preferred Units shall mean P-1 placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series K Preferred Units, shall be entitled to receive, when, as and if declared by the Trustee, out of funds legally available for the payment of distributions, cumulative preferential distributions payable in cash in an amount per Series K Preferred Unit equal to the greater of (a)(i) $3.09375 per annum from the first day after the Issue Date up to and including October 1, 2001 and (ii) $3.1875 per annum thereafter, or (b) the ordinary cash distributions (determined on each Distribution Date) paid on the number of Class A-2 Units, or portion thereof, into which a Series K Preferred Unit is convertible. The distributions referred to in clause (b) of the preceding sentence shall equal the number of Class A-2 Units, or portion thereof, into which a Series K Preferred Unit is convertible, multiplied by the most recent quarterly distribution on a Class A-2 Unit on or before the applicable Distribution Date. If the Trust pays an ordinary cash distribution on the Class A-2 Units with respect to a Distribution Period after the date on which the Distribution Date is declared pursuant to clause (ii) of the definition of Distribution Date and the distribution calculated with respect to clause (b) of the first sentence of this Section 2(A) is greater than the distribution previously declared on the Series K Preferred Units with respect to such Distribution Period, the Trust shall pay an additional distribution in respect of the Series K Preferred Units on the date on which the distribution on the Class A-2 Units is paid, in an amount equal to the difference between (y) the distribution calculated pursuant to clause (b) of the first sentence of this Section 2(A) and (z) the amount of distributions previously declared on the Series K Preferred Units with respect to such Distribution Period. Distributions shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Distribution Period or Periods there shall be funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on Distribution Dates. Accrued and unpaid distributions for any past Distribution Periods may be declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series K Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series K Preferred Shares. Any distribution made on the Series K Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to Series K Preferred Units which remains payable. (B) The amount of distributions referred to in clause (a) of the first sentence of Section 2(A) shall be equal to the annual distribution rate payable for each full Distribution Period for the Series K Preferred Units shall be computed by dividing the applicable rate by four. The amount of distributions payable for any period shorter than a full Distribution Period, on the Series K Preferred Units shall be computed on the basis of a 360-day year of twelve 30- day months. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series K Preferred Units that may be in arrears. P-2 (C) So long as any Series K Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Units for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series K Preferred Units for all Distribution Periods terminating on or prior to the distribution payment date for such class or series of Parity Units. When distributions are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions declared upon Series K Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series K Preferred Units and accumulated and unpaid on such Parity Units. (D) So long as any Series K Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such Junior Units) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) the full cumulative distributions on all outstanding Series K Preferred Units and any other Parity Units of the Trust shall have been paid or declared and set apart for payment for all past Distribution Periods with respect to the Series K Preferred Units and all past distribution periods with respect to such Parity Units and (ii) sufficient funds shall have been paid or set apart for the payment of the distribution for the current Distribution Period with respect to the Series K Preferred Units and the current distribution period with respect to such Parity Units. (E) No distributions on the Series K Preferred Units shall be declared by the Trustee or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust shall be made to or set apart for the holders of Junior Units, the Trustee, in its capacity as holder of the Series K Preferred Units, shall be entitled to receive Thirty-Seven Dollars and Fifty Cents ($37.50) (the "Series K Liquidation Preference") per Series K Preferred Unit plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series K Preferred Units, shall not be entitled to any further payment; P-3 provided that the distribution payable with respect to the Distribution Period - -------- containing the date of final distribution shall be equal to the greater of (i) the distribution provided in clause (a) of the first sentence of Section 2(A) or (ii) the distribution determined pursuant to clause (b) of the first sentence of Section 2(A) for the preceding Distribution Period. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series K Preferred Units, shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series K Preferred Units, and the holders of such other Parity Units ratably in accordance with the respective amounts that would be payable on such Series K Preferred Units and such other Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 3, (x) a consolidation or merger of the Trust with one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (B) Subject to the rights of the holders of Units of any series or class ranking on a parity with or prior to the Series K Preferred Units upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the Trustee, in its capacity as the holder of the Series K Preferred Units, as provided in this Section 3, any other series or class or classes of Junior Units shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Trustee, in its capacity as the holder of the Series K Preferred Units, shall not be entitled to share therein. (4) Redemption Right. ---------------- (A) Except as provided in Section 4(B), the Series K Preferred Units shall not be redeemable by the Trust prior to October 1, 2004. On and after October 1, 2004, the Trustee may cause the Trust, at its option, to redeem the Series K Preferred Units, in whole at any time or from time to time in part, from funds legally available therefor, (x) for Class A-2 Units, subject to the conditions set forth in paragraph (i) below, or (y) for cash in an amount per Series K Preferred Unit equal to the Series K Liquidation Preference plus accrued and unpaid distributions (the "Redemption Price"), in each case subject to the conditions set forth below. (i) The Series K Preferred Units shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of shares of Series K Preferred Shares for Shares or cash, as the case may be. Such redemption of Series K Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series K Preferred Shares (such date of redemption the "Redemption Date"). (ii) In the event that the Trustee redeems shares of Series K Preferred Shares in exchange for Shares, an equivalent number of Series K Preferred Units shall be converted into a number of Class A-2 Units equal to (x) the number of Shares issued by the P-4 Trustee in redemption of such shares of Series K Preferred Shares divided by (y) the Conversion Factor. (iii) In the event that the Trustee redeems shares of Series K Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series K Preferred Units in exchange for the amount of cash that the Trustee is required to pay pursuant to the terms of the Series K Preferred Shares in connection with such redemption. (iv) Upon any redemption of Series K Preferred Units pursuant to this Section 4, the Trust shall pay any accrued and unpaid distributions, if any, thereon to the Redemption Date, without interest. If the Redemption Date falls after a Trust Record Date and prior to the corresponding Distribution Date, then the Trustee, in its capacity as the holder of the Series K Preferred Units being redeemed, shall be entitled to distributions payable on the corresponding Distribution Date notwithstanding the redemption of such Series K Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series K Preferred Units called for redemption. (v) Any Class A-2 Unit issued upon redemption of the Series K Preferred Units shall be validly issued, fully paid and non-assessable. (B) In the event that the Trustee is required to redeem any shares of Series K Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of Series K Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series K Preferred Shares. (5) Shares to be Retired. All Series K Preferred Units which are issued -------------------- and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. (6) Conversion to Class A-2 Units. ----------------------------- (A) In the event that a holder of Series K Preferred Shares exercises its right to convert such Series K Preferred Shares into Shares, then, concurrently therewith, an equivalent number of Series K Preferred Units shall be automatically converted into a number of Class A-2 Units equal to (x) the number of Shares issued upon conversion of such Series K Preferred Shares divided by (y) the Conversion Factor. Any such conversion will be effective at the same time as the conversion of Series K Preferred Shares into Shares is effective. (B) The Trustee, in its capacity as the holder of Series K Preferred Units that are converted pursuant to this Section 5 effective during the period after a Trust Record Date and prior to the opening of business on the corresponding Distribution Date, shall not be entitled to receive the distribution payable on such Series K Preferred Units on such Distribution Date notwithstanding such conversion thereof following the corresponding Trust Record Date and prior to such Distribution Date. P-5 (7) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series K Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series of Units are entitled to the receipt of distributions or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series K Preferred Units; (B) on a parity with the Series K Preferred Units, in the payment of distributions and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit are different from those of the Series K Preferred Units, if the holders of such class or series of Units and the holders of the Series K Preferred Units are entitled to the receipt of distributions and of amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of distributions accrued and unpaid per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series K Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; and (D) junior to the Series K Preferred Units, in the payment of distributions and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units; (8) Voting. Except as required by law, the Trustee, in its capacity as ------ the holder of the Series K Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (9) Restriction on Ownership. The Series K Preferred Units shall be owned ------------------------ and held solely by the Trustee. (10) General. The rights of the Trustee, in its capacity as the holder of ------- the Series K Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit P shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series K Preferred Units. * * * * P-6 EXHIBIT Q DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS AND LIMITATIONS AS TO SERIES L PREFERRED UNITS The Series L Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit Q shall have the respective meanings set forth below: - --------- "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series L Preferred Shares, which date shall not be later than the forty-fifth calendar day after the end of the applicable Distribution Period. "Distribution Period" means quarterly periods commencing on January 1, ------------------- April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Distribution Period (other than the Distribution Period during which any Series L Preferred Units shall be redeemed pursuant to Section 4, which shall end on and include the date of such redemption). "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding over which the Series L Preferred Units have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which the first Series L ---------- Preferred Units were issued. "Junior Units" shall mean the Common Units and any other class or ------------ series of Units now or hereafter issued and outstanding over which the Series L Preferred Units have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 7(B). ------------ "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Trustee, the allocation of funds to be so paid on any series or class of Units of the Trust; provided, -------- however, that if any funds for any class or series of Junior Units or any class - ------- or series of Units ranking on a parity with the Series L Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series L Preferred Units shall mean Q-1 placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. (2) Distributions. ------------- (A) The Trustee, in its capacity as the holder of the then outstanding Series L Preferred Units, shall be entitled to receive, when, as and if declared by the Trustee, out of funds legally available for the payment of distributions, cumulative preferential distributions payable in cash in an amount per Series L Preferred Unit equal to the greater of (a)(i) $3.0225 per annum from the first day after the Issue Date up to and including November 1, 2001, and (ii) $3.315 per annum thereafter, or (b) the ordinary cash distributions (determined on each Distribution Date) paid on the number of Class A-2 Units, or portion thereof, into which a Series L Preferred Unit is convertible. The distributions referred to in clause (b) of the preceding sentence shall equal the number of Class A-2 Units, or portion thereof, into which a Series L Preferred Unit is convertible, multiplied by the most recent quarterly distribution on a Class A-2 Unit on or before the applicable Distribution Date. If the Trust pays an ordinary cash distribution on the Class A-2 Units with respect to a Distribution Period after the date on which the Distribution Date is declared pursuant to clause (ii) of the definition of Distribution Date and the distribution calculated with respect to clause (b) of the first sentence of this Section 2(A) is greater than the distribution previously declared on the Series L Preferred Units with respect to such Distribution Period, the Trust shall pay an additional distribution in respect of the Series L Preferred Units on the date on which the distribution on the Class A-2 Units is paid, in an amount equal to the difference between (y) the distribution calculated pursuant to clause (b) of the first sentence of this Section 2(A) and (z) the amount of distributions previously declared on the Series L Preferred Units with respect to such Distribution Period. Distributions shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Distribution Period or Periods there shall be funds of the Trust legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on Distribution Dates. Accrued and unpaid distributions for any past Distribution Periods may be declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the Trustee, in its capacity as the holder of the Series L Preferred Units, on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series L Preferred Shares. Any distribution made on the Series L Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to Series L Preferred Units which remains payable. (B) The amount of distributions referred to in clause (a) of the first sentence of Section 2(A) shall be equal to the annual distribution rate payable for each full Distribution Period for the Series L Preferred Units shall be computed by dividing the applicable rate by four. The amount of distributions payable for any period shorter than a full Distribution Period, on the Series L Preferred Units shall be computed on the basis of a 360-day year of twelve 30- day months. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series L Preferred Units that may be in arrears. Q-2 (C) So long as any Series L Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Units for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series L Preferred Units for all Distribution Periods terminating on or prior to the distribution payment date for such class or series of Parity Units. When distributions are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions declared upon Series L Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series L Preferred Units and accumulated and unpaid on such Parity Units. (D) So long as any Series L Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such Junior Units) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) the full cumulative distributions on all outstanding Series L Preferred Units and any other Parity Units of the Trust shall have been paid or declared and set apart for payment for all past Distribution Periods with respect to the Series L Preferred Units and all past distribution periods with respect to such Parity Units and (ii) sufficient funds shall have been paid or set apart for the payment of the distribution for the current Distribution Period with respect to the Series L Preferred Units and the current distribution period with respect to such Parity Units. (E) No distributions on the Series L Preferred Units shall be declared by the Trustee or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust shall be made to or set apart for the holders of Junior Units, the Trustee, in its capacity as holder of the Series L Preferred Units, shall be entitled to receive Thirty-Nine Dollars ($39.00) (the "Series L Liquidation Preference") per Series L Preferred Unit plus an amount equal to all distributions (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to the Trustee, in its capacity as such holder; but the Trustee, in its capacity as the holder of Series L Preferred Units, shall not be entitled to any further payment; provided that the -------- Q-3 distribution payable with respect to the Distribution Period containing the date of final distribution shall be equal to the greater of (i) the distribution provided in clause (a) of the first sentence of Section 2(A) or (ii) the distribution determined pursuant to clause (b) of the first sentence of Section 2(A) for the preceding Distribution Period. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the Trustee, in its capacity as the holder of Series L Preferred Units, shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the Trustee, in its capacity as the holder of such Series L Preferred Units, and the holders of such other Parity Units ratably in accordance with the respective amounts that would be payable on such Series L Preferred Units and such other Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 3, (x) a consolidation or merger of the Trust with one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (B) Subject to the rights of the holders of Units of any series or class ranking on a parity with or prior to the Series L Preferred Units upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the Trustee, in its capacity as the holder of the Series L Preferred Units, as provided in this Section 3, any other series or class or classes of Junior Units shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the Trustee, in its capacity as the holder of the Series L Preferred Units, shall not be entitled to share therein. (4) Redemption Right. ---------------- (A) Except as provided in Section 4(B), the Series L Preferred Units shall not be redeemable by the Trust prior to November 5, 2005. On and after November 5, 2005, the Trustee may cause the Trust, at its option, to redeem the Series L Preferred Units, in whole at any time or from time to time in part, from funds legally available therefor, (x) for Class A-2 Units, subject to the conditions set forth in paragraph (i) below, or (y) for cash in an amount per Series L Preferred Unit equal to the Series L Liquidation Preference plus accrued and unpaid distributions (the "Redemption Price"), in each case subject to the conditions set forth below. (i) The Series L Preferred Units shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of shares of Series L Preferred Shares for Shares or cash, as the case may be. Such redemption of Series L Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series L Preferred Shares (such date of redemption the "Redemption Date"). (ii) In the event that the Trustee redeems shares of Series L Preferred Shares in exchange for Shares, an equivalent number of Series L Preferred Units shall be converted into a number of Class A-2 Units equal to (x) the number of Shares issued by the Q-4 Trustee in redemption of such shares of Series L Preferred Shares divided by (y) the Conversion Factor. (iii) In the event that the Trustee redeems shares of Series L Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series L Preferred Units in exchange for the amount of cash that the Trustee is required to pay pursuant to the terms of the Series L Preferred Shares in connection with such redemption. (iv) Upon any redemption of Series L Preferred Units pursuant to this Section 4, the Trust shall pay any accrued and unpaid distributions, if any, thereon to the Redemption Date, without interest. If the Redemption Date falls after a Trust Record Date and prior to the corresponding Distribution Date, then the Trustee, in its capacity as the holder of the Series L Preferred Units being redeemed, shall be entitled to distributions payable on the corresponding Distribution Date notwithstanding the redemption of such Series L Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series L Preferred Units called for redemption. (v) Any Class A-2 Unit issued upon redemption of the Series L Preferred Units shall be validly issued, fully paid and non-assessable. (B) In the event that the Trustee is required to redeem any shares of Series L Preferred Shares pursuant to the terms thereof, the Trust shall redeem an equivalent number of Series L Preferred Units for consideration equal to the consideration payable by the Trustee upon redemption of such shares of Series L Preferred Shares. (5) Shares to be Retired. All Series L Preferred Units which are issued -------------------- and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. (6) Conversion to Class A-2 Units. ----------------------------- (A) In the event that a holder of Series L Preferred Shares exercises its right to convert such Series L Preferred Shares into Shares, then, concurrently therewith, an equivalent number of Series L Preferred Units shall be automatically converted into a number of Class A-2 Units equal to (x) the number of Shares issued upon conversion of such Series L Preferred Shares divided by (y) the Conversion Factor. Any such conversion will be effective at the same time as the conversion of Series L Preferred Shares into Shares is effective. (B) The Trustee, in its capacity as the holder of Series L Preferred Units that are converted pursuant to this Section 5 effective during the period after a Trust Record Date and prior to the opening of business on the corresponding Distribution Date, shall not be entitled to receive the distribution payable on such Series L Preferred Units on such Distribution Date notwithstanding such conversion thereof following the corresponding Trust Record Date and prior to such Distribution Date. Q-5 (7) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series L Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series of Units are entitled to the receipt of distributions or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series L Preferred Units; (B) on a parity with the Series L Preferred Units in the payment of distributions and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per Unit are different from those of the Series L Preferred Units, if the holders of such class or series of Units and the holders of the Series L Preferred Units are entitled to the receipt of distributions and of amounts distributable upon any liquidation, dissolution or winding up in proportion to their respective amounts of distributions accrued and unpaid per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series L Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; and (D) junior to the Series L Preferred Units, in the payment of distributions and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units; (8) Voting. Except as required by law, the Trustee, in its capacity as ------ the holder of the Series L Preferred Units, shall not be entitled to vote at any meeting of the Unitholders or for any other purpose or otherwise to participate in any action taken by the Trust or the Unitholders, or to receive notice of any meeting of the Unitholders. (9) Restriction on Ownership. The Series L Preferred Units shall be owned ------------------------ and held solely by the Trustee. (10) General. The rights of the Trustee, in its capacity as the holder of ------- the Series L Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit Q shall be deemed to --------- limit or otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as the holder of the Series L Preferred Units. * * * * Q-6 EXHIBIT R DESIGNATION OF THE PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS AND LIMITATIONS AS TO SERIES M PREFERRED UNITS The Series M Preferred Units shall have the following designations, preferences, rights, powers and duties: (1) Certain Defined Terms. The following capitalized terms used in this --------------------- Exhibit R shall have the respective meanings set forth below: - --------- "Board of Directors" shall mean the Board of Trustees of the Trustee ------------------ or any committee authorized by such Board of Trustees to perform any of its responsibilities with respect to the Series M Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Conversion Price" shall mean the conversion price per Class A Unit ---------------- for which the Series M Preferred Units are convertible, as such Conversion Price may be adjusted pursuant to Section 5. The initial conversion price shall be $19.49 (equivalent to a conversion rate of approximately 1.2827 Class A Units for each Series M Preferred Unit). "Current Market Price" of Class A Units for any day shall equal the -------------------- product of (x) the Conversion Factor then in effect times (y) the last reported sales price for a Share, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices for Shares on such day, regular way, in either case as reported on the New York Stock Exchange ("NYSE") or, if the Shares are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which the Shares are listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the Nasdaq Stock Market ("NASDAQ") or, if the Shares are not quoted on such National Market System, the average of the closing bid and asked prices for the Shares on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for the Shares on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in the Shares selected for such purpose by the Board of Trustees of the Trustee. "Distribution Date" means (i) for any Distribution Period with respect ----------------- to which the Trust pays a distribution on the Class A Units, the date on which such distribution is paid, or (ii) for any Distribution Period with respect to which the Trust does not pay a distribution on the Class A Units, the date set by the Trustee for payment of dividends on the Series M Preferred Shares, which date shall not be later than the forty-fifth calendar day after the end of the applicable Distribution Period. "Distribution Period" means quarterly periods commencing on January 1, ------------------- April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of R-1 the next succeeding Distribution Period (other than the Distribution Period during which any Series M Preferred Units shall be redeemed pursuant to Section 4, which shall end on and include the Redemption Date (as defined in Section 4(B)). "Fair Market Value" shall mean the average of the daily Current Market ----------------- Prices of a Class A Unit on the five (5) consecutive Trading Days selected by the Trustee commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. The term "ex date," when used with respect to any issuance or distribution, means the first day on which the Shares for which Class A Units are redeemable trade regular way, without the right to receive the corresponding issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day's Current Market Price. "Fully Junior Units" shall mean the Common Units and any other class ------------------ or series of Units now or hereafter issued and outstanding over which the Series M Preferred Units have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Funds from Operations" for all dates and periods prior to the Issue --------------------- Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to other Smith Operating Partnership interests or minority interests (as reflected in the financial statements of Smith Realty) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by the National Association of Real Estate Investment Trusts (NAREIT), in its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trustee in good faith. "Funds from Operations," for all dates and periods from and after the Issue Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to Trust interests or minority interests (as reflected in the financial statements of the Trustee) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by NAREIT, in its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trustee in good faith. "Issue Date" shall mean the date on which the first Series H Preferred ---------- Units are issued. "Junior Units" shall mean the Common Units, the Series B Junior ------------ Participating Preferred Units and any other class or series of Units now or hereafter issued and outstanding over which the Series M Preferred Units have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Parity Units" has the meaning ascribed thereto in Section 6(B). ------------ "Smith Operating Partnership" shall mean Charles E. Smith Residential --------------------------- Realty, L.P., formerly a Delaware limited partnership. R-2 "Smith Realty" shall mean Charles E. Smith Residential Realty, Inc., ------------ formerly a Maryland corporation. "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of distribution by the Board of Directors, the allocation of funds to be so paid on any series or class of Units; provided, however, that if any funds for any class or series of Junior Units or any class or series of Units ranking on a parity with the Series M Preferred Units as to the payment of distributions are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series M Preferred Units shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Trading Day" shall mean any day on which the securities in question ----------- (which, in the case of Class A Units, shall be deemed to be Shares) are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the National Market System of NASDAQ, or if such securities are not quoted on such National Market System, in the securities market in which the securities are traded. (2) Distributions. ------------- (A) The holders of the then outstanding Series M Preferred Units shall be entitled to receive, when, as and if declared by the Trustee, out of funds legally available for the payment of distributions, cumulative preferential distributions payable in cash an amount per Series M Preferred Unit equal to the greater of (i) $2.03125 per Series M Preferred Unit or (ii) the ordinary cash distributions (determined on each Distribution Date) paid on the number of Class A Units, or portion thereof, into which a Series M Preferred Unit is convertible. The distributions referred to in clause (ii) of the preceding sentence shall equal the number of Class A Units, or portion thereof, into which a Series M Preferred Unit is convertible, multiplied by the most recent quarterly distribution on a Class A Unit on or before the applicable Distribution Date. If the Trust pays an ordinary cash distribution on the Class A Units with respect to a Distribution Period after the date on which the Distribution Date is declared pursuant to clause (ii) of the definition of Distribution Date and the distribution calculated with respect to clause (ii) of the first sentence of this Section 2(A) is greater than the distribution previously declared on the Series M Preferred Units with respect to such Distribution Period, the Trust shall pay an additional distribution in respect of the Series M Preferred Units on the date on which the distribution on the Class A Units is paid, in an amount equal to the difference between (y) the distribution calculated pursuant to clause (ii) of the first sentence of this Section 2(A) and (z) the amount of distributions previously declared on the Series M Preferred Units with respect to such Distribution Period. Distributions shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Distribution Period or Periods there shall be funds of the Trust legally available for the payment R-3 of such distributions, and shall be payable quarterly, when, as and if declared by the Trustee, in arrears on Distribution Dates. Accrued and unpaid distributions for any past Distribution Periods may be declared and paid at any time and for such interim periods, without reference to any regular Distribution Date, to the holders of the Series M Preferred Units on such date as may be fixed by the Trustee for payment of the corresponding dividend on the Series M Preferred Shares. Any distribution made on the Series M Preferred Units shall first be credited against the earliest accrued but unpaid distribution due with respect to Series M Preferred Units which remains payable. (B) The amount of distributions referred to in clause (i) of the first sentence of Section 2(A) for each full Distribution Period shall be equal to $0.5078125. The amount of distributions payable for any period shorter than a full Distribution Period, on the Series M Preferred Units shall be computed on the basis of a 360-day year of twelve 30-day months. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series M Preferred Units that may be in arrears. (C) So long as any Series M Preferred Units are outstanding, no distributions, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Units for any period unless full cumulative distributions have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series M Preferred Units for all Distribution Periods terminating on or prior to the distribution payment date for such class or series of Parity Units. When distributions are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions declared upon Series M Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series M Preferred Units and accumulated and unpaid on such Parity Units. (D) So long as any Series M Preferred Units are outstanding, no distributions (other than distributions paid solely in Fully Junior Units or options, warrants or rights to subscribe for or purchase Fully Junior Units) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Class A Units made for purposes of an employee incentive or benefit plan of the Trustee, the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Units) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Units), unless in each case (i) the full cumulative distributions on all outstanding Series M Preferred Units and any other Parity Units of the Trust shall have been paid or declared and set apart for payment for all past Distribution Periods with respect to the Series M Preferred Units and all past distribution periods with respect to such Parity Units, (ii) sufficient funds shall have been paid or set apart for the payment of the distribution for the current Distribution Period with respect to the Series M Preferred Units and the current distribution period with respect to such Parity Units and (iii) any obligations of the Trustee in respect of the Series M Preferred Units called for redemption by the Trustee pursuant to Section 4 have been satisfied in full. R-4 (E) No distributions on the Series M Preferred Units shall be declared by the Trustee or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trustee or the Trust, including any agreement relating to indebtedness of either of them, prohibits such declaration, payment, or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (3) Liquidation Preference. ---------------------- (A) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust shall be made to or set apart for the holders of Junior Units, the holders of the Series M Preferred Units shall be entitled to receive Twenty Five Dollars ($25.00) (the "Series M Liquidation Preference") per Series M Preferred Unit plus an amount equal to all distributions (whether or not earned or declared) accumulated, accrued and unpaid thereon to the date of final distribution to such holders; but the holders of the Series M Preferred Units shall not be entitled to any further payment; provided that the distribution payable with respect to the Distribution Period containing the date of final distribution shall be equal to the greater of (i) the distribution provided in clause (i) of the first sentence of Section 2(A) or (ii) the distribution determined pursuant to clause (ii) of the first sentence of Section 2(A) for the preceding Distribution Period. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable to the holders of the Series M Preferred Units shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the holders of the Series M Preferred Units and the holders of such other Parity Units ratably in accordance with the respective amounts that would be payable on such Series M Preferred Units and such other Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 3, (x) a consolidation or merger of the Trust with one or more partnerships, limited liability companies, corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (B) Subject to the rights of the holders of Units of any series or class ranking on a parity with or prior to the Series M Preferred Units upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the holders of the Series M Preferred Units as provided in this Section 3, any other series or class or classes of Junior Units shall, subject to any respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series M Preferred Units shall not be entitled to share therein. (4) Redemption Right Relating to Series M Preferred Units. ----------------------------------------------------- (A) General Provisions. ------------------ (i) Except as provided in Section 4(D), the Series M Preferred Units shall not be redeemable by the Trust prior to September 13, 2004. At any time on or after R-5 September 13, 2004, the Trustee may cause the Trust to redeem the Series M Preferred Units, in whole or in part, pro rata in proportion to the aggregate number of Series M Preferred Units held by each holder (as nearly as may be), from funds legally available therefor, for cash in an amount per Series M Preferred Unit equal to the Series M Liquidation Preference plus accrued and unpaid distributions, in each case subject to the conditions set forth below. (ii) Upon any redemption of Series M Preferred Units, the Trust shall pay any accrued and unpaid distributions with respect to the Series M Preferred Units being redeemed for any Distribution Period ending on or prior to the Redemption Date. If the Redemption Date falls after a dividend payment record date with respect to the Series M Preferred Shares and prior to the corresponding Distribution Date, then the holders of the Series M Preferred Units being redeemed shall be entitled to distributions payable on the corresponding Distribution Date notwithstanding the redemption of such Series M Preferred Units before such Distribution Date. Except as provided above, the Trust shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series M Preferred Units called for redemption. (iii) If full cumulative distributions on the Series M Preferred Units and any other class or series of Parity Units of the Trust have not been declared and paid or declared and set apart for payment, the Series M Preferred Units may not be redeemed under this Section 4 in part and the Trustee may not purchase or acquire Series M Preferred Units, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Series M Preferred Units. (B) Redemption of Series M Preferred Units held by the Trustee. ---------------------------------------------------------- (i) The Series M Preferred Units held by the Trustee shall be redeemed only if the Trustee shall concurrently therewith redeem an equivalent number of Series M Preferred Shares for cash. Such redemption of Series M Preferred Units shall occur substantially concurrently with the redemption by the Trustee of such Series M Preferred Shares (such date of redemption, (the "Redemption Date"). (ii) In the event that the Trustee redeems shares of Series M Preferred Shares for cash (including payments of cash in lieu of fractional Shares), the Trust shall redeem a like number of Series M Preferred Units in exchange for the amount of cash that the Trustee is required to pay pursuant to the terms of the Series M Preferred Shares in connection with such redemption. (C) Redemption of Series M Preferred Units held by Persons other than ----------------------------------------------------------------- the Trustee. - ----------- (i) The Trustee shall cause the Trust to redeem the Series M Preferred Units held by Persons other than the Trustee concurrently with the redemption of Series M Preferred Units held by the Trustee and substantially concurrently with the redemption by the Trustee of Series M Preferred Shares on the Redemption Date. R-6 (ii) Notice of the redemption of any Series M Preferred Units under this Section 4(C) shall be sent by facsimile and by overnight courier at the facsimile number and address provided by the holder to the Trustee to such holder of record of Series M Preferred Units to be redeemed at the address of each such holder as shown on the Trustee's records, not less than 30 nor more than 60 days prior to the Redemption Date. Neither the failure to send any notice required by this paragraph (ii), nor any defect therein or in the sending thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was sent in the manner herein provided shall be conclusively presumed to have been duly given on the date sent whether or not the holder receives the notice. Each such sent notice shall state, as appropriate: (1) the Redemption Date; (2) the number of Series M Preferred Units to be redeemed and, if fewer than all the units held by such holder are to be redeemed, the number of Series M Preferred Units to be redeemed from such holder; (3) the redemption price; (4) the then-current Conversion Price; and (5) that distributions on the units to be redeemed shall cease to accrue on such Redemption Date except as otherwise provided herein. Notice having been mailed as aforesaid, from and after the Redemption Date (unless the Trustee shall fail to make available an amount of cash necessary to effect such redemption), (i) except as otherwise provided herein, distributions on the Series M Preferred Units so called for redemption shall cease to accrue, (ii) such Series M Preferred Units shall no longer be deemed to be held by such holder, and (iii) all rights of the holders thereof as holders of Series M Preferred Units of the Trust shall cease (except the rights to convert and to receive the cash payable upon such redemption, without interest thereon and to receive any distributions payable thereon). The Trustee's obligation to provide cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Redemption Date, the Trustee shall deposit with a bank or trust company (which may be an affiliate of the Trustee) that has an office in the Borough of Manhattan, City of New York, and that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $250,000,000, necessary for such redemption, in trust, with irrevocable instructions that such cash be applied to the redemption of the Series M Preferred Units so called for redemption. No interest shall accrue for the benefit of the holders of Series M Preferred Units to be redeemed on any cash so set aside by the Trustee. Subject to applicable escheat laws, any such cash unclaimed at the end of two years from the Redemption Date shall revert to the general funds of the Trustee, after which reversion the holders of such Series M Preferred Units so called for redemption shall look only to the general funds of the Trustee for the payment of such cash. As promptly as practicable after the surrender in accordance with such notice of certificates for any Series M Preferred Units so redeemed, such Series M Preferred Units shall be exchanged for any cash (without interest thereon) for which such Series M Preferred Units have been redeemed. (D) If fewer than all the outstanding Series M Preferred Units are to be redeemed, Series M Preferred Units to be redeemed shall be selected by the Trustee from outstanding Series M Preferred Units not previously called for redemption pro rata in proportion to the aggregate number of Series M Preferred Units held by each holder (as nearly as may be), including the Trustee. R-7 (5) Conversion to Class A Units. --------------------------- (A) Conversion by Persons other than the Trustee. Holders of Series M -------------------------------------------- Preferred Units (other than the Trustee) shall have the right to convert all or a portion of such Series M Preferred Units into Class A-1 Units as follows: (i) Subject to and upon compliance with the provisions of this Section 5, a holder of Series M Preferred Units shall have the right, at any time, at his or her option, to convert such Series M Preferred Units into the number of Class A-1 Units obtained by dividing the aggregate Liquidation Preference of such Series M Preferred Units (exclusive of accrued but unpaid dividends) by the Conversion Price (as in effect at the time and on the date provided for in the last paragraph of paragraph (ii) of this Section 5(A)); provided, however, that the right to convert Series M Preferred Units called for - -------- ------- redemption pursuant to Section 4 shall terminate at the close of business on the fifth Business Day prior to the Redemption Date fixed for such redemption, unless the Trustee shall default in making payment of the cash payable upon such redemption under Section 4. (ii) In order to exercise the conversion right, the holder of each Series M Preferred Unit (other than the Trustee) to be converted shall surrender the certificate representing such Series M Preferred Unit, accompanied by written notice to the Trustee that the holder thereof elects to convert such Series M Preferred Units. Unless the Class A-1 Units issuable on conversion are to be issued in the same name as the name in which such Series M Preferred Unit is registered, each Series M Preferred Unit surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Trustee, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Trustee demonstrating that such taxes have been paid). Holders of Series M Preferred Units at the close of business on a distribution record date shall be entitled to receive the distribution payable on such Series M Preferred Units on the corresponding Distribution Date notwithstanding the conversion thereof following such distribution record date and prior to such Distribution Date. However, Series M Preferred Units to be converted during the period between the close of business on any distribution record date and the opening of business on the corresponding Distribution Date (except Series M Preferred Units converted after the issuance of notice of redemption with respect to a Redemption Date during such period, such Series M Preferred Units being entitled to such distribution on the Distribution Date) must be accompanied by payment of an amount equal to the distribution payable on such Series M Preferred Units on such Distribution Date. A holder of Series M Preferred Units (other than the Trustee) on a distribution record date who (or whose transferee) tenders the notice for conversion of any such Series M Preferred Units into Class A-1 Units on the corresponding Distribution Date will receive the distribution payable by the Trustee on such Series M Preferred Units on such date, and the converting holder need not include payment of the amount of such distribution upon tender of such notice for conversion of Series M Preferred Units. Except as provided above, the Trustee shall make no payment or allowance for unpaid distributions, whether or not in arrears, on converted shares or for distributions on the Class A-1 Units issued upon such conversion. R-8 As promptly as practicable after the surrender of certificates representing the Series M Preferred Units, the Trustee shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full Class A Units issuable upon the conversion of such Series M Preferred Units in accordance with provisions of this Section 5(A), and any fractional interest in respect of a Class A-1 Unit arising upon such conversion shall be settled as provided in paragraph (iii) of this Section 5(A). Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series M Preferred Units shall have been received by the Trustee (and if applicable, payment of an amount equal to the distribution payable on such Series M Preferred Units shall have been received by the Trustee as described above), and the person or persons in whose name or names any certificate or certificates for Class A-1 Units shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the Class A-1 Units represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date unless the transfer books of the Trust shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such notice of conversion is received by the Trustee. (iii) No fractional Class A Units or scrip representing fractions of Class A Units shall be issued upon conversion of the Series M Preferred Units. Instead of any fractional interest in a Class A Unit that would otherwise be issuable upon the conversion of a Series M Preferred Unit, the Trustee shall pay to the holder of such Class A Units an amount in cash based upon the Current Market Price of the Class A Units on the Trading Day immediately preceding the date of conversion. If more than one Series M Preferred Unit shall be surrendered for conversion at one time by the same holder, the number of full Class A Units issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series M Preferred Units so converted. (iv) The Conversion Price shall be adjusted from time to time as follows: (a) If the Trust shall after the Issue Date (1) make a distribution on its Units in Class A Units, (B) subdivide its outstanding Class A Units into a greater number of Units, (C) combine its outstanding Class A Units into a smaller number of Units or (D) issue any Units by reclassification of its Class A Units, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of Class A Unitholders entitled to receive such distribution or at the opening of business on the Business Day next following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series M Preferred Units (other than the Trustee) thereafter surrendered for conversion shall be entitled to receive the number of Class A Units that such holder would have owned or have been entitled to receive after the happening of any of the events described above as if such Series M Preferred Units had been converted immediately prior to the record date in the case of a distribution or the R-9 effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subparagraph (a) shall become effective immediately after the opening of business on the Business Day next following the record date (except as provided in paragraph (viii) below) in the case of a distribution and shall become effective immediately after the opening of business on the Business Day next following the effective date in the case of a subdivision, combination or reclassification. (b) If the Trust shall issue after the Issue Date rights, options or warrants to all holders of Class A Units entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Class A Units at a price per share less than 94% (100% if a stand-by underwriter is used and charges the Trust a commission) of the Fair Market Value per Class A Unit on the record date for the determination of Class A Unitholders entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the Business Day next following such record date shall be adjusted to equal the price determined by multiplying (1) the Conversion Price in effect immediately prior to the opening of business on the Business Day next following the date fixed for such determination by (2) a fraction, the numerator of which shall be the sum of (x) the number of Class A Units outstanding on the close of business on the date fixed for such determination and (y) the number of Units that the aggregate proceeds to the Trust from the exercise of such rights, options or warrants for Class A Units would purchase at 94% of such Fair Market Value (or 100% in the case of a stand- by underwriting), and the denominator of which shall be the sum of (x) the number of Class A Units outstanding on the close of business on the date fixed for such determination and (y) the number of additional Class A Units offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in paragraph (viii) below). In determining whether any rights, options or warrants entitle the holders of Class A Units to subscribe for or purchase Class A Units at less than 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), there shall be taken into account any consideration received by the Trust upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined by the Trust. (c) If the Trust shall distribute to all holders of its Class A Units any securities of the Trust (other than Class A Units) or evidence of its indebtedness or assets (excluding cumulative cash distributions paid with respect to the Class A Units or Class A Units of Smith Operating Partnership after December 31, 1998 which are not in excess of the following: the sum of (1) the Trust's cumulative undistributed Funds from Operations at December 31, 1998 plus (2) the cumulative amount of Funds from Operations, as determined by the Trust, after December 31, 1998, minus (3) the cumulative amount of distributions accrued or paid in respect of the Series M Preferred Units or any other class or series of Preferred Units or of Smith Operating Partnership after September 13, 1999) or rights, options or warrants to subscribe for or purchase any of its securities (excluding those rights, options and warrants issued to all holders of Class A Units entitling them for a period expiring within 45 days after the record date referred to in subparagraph (b) above to subscribe for or purchase Class A Units, which rights and warrants are referred to in and treated under subparagraph (b) above) (any of the foregoing being hereinafter in this subparagraph (c) collectively called the "Securities" and R-10 individually a "Security"), then in each such case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (i) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of Class A Unitholders entitled to receive such distribution by (ii) a fraction, the numerator of which shall be the Fair Market Value per Class A Unit on the record date mentioned below less the then fair market value (as determined by the Trust whose determination shall be conclusive), of the portion of the Securities or assets or evidences of indebtedness so distributed or of such rights, options or warrants applicable to one Class A Unit, and the denominator of which shall be the Fair Market Value per Class A Unit on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the Business Day next following (except as provided in paragraph (viii) below) the record date for the determination of Class A Unitholders entitled to receive such distribution. For the purposes of this subparagraph (c), the distribution of a Security, which is distributed not only to the holders of the Class A Units on the date fixed for the determination of Class A Unitholders entitled to such distribution of such Security, but also is distributed with each Class A Unit delivered to a Person converting a Series M Preferred Unit after such determination date, shall not require an adjustment of the Conversion Price pursuant to this subparagraph (c); provided that on the date, if any, on which a person converting a Series M Preferred Unit would no longer be entitled to receive such Security with a Class A Unit (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred and the Conversion Price shall be adjusted as provided in this subparagraph (c) (and such day shall be deemed to be "the date fixed for the determination of the Class A Unitholders entitled to receive such distribution" and "the record date" within the meaning of the two preceding sentences). (d) In case a tender or exchange offer (which term shall not include open market repurchases by the Trust) made by the Trust or any subsidiary of the Trust for all or any portion of the Class A Units shall expire and such tender or exchange offer shall involve the payment by the Trust or such subsidiary of consideration per Class A Unit having a fair market value (as determined in good faith by the Trust, whose determination shall be conclusive and described in a resolution of the Board of Directors on behalf of the Trust), at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer, that exceeds the Current Market Price per Class A Unit on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph, by a fraction of which the numerator shall be the number of Class A Units outstanding (including any tendered or exchanged shares) at the Expiration Time, multiplied by the Current Market Price per Class A Unit on the Trading Day next succeeding the Expiration Time, and the denominator shall be the sum of (1) the fair market value (determined as aforesaid) of the aggregate consideration payable to Class A Unitholders based upon the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all units validly tendered or exchanged and not withdrawn as of the Expiration Time (the units deemed so accepted, up to any maximum, being referred to as the "Purchased Units") and (2) the product of the number of Common Units outstanding (less any Purchased Units) at the Expiration Time and the Current Market Price per Class A Unit on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. R-11 (e) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments that by reason -------- ------- of this subparagraph (e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, -------- further, that any adjustment shall be required and made in accordance with the - ------- provisions of this Section 5(A) (other than this subparagraph (e)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Class A Units. Notwithstanding any other provisions of this Section 5(A), the Trust shall not be required to make any adjustment of the Conversion Price for the issuance of any Class A Units pursuant to any plan providing for the reinvestment of distributions or interest payable on securities of the Trust and the investment of additional optional amounts in Class A Units under such plan. All calculations under this Section 5(A) shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. Anything in this paragraph (e) to the contrary notwithstanding, the Trust shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this paragraph (e), as it in its discretion shall determine to be advisable in order that any distributions in Units, subdivision of Units, reclassification or combination of Units, distribution of rights or warrants to purchase Units or securities, or distribution of other assets (other than cash distributions) hereafter made by the Trust to its Unitholders shall not be taxable. (v) If the Trust shall be a party to any transaction (including without limitation a merger, statutory share exchange, self tender offer for all or substantially all of its Class A Units, sale of all or substantially all of the Trust's assets or recapitalization of the Class A Units and excluding any transaction as to which subparagraph (iv)(a) of this Section 5(A) applies) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which all or substantially all of the Trust's Class A Units are converted into the right to receive units, securities or other property (including cash or any combination thereof), each Series M Preferred Unit (other than those owned by the Trustee) which is not redeemed or converted into the right to receive Units, securities or other property prior to such Transaction shall thereafter be convertible into the kind and amount of Units, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Class A Units into which one Series M Preferred Unit was convertible immediately prior to such Transaction, assuming such holder of Class A Units (1) is not a Person with which the Trust consolidated or into which the Trust merged or which merged into the Trust or to which such sale or transfer was made, as the case may be ("Constituent Person"), or an affiliate of a Constituent Person and (2) failed to exercise his rights of election, if any, as to the kind or amount of Units, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of Units, securities and other property (including cash) receivable upon such Transaction is not the same for each Class A Unit held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-Electing Unit"), then for the purpose of this paragraph (v) the kind and amount of Units, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Unit shall be deemed to be the kind and amount so receivable per Unit by a plurality of the Non-Electing Units). The Trust shall not be a party to any Transaction unless the terms of R-12 such Transaction are consistent with the provisions of this paragraph (v), and it shall not consent or agree to the occurrence of any Transaction until the Trust has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series M Preferred Units that will contain provisions enabling the holders of the Series M Preferred Units that remain outstanding after such Transaction to convert into the consideration received by holders of Class A Units at the Conversion Price in effect immediately prior to such Transaction. The provisions of this paragraph (v) shall similarly apply to successive Transactions. (vi) If: (1) the Trust shall declare a distribution (or any other distribution) on its Class A Units (other than cash distributions paid with respect to the Class A Units or on the Class A Units of Smith Operating Partnership after December 31, 1998 not in excess of the sum of the Trust's cumulative undistributed Funds from Operations at December 31, 1998, plus the cumulative amount of Funds from Operations, as determined by the Trust, after December 31, 1998, minus the cumulative amount of distributions accrued or paid in respect of the Series M Preferred Units or any other class or series of Preferred Units of the Trust or of Smith Operating Partnership after September 13, 1999); or (2) the Trust shall authorize the granting to all holders of Class A Units of rights, options or warrants to subscribe for or purchase any Units of any class or any other rights, options or warrants; or (3) there shall be any reclassification of the Class A Units (other than an event to which subparagraph (iv)(a) of this Section 5(A) applies) or any merger to which the Trust is a party and for which approval of any Unitholders of the Trust is required, or a self tender offer by the Trust for all or substantially all of its outstanding Class A Units or the sale or transfer of all or substantially all of the assets of the Trust as an entirety; or (4) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Trust; then the Trustee shall cause to be mailed to the holders of Series M Preferred Units at their addresses as shown on the records of the Trustee, as promptly as possible, but at least 10 days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such distribution or granting of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Class A Units of record to be entitled to such distribution or rights, options or warrants are to be determined or (B) the date on which such reclassification, merger, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Class A Units of record shall be entitled to exchange their Class A Units for securities or other property, if any, deliverable upon such reclassification, merger, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this Section 5(A). R-13 (vii) Whenever the Conversion Price is adjusted as herein provided, the Trust shall promptly file in its records an officer's certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date of such adjustment and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series M Preferred Units at such holder's last address as shown on the records of the Trustee. (viii) In any case in which paragraph (iv) of this Section 5(A) provides that an adjustment shall become effective on the day next following the record date for an event, the Trust may defer until the occurrence of such event (1) issuing to the holder of any Series M Preferred Unit converted after such record date and before the occurrence of such event the additional Class A Units issuable upon such conversion by reason of the adjustment required by such event over and above the Class A Units issuable upon such conversion before giving effect to such adjustment and (2) paying to such holder any amount of cash in lieu of any fraction pursuant to paragraph (iii) of this Section 5(A). (ix) There shall be no adjustment of the Conversion Price in case of the issuance of any Units in a reorganization, acquisition or other similar transaction except as specifically set forth in this Section 5(A). If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this Section 5(A), only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (x) If the Trust shall take any action affecting the Class A Units, other than action described in this Section 5(A), that in the opinion of the Trust would materially and adversely affect the conversion rights of the holders of the Series M Preferred Units, the Conversion Price for the Series M Preferred Units may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Trust, in its sole discretion, may determine to be equitable in the circumstances. (xi) The Trust covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Class A Units, for the purpose of effecting conversion of the Series M Preferred Units, the full number of Class A Units deliverable upon the conversion of all outstanding Series M Preferred Units not theretofore converted. For purposes of this paragraph (xi), the number of Class A Units that shall be deliverable upon the conversion of all outstanding Series M Preferred Units shall be computed as if at the time of computation all such outstanding Series M Preferred Units were held by a single holder. The Trust covenants that any Class A Units issued upon conversion of the Series M Preferred Units shall be validly issued and fully paid. Before taking any action that would cause an adjustment reducing the Conversion Price below the then-par value of the Class A Units deliverable upon conversion of the Series M Preferred Units, the Trust will take any R-14 action that, in the opinion of its counsel, may be necessary in order that the Trust may validly and legally issue fully paid Class A Units at such adjusted Conversion Price. The Trust shall endeavor to comply with all federal and state securities laws and regulations thereunder in connection with the issuance of any securities that the Trust shall be obligated to deliver upon conversion of the Series M Preferred Units. In addition to any legend required the Agreement, the certificates evidencing such securities shall bear such legends restricting transfer thereof in the absence of registration under applicable securities laws or an exemption therefrom as the Trust may in good faith deem appropriate. (xii) The Trust will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Class A Units or other securities or property on conversion of the Series M Preferred Units pursuant hereto; provided, however, that the Trust shall not be required -------- ------- to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Class A Units or other securities or property in a name other than that of the holder of the Series M Preferred Units to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid. (B) Conversion by the Trustee. ------------------------- (i) In the event that a holder of Series M Preferred Shares exercises its right to convert such Series M Preferred Shares into Shares, then, concurrently therewith, an equivalent number of Series M Preferred Units shall be automatically converted into a number of Class A-2 Units equal to (x) the number of Shares issued upon conversion of such Series M Preferred Shares divided by (y) the Conversion Factor. Any such conversion will be effective at the same time as the conversion of Series M Preferred Shares into Shares is effective. (ii) The Trustee, as a holder of Series M Preferred Units that are converted pursuant to this Section 5 effective during the period after a Trust Record Date and prior to the opening of business on the corresponding Distribution Date, shall not be entitled to receive the distribution payable on such Series M Preferred Units on such Distribution Date notwithstanding such conversion thereof following the corresponding Trust Record Date and prior to such Distribution Date. (6) Ranking. Any class or series of Units shall be deemed to rank: ------- (A) senior to the Series M Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series of Units are entitled to the receipt of distributions or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series M Preferred Units; (B) on a parity with the Series M Preferred Units in the payment of distributions and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, whether or not the distribution rates, distribution payment dates or redemption or R-15 liquidation prices per Unit are different from those of the Series M Preferred Units, if the holders of such class or series of Units and the holders of the Series M Preferred Units are entitled to the receipt of distributions and of amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of accrued and unpaid distributions per Unit or liquidation preferences, without preference or priority to each other ("Parity Units"); (C) junior to the Series M Preferred Units, in the payment of distributions or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series of Units is Junior Units; and (D) junior to the Series M Preferred Units, in the payment of distributions and in the distribution of assets upon liquidation, dissolution or winding up of the Trust, if such class or series of Units is Fully Junior Units. (7) Voting. ------ (A) Voting of Holders of Series M Preferred Units. So long as any --------------------------------------------- Series M Preferred Units are outstanding, in addition to any other vote or consent of Series M Preferred Unitholders required by law or by the Agreement, the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the holders of the Series M Preferred Units given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) Any amendment, alteration or repeal of any of the provisions of the Agreement that materially and adversely affects the voting powers, rights or preferences of the holders of the Series M Preferred Units; provided, -------- however, that the amendment of the provisions of the Agreement so as to - ------- authorize or create or to increase the authorized amount of, any Fully Junior Units, Junior Units that are not senior in any respect to the Series M Preferred Units or any Parity Units shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series M Preferred Units; or (ii) A merger of the Trust into another entity, or a merger of another entity into the Trust, unless in each such case each Series M Preferred Unit (i) shall remain outstanding without a material and adverse change to its terms and rights or (ii) shall be converted into or exchanged for convertible preferred units of the surviving entity (or in the case of a forward or reverse triangular merger, convertible preferred units of the entity whose securities are issued in exchange for securities of the Trust) having preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption thereof identical to that of a Series M Preferred Unit (except for changes that do not materially and adversely affect the holders of the Series M Preferred Units (other than the Trustee)); or (iii) The authorization, reclassification or creation of, or the increase in the authorized amount of, any units of any class or any security convertible into units of any class ranking prior to the Series M Preferred Units in the distribution of assets on any liquidation, dissolution or winding up of the Trust or in the payment of distributions; or R-16 (iv) Any increase in the authorized number of Series M Preferred Units or decrease in the authorized number of Series M Preferred Units below the number of units then issued and outstanding; provided, however, that no such -------- ------- vote of the holders of Series M Preferred Units shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such prior units or convertible security is to be made, as the case may be, provision is made for the redemption of all Series M Preferred Units at the time outstanding to the extent such redemption is authorized by Section 4 of this Designation. For purposes of the foregoing provisions of this Section 7, each Series M Preferred Unit shall have one (1) vote per Series M Preferred Unit. Except as otherwise required by applicable law or as set forth herein, the Series M Preferred Units shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any Trust action. (8) Repurchase of Series M Preferred Units. In the event that the Trustee -------------------------------------- is required to repurchase any shares of Series M Preferred Shares, the Trust shall repurchase an equivalent number of Series M Preferred Units for consideration equal to the consideration payable by the Trustee upon repurchase of such shares of Series M Preferred Shares. (9) Shares to be Retired. All Series M Preferred Units which are issued -------------------- and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued Units of the Trust, without designation as to class or series. (10) General. The rights of the Trustee, in its capacity as a holder of ------- Series M Preferred Units, are in addition to and not in limitation on any other rights or authority of the Trustee, in any other capacity, under the Agreement. In addition, nothing contained in this Exhibit R shall be deemed to limit or --------- otherwise restrict any rights or authority of the Trustee under the Agreement, other than in its capacity as a holder of Series M Preferred Units. * * * * R-17 EX-2.1(C) 5 dex21c.txt FORM OF AMENDED AND RESTATED BYLAWS EXHIBIT C ---------------- ARCHSTONE-SMITH OPERATING TRUST BYLAWS ARTICLE I. MEETINGS OF SHAREHOLDERS Section 1. Place. All meetings of shareholders of Archstone-Smith Operating Trust (the "Trust") shall be held at the principal office of the Trust or at such other place within the United States as shall be stated in the notice of the meeting. The shares of beneficial interest of the Trust are referred to in these Bylaws as "Units" and the shareholders are referred to herein as "Unitholders," in conformity with the Amended and Restated Declaration of Trust of the Trust. Section 2. Annual Meetings. Failure to hold an annual meeting does not invalidate the Trust's existence or affect any otherwise valid acts of the Trust Section 3. Special Meetings. The Chairman of the Board, President, Chief Executive Officer or Board of Trustees may call a special meeting of the Unitholders. Requests by Unitholders for special meetings shall state the purpose of such meeting and the matters proposed to be acted on at such meeting. The Secretary shall inform the requesting Unitholders of the reasonably estimated cost of preparing and mailing notice of the meeting and, upon payment to the Trust by such Unitholders of such costs, the Secretary shall give notice of the meeting. Unless requested by the Unitholders entitled to cast a majority of the votes entitled to be cast at such meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any meeting of Unitholders held during the preceding twelve months. The Board has the sole power to fix (i) the record date for determining Unitholders entitled to notice of and to vote at the special meeting and (ii) the date, time and place of the special meeting. Section 4. Notice. Notice of any meeting may be given in any manner permitted by Maryland law. If mailed, notices of meetings of Unitholders shall be deemed to be given when deposited in the United States mail addressed to the Unitholder at his or her post office address as it appears on the records of the Trust, with postage thereon prepaid. Section 5. Scope of Notice. Any business of the Trust may be transacted at an annual meeting of Unitholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of Unitholders except as specifically designated in the notice. Section 6. Waiver of Notice. Whenever any notice of a meeting of Unitholders is required to be given pursuant to the Trust's Declaration of Trust (as amended, supplemented or restated from time to time, the "Declaration of Trust") or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the Unitholder or Unitholders entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any Unitholder at any meeting shall constitute a waiver of notice of such meeting. Section 7. Organization. At every meeting of Unitholders, the Chairman of the Board, if there is one (or any Co-Chairman of the Board, if there is more than one), shall conduct the meeting or, in the case of vacancy in office or absence of the Chairman of the Board (or all Co-Chairmen of the Board), one of the following officers present shall conduct the meeting in the order stated: the President, the Managing Directors in their order of rank and seniority, the Vice Presidents in their order of rank and seniority, or a chairman chosen by the Unitholders entitled to cast a majority of the votes which all Unitholders present in person or by proxy are entitled to cast, shall act as chairman, and the Secretary, or, in his or her absence, an Assistant Secretary, or in the absence of both the Secretary and Assistant Secretaries, a person appointed by the chairman shall act as secretary. At any Unitholders' meeting, the chairman shall determine the construction or interpretation of these Bylaws, or any part thereof, and the ruling of the chairman shall be final. Section 8. Quorum. Unless otherwise provided in the Declaration of Trust or these Bylaws, with respect to any matter to be considered at any meeting of Unitholders, the presence in person or by proxy of Unitholders entitled to cast a majority of all the votes entitled to be cast with respect to such matter shall constitute a quorum. If a quorum is not present at any meeting of the Unitholders, the Unitholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn such meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at such meeting. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. A plurality of all the votes cast by Unitholders entitled to vote with respect to the election of Trustees at a meeting duly called at which a quorum is present shall be sufficient to elect a Trustee. Section 9. Proxies. A Unitholder may cast the votes entitled to be cast by the Units of the Trust owned of record by him, either in person or by proxy in any manner authorized by law, by the Unitholder or by his or her duly authorized attorney in fact. Such proxy shall be filed with the Secretary before or at the time of the meeting. A Unitholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, an authorization by telegram, cablegram, datagram, electronic mail or any other electronic or telephonic means to the person authorized to act as proxy or to any other person authorized to receive the proxy authorization on behalf of the person authorized to act as proxy, including a proxy solicitation firm or proxy support service organization. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Section 10. Voting of Units by Certain Holders. (a) Units Held by an Entity. Units registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such Units pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which 2 case such person may vote such Units. Any director or other fiduciary may vote Units registered in his or her name as such fiduciary, either in person or by proxy. (b) Units Held by Certain Persons. Units registered in the name of a person adjudged incompetent may be voted and all rights incident thereto may be exercised only by his guardian, in person or by proxy. Units registered in the name of a deceased person may be voted and all rights incident thereto may be exercised only by his executor or administrator, in person or by proxy. Units registered in the name of a minor may be voted and all rights incident thereto may be exercised by his guardian, in person or by proxy, or in the absence of such representation by his guardian, by the minor, in person or by proxy, whether or not the Trust has notice, actual or constructive, of the minority or the appointment of a guardian, and whether or not a guardian has in fact been appointed. (c) Units Held by Two or More Persons. Units registered in the names of two or more persons shall be voted or represented in accordance with the vote or consent of the majority of the persons in whose names the Units stand. If only one such person is present in person or by proxy, he or she may vote all the Units, and all the Units standing in the names of such persons are represented for the purpose of determining a quorum. This procedure also applies to the voting of Units by two or more administrators, executors, trustees or other fiduciaries, unless the instrument or order of court appointing them otherwise directs. (d) Units Held by the Trust. Units of the Trust directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding Units entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding Units at any given time. (e) Certifications of Beneficial Ownership. The Board of Trustees (the "Board") may adopt by resolution a procedure by which a Unitholder may certify in writing to the Trust that any Units registered in the name of the Unitholder are held for the account of a specified person other than the Unitholder. The resolution shall set forth: the class of Unitholders who may make the certification; the purpose for which the certification may be made; the form of certification; the information to be contained in it; if the certification is with respect to a record date or closing of the Unit transfer books, the time after the record date or closing of the Unit transfer books within which the certification must be received by the Trust; and any other provisions with respect to the procedure which the Board considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the Unitholder of record of the specified Units in place of the Unitholder who makes the certification. Section 11. Inspectors. At any meeting of Unitholders, the chairman of the meeting may, or upon the request of any Unitholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of Units represented at the meeting based on their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and 3 fairness to all the Unitholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of Units represented at the meeting and the results of the voting shall be prima facie evidence thereof. Section 12. Action Without Meetings. Any action required or permitted to be taken at a meeting of Unitholders may be taken without a meeting if there is filed with the records of Unitholders' meetings a unanimous written consent which sets forth the action and is signed by each Unitholder entitled to vote on the matter. Section 13. Nominations and Proposals by Unitholders. (a) Annual Meetings of Unitholders. (1) Nominations of persons for election to the Board and the proposal of business to be considered by the Unitholders may be made at an annual meeting of Unitholders (i) pursuant to the Trust's notice of a meeting, (ii) by or at the direction of the Board or (iii) by any Unitholder of the Trust who was a Unitholder of record at the time of the giving of notice provided for in this Section 12(a) and at the time of the annual meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 12(a). (2) For nominations or other business to be properly brought before an annual meeting by a Unitholder pursuant to clause (iii) of paragraph (a)(1) of this Section 12, the Unitholder must have given timely notice thereof in writing to the Secretary and such nomination or other business must otherwise be a proper matter for action by Unitholders. To be timely, a Unitholder's notice shall be delivered to the Secretary at the principal executive offices of the Trust not less than 90 days nor more than 120 days prior to the first anniversary of the date of the proxy statement released to Unitholders in connection with the preceding year's annual meeting of Unitholders; provided, however, that if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary of the preceding year's annual meeting, notice by the Unitholder to be timely must be so delivered (x) not more than 120 days prior to the first anniversary of the date of the proxy statement released to Unitholders in connection with the preceding year's annual meeting nor less than 90 days prior to the first anniversary of the date of the proxy statement released to Unitholders in connection with the preceding year's annual meeting or (y) not later than the close of business on the tenth day following the day on which public announcement of the date of such meeting is first made by the Trust. Such Unitholder's notice shall set forth (i) as to each person whom the Unitholder proposes to nominate for election or reelection as a Trustee all information relating to such person which is required to be disclosed in solicitations of proxies for election of Trustees, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Trustee if elected); (ii) as to any other business which the Unitholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for 4 conducting such business at the meeting and any material interest in such business of such Unitholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the Unitholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such Unitholder, as they appear on the Trust's books, and of such beneficial owner, (y) the number of Units of each class of the Trust which are owned beneficially and of record by such Unitholder and such beneficial owner and (z) in the case of a nomination, (A) a description of all arrangements or understandings between such Unitholder 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 Unitholder, (B) a representation that such Unitholder intends to appear in person or by proxy at the meeting, if there is a meeting, to nominate the persons named in its notice and (C) any other information relating to such Unitholder 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. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 12 to the contrary, if the number of Trustees to be elected to the Board is increased and there is no public announcement by the Trust naming all of the nominees for Trustee or specifying the size of the increased Board at least 100 days prior to the first anniversary of the date of the proxy statement released to Unitholders in connection with the preceding year's annual meeting of Unitholders, a Unitholder's notice required by this Section 12(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Trust not later than the close of business on the tenth day following the day on which such public announcement is first made by the Trust. (b) Special Meetings of Unitholders. Only such business shall be conducted at a special meeting of Unitholders as shall have been brought before the meeting pursuant to the Trust's notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of Unitholders at which Trustees are to be elected (i) pursuant to the Trust's notice of meeting, (ii) by or at the direction of the Board or (iii) provided that the Board has determined that Trustees shall or may be elected at such special meeting, by any Unitholder of the Trust who was a Unitholder of record both at the time of giving of notice provided for in this Section 12(b) and at the time of the special meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 12(b). If the Trust calls a special meeting of Unitholders for the purpose of electing one or more Trustees to the Board, any such Unitholder may nominate a person or persons (as the case may be) for election to such position as specified in the Trust's notice of meeting, if the Unitholder's notice containing the information required by paragraph (a)(2) of this Section 12 shall be delivered to the Secretary at the principal executive offices of the Trust (A) not more than 120 days prior to such special meeting nor less than 90 days prior to such special meeting or (B) not later than the close of business on the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. 5 (c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 12 shall be eligible to serve as Trustees and only such business shall be conducted at a meeting of Unitholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 12. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed in accordance with the procedures set forth in this Section 12 and, if any proposed nomination or business is not in compliance with this Section 12, to declare that such nomination or proposal shall be disregarded. (2) For purposes of this Section 12, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Trust with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Section 12, a Unitholder shall also comply with all applicable requirements of Maryland law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 12. Nothing in this Section 12 shall be deemed to affect any rights of Unitholders to request inclusion of, nor any rights of the Trust to omit, proposals in the Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Section 14. Voting by Ballot. Voting on any question or in any election may be by voice unless the presiding officer shall order or any Unitholder shall demand that voting be by ballot. ARTICLE II. TRUSTEES Section 1. Annual And Regular Meetings. An annual meeting of the Board shall be held immediately after and at the same place as the annual meeting of Unitholders, no notice other than this bylaw being necessary. The Board may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Board without other notice than such resolution. Section 2. Special Meetings. Special meetings of the Board may be called by or at the request of the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or by a majority of the Trustees then in office. The person or persons authorized to call special meetings of the Board may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Board called by them. Section 3. Notice. Notice of any special meeting of the Board shall be delivered personally or by telephone, facsimile transmission, United States mail or courier to each Trustee at his or her business or residence address. Notice by personal delivery, by telephone or a facsimile transmission shall be given at least two days prior to the meeting. Notice by mail shall be given at 6 least five days prior to the meeting and shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Telephone notice shall be deemed to be given when the Trustee is personally given such notice in a telephone call to which he is a party. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Trust by the Trustee and receipt of a completed transmission indicating receipt. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board need be stated in the notice, unless specifically required by statute or these Bylaws. Section 4. Waiver of Notice. Whenever any notice of a meeting of the Board or any committee thereof is required to be given pursuant to the Declaration of Trust or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the Trustee or Trustees entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any Trustee at any meeting shall constitute a waiver of notice of such meeting. Section 5. Organization. A majority of the Board may designate or elect a Trustee to preside at Board meetings. In the absence of such designation or election, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one) or the Chief Executive Officer shall preside at Board meetings; in his absence, the Trustees present at each meeting shall elect one of the Trustees present as chairman. All rules of conduct adopted and used at Board meetings shall be determined by the chairman, whose ruling on all procedural matters shall be final. Section 6. Quorum. A majority of the Trustees shall constitute a quorum for the transaction of business at any meeting of the Board of Trustees, provided that if less than a quorum of Trustees is present at a meeting, a majority of the Trustees present may adjourn the meeting from time to time without further notice, and further provided that if, pursuant to the Declaration of Trust or these Bylaws, the vote of a majority of a particular group of Trustees is required for action, a quorum must also include a majority of such group. The Trustees present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Trustees to leave less than a quorum. Section 7. Voting at Meetings. Voting at Board meetings may be conducted orally, by show of hands, or, if requested by any Trustee, by written ballot. The results of all voting shall be recorded by the Secretary in the minute book. Section 8. Telephone Meetings. Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 9. Compensation. Trustees shall not receive any stated salary for their services as Trustees but, by resolution of the Board, may receive fixed sums per year and/or per meeting and/or per visit to real property owned or to be acquired by the Trust and for any service or activity 7 they performed or engaged in as Trustees. Trustees may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they performed or engaged in as Trustees; but nothing herein contained shall be construed to preclude any Trustees from serving the Trust in any other capacity and receiving compensation therefor. Section 10. Distributions. Dividends and other distributions upon the shares of beneficial interest of the Trust may be authorized and declared by the Trustees, subject to the provisions of law and the Declaration of Trust. In determining the amount of any distribution, the Trustees may establish, modify, and reverse such reserves for contingencies (including, without limitation, for equalizing distributions, for property repair and maintenance, or for such other purposes as the Trustees shall determine to be appropriate) as they shall determine in good faith to be appropriate. Section 11. Investment Policy. Subject to the provisions of the Declaration of Trust, the Board may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Trust as it shall deem appropriate in its sole discretion. Section 12. Loss of Deposits. No Trustee shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association or other institution with whom moneys or shares have been deposited. Section 13. Surety Bonds. Unless required by law, no Trustee shall be obligated to give any bond or surety or other security for the performance of any of his or her duties. Section 14. Reliance. Each Trustee, officer, employee and agent of the Trust shall, in the performance of his or her duties with respect to the Trust, be fully justified and protected with regard to any act or failure to act in reliance in good faith on the books of account or other records of the Trust, on an opinion of counsel or on reports made to the Trust by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Board or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee. Section 15. Certain Rights of Trustees, Officers, Employees And Agents. The Trustees shall have no responsibility to devote their full time to the affairs of the Trust. Any Trustee or officer, employee or agent of the Trust, in his or her personal capacity or in a capacity as an affiliate, employee or agent of any other person, or otherwise, may have business interests and engage in business activities similar to or in addition to or in competition with those of or relating to the Trust. Section 16. Duties of Trustees. Except to the extent that the Trustees are subject to a different standard under Maryland law or the Declaration of Trust, the Trustees shall perform their duties as Trustees or members of committees of Trustees in accordance with Section 2-405.1 of the Maryland General Corporation Law and may rely on information, opinions, reports, or statements as contemplated by Section 2-405.1. 8 Section 17. Presumption of Assent. A Trustee who is present at a meeting of the Board of Trustees at which action on any matter is taken on behalf of the Trust shall be presumed to have assented to such action unless such Trustee announces his or her dissent at the meeting and (a) such Trustee's dissent is entered into the minutes of the meeting, (b) such Trustee files his or her written dissent to such action with the secretary of the meeting before adjournment thereof, or (c) such Trustee forwards his or her written dissent, by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, to the secretary of the meeting or the Secretary of the Trust within 24 hours after the meeting is adjourned. Such right to dissent shall not apply to a trustee who voted in favor of such action or failed to make his or her dissent known at the meeting. ARTICLE III COMMITTEES Section 1. Number, Tenure And Qualifications. The Board may appoint from among its members an Executive Committee, an Audit Committee, an Executive Compensation Committee, an Investment Committee and other committees, composed of one or more Trustees, to serve at the pleasure of the Board. Section 2. Meetings. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The Board may designate a chairman of any committee and such chairman or any two members of any committee may fix the time and place of its meeting unless the Board shall otherwise provide. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another Trustee to act in the place of such absent member. Each committee shall keep minutes of its proceedings. Section 3. Telephone Meetings. Members of a committee of the Board may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 4. Informal Action by Committees. Any action required or permitted to be taken at any meeting of a committee of the Board may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee. Section 5. Vacancies. Subject to the provisions hereof, the Board shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee. ARTICLE IV. OFFICERS Section 1. General Provisions. The officers of the Trust shall be elected annually by the Board at the first meeting of the Board held after each annual meeting of Unitholders, except that 9 the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one) or the Chief Executive Officer may appoint a President, a Chief Operating Officer, a Chief Financial Officer, a Treasurer, a President of each division of the Trust, a Chairman of each division of the Trust, and one or more Managing Directors, Vice Presidents, Assistant Secretaries and Assistant Treasurers, or such other officers as the Board, the Chairman of the Board or the Chief Executive Officer shall deem proper. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his or her successor is elected and qualifies or until his or her death, resignation or removal in the manner hereinafter provided. Any two or more offices may be held by the same person. In its discretion, the Board may leave unfilled any office except that of Chairman of the Board (or Co-Chairman of the Board, if there is more than one) and Secretary. Any two offices except President and Vice President may be held concurrently by the same person. Section 2. Resignation. Any officer of the Trust may resign at any time by giving written notice of his or her resignation to the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the Secretary. Any resignation shall take effect at any time subsequent to the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Trust. Section 3. Vacancies. A vacancy in any office may be filled by the Board for the balance of the term. Section 4. Chairman of The Board. The Chairman of the Board (or the Co-Chairmen of the Board in the order of their election, if there is more than one) shall also serve as the Chief Executive Officer and, as such, shall have general supervision, direction and control of the business and affairs of the Trust, subject to the control of the Board, shall preside at meetings of Unitholders and shall have such other functions, authority and duties as customarily appertain to the office of the chief executive of a business corporation or as may be prescribed by the Board. Section 5. Chief Executive Officer. The Chief Executive Officer, if elected, shall be the chief executive officer of the Trust and, as such, shall have general supervision, direction and control of the business and affairs of the Trust, subject to the control of the Board, shall preside at meetings of Unitholders and shall have such other functions, authority and duties as customarily appertain to the office of the chief executive of a business corporation or as may be prescribed by the Board or the Chairman of the Board. Section 6. President. The President shall have such functions, authority and duties as may be prescribed by the Board or the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one). Section 7. Managing Director. The Managing Director (or the Managing Directors, if there is more than one), shall have such functions, authority and duties, and shall have such 10 additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 8. Chief Operating Officer. The Chief Operating Officer shall have such functions, authority and duties, and have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 9. Chief Financial Officer. The Chief Financial Officer shall have the custody of the funds and securities of the Trust and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all moneys and other valuable effects in the name and to the credit of the Trust in such depositories as may be designated by the Board and shall perform such other duties as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 10. President of a Division. Each President of a division of the Trust shall have such functions, authority and duties, and shall have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 11. Chairman of a Division. Each Chairman of a division of the Trust shall have such functions, authority and duties, and shall have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 12. Vice Presidents. Each Vice President shall have such functions, authority and duties, and have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer, the President or any Managing Director. Section 13. Secretary. The Secretary shall keep a record of all proceedings of the Unitholders of the Trust and of the Board and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice, if any, of all meetings of the Unitholders and shall perform such other duties as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. The Secretary shall have custody of the corporate seal of the Trust and the Secretary or, in the absence of the Secretary, any Assistant Secretary shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by the signature of the Secretary or any Assistant Secretary. The Board may give general authority to any other officer to affix the seal of the Trust and to attest such affixing of the seal. 11 Section 14. Assistant Secretary. The Assistant Secretary, or if there is more than one, the Assistant Secretaries in the order determined by the Board (or if there is no such determination, then in the order of their election), shall, in the absence of the Secretary or if the Secretary is unable or refuses to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer, the President or the Secretary. Section 15. Treasurer. The Treasurer shall have such functions, authority and duties, and have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 16. Assistant Treasurer. The Assistant Treasurer, or if there is more than one, the Assistant Treasurers in the order determined by the Board (or if there is no such determination, then in the order of their election), shall, in the absence of the Treasurer or if the Treasurer is unable or refuses to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer, the President or the Treasurer. Section 17. Salaries. The salaries and other compensation of the officers shall be fixed from time to time by the Board and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that he or she is also a Trustee. Section 18. Execution of Documents. A person who holds more than one office in the Trust may not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer. Section 19. Bonds. The Board may require any officer, agent or employee of the Trust to give a bond to the Trust, conditioned on the faithful discharge of his or her duties, with one or more sureties and in such amount as may be satisfactory to the Board. ARTICLE V. INDEMNIFICATION Section 1. Procedure. Any indemnification, or payment of expenses in advance of the final disposition of any proceeding, shall be made promptly, and in any event within 60 days, upon the written request of the Trustee or officer entitled to seek indemnification (the "Indemnified Party"). The right to indemnification and advances hereunder shall be enforceable by the Indemnified Party in any court of competent jurisdiction, if (i) the Trust denies such request, in whole or in part, or (ii) no disposition thereof is made within 60 days. The Indemnified Party's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be reimbursed by the Trust. It shall be a defense to any action for advance of expenses that (a) a determination has been made that the 12 facts then known to those making the determination would preclude indemnification or (b) the Trust has not received both (i) an undertaking as required by law to repay such advances if it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the Indemnified Party of such Indemnified Party's good faith belief that the standard of conduct necessary for indemnification by the Trust has been met. Section 2. Exclusivity, Etc. The indemnification and advance of expenses provided by the Declaration of Trust and these Bylaws shall not be deemed exclusive of any other rights to which a person seeking indemnification or advance of expenses may be entitled under any law (common or statutory), or any agreement, vote of Unitholders or disinterested Trustees or other provision which is consistent with law, both as to action in his or her official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Trust, shall continue in respect of all events occurring while a person was a Trustee or officer after such person has ceased to be a Trustee or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification and advancement of expenses under the Declaration of Trust and these Bylaws shall be deemed to be a contract between the Trust and each Trustee or officer of the Trust who serves or served in such capacity at any time while such provisions are in effect. Nothing herein shall prevent the amendment of these Bylaws, provided that no such amendment shall diminish the rights of any person hereunder with respect to events occurring or claims made before its adoption or as to claims made after its adoption in respect of events occurring before its adoption. Any repeal or modification of these Bylaws shall not in any way diminish any rights to indemnification or advancement of expenses of such Trustee or officer of the obligations of the Trust arising hereunder with respect to events occurring, or claims made, while these Bylaws or any provision hereof is in effect. ARTICLE VI. CONTRACTS AND ACCOUNTING Section 1. Contracts. The Board may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Trust and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document executed by one or more of the Trustees or by an authorized person shall be valid and binding on the Board and on the Trust when authorized or ratified by action of the Board. Section 2. Checks And Drafts. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer or agent of the Trust in such manner as shall from time to time be determined by the Board. Section 3. Deposits. All funds of the Trust not otherwise employed shall be deposited from time to time to the credit of the Trust in such banks, trust companies or other depositories as the Board may designate. Section 4. Books and Records. The Trust shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its Unitholders and Board 13 and of any executive or other committee when exercising any of the powers of the Board. The books and records of the Trust may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. The original or a certified copy of the Bylaws shall be kept at the principal office of the Trust. Section 5. Fiscal Year. The fiscal year of the Trust shall be the twelve months ending December 31 in each year, unless otherwise provided by the Board. ARTICLE VII SHARES Section 1. Certificates. Each Unitholder shall be entitled to a certificate or certificates which shall represent and certify the number of Units of each class held by him or her in the Trust; provided, however, that the Board may provide by resolution or resolutions that some or all of any class or series of Units shall be uncertificated. Each certificate shall be signed by the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the President or a Vice President and countersigned by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be sealed with the seal, if any, of the Trust. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the Trust shall, from time to time, issue several classes of Units, each class may have its own number series. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Each certificate representing Units which are restricted as to their transferability or voting powers, which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Trust, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. If the Trust has authority to issue Units of more than one class, the certificate shall contain on the face or back a full statement or summary of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of each class of Units and, if the Trust is authorized to issue any preferred or special class in series, the differences in the relative rights and preferences between the Units of each series to the extent they have been set and the authority of the Board to set the relative rights and preferences of subsequent series. In lieu of such statement or summary, the certificate may state that the Trust will furnish a full statement of such information to any Unitholder upon request and without charge. If any class of Units is restricted by the Trust as to transferability, the certificate shall contain a full statement of the restriction or state that the Trust will furnish information about the restrictions to the Unitholder on request and without charge. Section 2. Transfers. Upon surrender to the Trust or the transfer agent of the Trust of a Unit certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Trust shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction on its books. Notwithstanding the foregoing, transfers of Units of any class will be subject in all respects to the Declaration of Trust and all of the terms and conditions contained therein. 14 Section 3. Replacement Certificate. Any officer designated by the Board may direct a new certificate to be issued in place of any certificate previously issued by the Trust alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, an officer designated by the Board may, in his or her discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner's legal representative to advertise the same in such manner as he or she shall require and/or to give bond, with sufficient surety, to the Trust to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate. Section 4. Closing of Transfer Books or Fixing of Record Date. (a) Fixing of Record Date. The Board may set, in advance, a record date for the purpose of determining Unitholders entitled to notice of or to vote at any meeting of Unitholders or determining Unitholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of Unitholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days, and in the case of a meeting of the Unitholders not less than ten days, before the date on which the particular action requiring such determination of Unitholders of record is to be held or taken. In lieu of fixing a record date, the Board may provide that the Unit transfer books shall be closed for a stated period but not longer than 20 days. (b) If Record Date Not Fixed. If no record date is fixed and the Unit transfer books are not closed for the determination of Unitholders, the record date for the determination of Unitholders entitled to receive a payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Board, declaring the dividend or allotment of rights, is adopted. (c) Record Dates for Adjourned Meetings. When a determination of Unitholders entitled to vote at any meeting of Unitholders has been made as provided in the Declaration of Trust, such determination shall apply to any adjournment thereof, except when the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in which case a new record date shall be determined as set forth in the Declaration of Trust. (d) Unit Transfers After Record Date. Except where the Board fixes a new record date for any adjourned meeting as provided above, any Unitholder who was a Unitholder on the original record date shall be entitled to receive notice of and to vote at a meeting of Unitholders or any adjournment thereof and to receive a dividend or allotment of rights even though he or she has since such date disposed of his or her Units, and no Unitholder becoming a Unitholder after such date shall be entitled to receive notice of or to vote at such meeting or any adjournment thereof or to receive such dividend or allotment of rights. 15 Section 5. Unit Ledger. The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate Unit ledger containing the name and address of each Unitholder and the number of Units of each class held by such Unitholder. The Trust shall be entitled to treat the holder of record of any Unit as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Unit or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland. Section 6. Fractional Units; Issuance of Units. The Board may issue fractional Units or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Declaration of Trust or these Bylaws to the contrary, the Board may issue units consisting of different securities of the Trust. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Trust, except that the Board may provide that, for a specified period, securities of the Trust issued in such unit may be transferred on the books of the Trust only in such unit. ARTICLE VIII. EXEMPTION FROM CONTROL SHARE ACQUISITION ACT The provisions of Title 3, Subtitle 7 of the Maryland General Corporation Law (the Maryland Control Share Acquisition Act), or any successor statute, shall not apply to any acquisition by any person of Units of the Trust. This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw and consistent with applicable law, apply to any prior or subsequent control share acquisition. ARTICLE IX. AMENDMENT The Trustees shall have the exclusive power to adopt, alter or repeal any provisions of these Bylaws. ARTICLE X. SEAL Section 1. Seal. The Board may adopt a suitable seal, bearing the name of the Trust, which shall be in the charge of the Secretary. The Board may authorize one or more duplicate seals and provide for the custody thereof. Section 2. Affixing Seal. Whenever the Trust is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the signature of the person authorized to execute the document on behalf of the Trust. 16 EX-2.1(D) 6 dex21d.txt AMENDED AND RESTATED DECLARATION OF TRUST EXHIBIT D ------------------- NEW GARDEN RESIDENTIAL TRUST AMENDED AND RESTATED DECLARATION OF TRUST ================================================================================ TABLE OF CONTENTS =================
ARTICLE I. THE TRUST................................................................... 1 Section 1. Name............................................................. 1 Section 2. Resident Agent................................................... 2 Section 3. Nature of Trust.................................................. 2 Section 4. Powers and Purposes.............................................. 2 Section 5. Conflicts of Interest............................................ 2 ARTICLE II. SHARES..................................................................... 3 Section 1. Shares of Beneficial Interest.................................... 3 Section 2. Series A Preferred Shares........................................ 5 Section 3. Series B Junior Participating Preferred Shares................... 5 Section 4. Series C Preferred Shares........................................ 5 Section 5. Series D Preferred Shares........................................ 5 Section 6. Series E Preferred Shares........................................ 5 Section 7. Series F Preferred Shares........................................ 6 Section 8. Series G Preferred Shares........................................ 6 Section 9. Series H Preferred Shares........................................ 6 Section 10. Series I Preferred Shares........................................ 6 Section 11. Series J Preferred Shares........................................ 6 Section 12. Series K Preferred Shares........................................ 6 Section 13. Series L Preferred Shares........................................ 6 Section 14. Series M Preferred Shares........................................ 7 Section 15. Sale of Shares................................................... 7 Section 16. General Nature................................................... 7 Section 17. Acquisition of Shares............................................ 7 Section 18. Transferability; ................................................ 8 (a) Definitions...................................................... 8 (b) Ownership Limitation............................................ 11 (c) Excess Shares................................................... 13 (d) Prevention of Transfer.......................................... 17 (e) Notice to Trust................................................. 17 (f) Information for Trust........................................... 17 (g) Other Action by Board........................................... 18 (h) Ambiguities..................................................... 18 (i) Modification of Existing Holder Limits.......................... 18 (j) Increase or Decrease in Ownership Limit......................... 18 (k) Limitations on Changes in Existing Holder and Ownership Limits.. 19 (l) Waivers by the Board............................................ 19 (m) Legend.......................................................... 19 (n) Severability.................................................... 20 (o) Transfer of Excess Shares....................................... 20 (p) Distributions on Excess Shares.................................. 20
i (q) Voting of Excess Shares......................................... 20 (r) Non-Transferability of Excess Shares............................ 20 (s) Acting as Agent................................................. 21 (t) Call by Trust on Excess Shares.................................. 21 (u) Underwritten Offerings.......................................... 22 Section 18A. Transferability; ............................................... 22 (a) Definitions..................................................... 22 (b) Ownership Limitation............................................ 25 (c) Remedies for Breach............................................. 26 (d) Notice to Trust................................................. 26 (e) Information for Trust........................................... 26 (f) Remedies Not Limited............................................ 27 (g) No Remedy Against Transferor.................................... 27 (h) Ambiguity....................................................... 27 (i) Exception....................................................... 27 (j) Legend.......................................................... 27 ARTICLE III. SHAREHOLDERS............................................................. 28 Section 1. Meetings........................................................ 28 Section 2. Voting.......................................................... 28 Section 3. Distributions................................................... 29 Section 4. Annual Report................................................... 29 Section 5. Inspection Rights............................................... 29 Section 6. Nonliability and Indemnification................................ 29 Section 7. Notice of Nonliability.......................................... 30 ARTICLE IV. THE TRUSTEES.............................................................. 30 Section 1. Number, Qualification, Compensation and Term.................... 30 Section 2. Resignation, Removal and Death.................................. 31 Section 3. Vacancies....................................................... 31 Section 4. Meetings and Action Without a Meeting........................... 32 Section 5. Authority....................................................... 32 Section 6. Powers.......................................................... 32 Section 7. Right to Own Shares............................................. 34 Section 8. Transactions with Trust......................................... 34 Section 9. Limitation of Liability......................................... 34 Section 10. Indemnification................................................. 35 Section 11. Persons Dealing with Trustees................................... 35 Section 12. Administrative Powers........................................... 35 Section 13. Election of Officers............................................ 36 Section 14. Committees and Delegation of Powers and Duties.................. 36
ii ARTICLE V. TERMINATION AND DURATION................................................... 36 Section 1. Termination..................................................... 36 Section 2. Organization as a Corporation................................... 37 Section 3. Merger, Consolidation or Sale................................... 37 Section 4. Duration........................................................ 37 ARTICLE VI. AMENDMENTS................................................................ 37 Section 1. Amendment by Shareholders....................................... 37 Section 2. Amendment by Trustees........................................... 38 Section 3. Requirements of Maryland Law.................................... 38 ARTICLE VII. MISCELLANEOUS............................................................ 38 Section 1. Construction.................................................... 38 Section 2. Headings for Reference Only..................................... 38 Section 3. Filing and Recording............................................ 38 Section 4. Applicable Law.................................................. 38 Section 5. Certifications.................................................. 38 Section 6. Severability.................................................... 39 Section 7. Bylaws.......................................................... 39 Section 8. Recording....................................................... 39 ARTICLE VIII. LIMITATION OF LIABILITY AND INDEMNIFICATION............................. 39 Section 1. Limitation of Liability of Officers............................. 39 Section 2. Indemnification of Officers and Employees....................... 40 Section 3. Insurance....................................................... 40
ANNEX A SERIES A CUMULATIVE CONVERTIBLE PREFERRED SHARES OF BENEFICIAL INTEREST ANNEX B SERIES B JUNIOR PARTICIPATING PREFERRED SHARES OF BENEFICIAL INTEREST ANNEX C SERIES C CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST ANNEX D SERIES D CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST ANNEX E SERIES E CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST ANNEX F SERIES F CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST iii ANNEX G SERIES G CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST ANNEX H SERIES H CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES ANNEX I SERIES I CUMULATIVE REDEEMABLE PREFERRED SHARES ANNEX J SERIES J CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES ANNEX K SERIES K CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES ANNEX L SERIES L CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES ANNEX M SERIES M CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES iv NEW GARDEN RESIDENTIAL TRUST AMENDED AND RESTATED DECLARATION OF TRUST This Amended and Restated Declaration of Trust of New Garden Residential Trust is made as of _______________, 2001. RECITALS 1. New Garden Residential Trust, a Maryland real estate investment trust (the "Trust"), desires to amend and restate its declaration of trust, as currently in effect, in the manner hereinafter set forth and to change its name to Archstone-Smith Trust. 2. The amendment to and restatement of the declaration of trust of the Trust as hereinafter set forth was advised by the Board of Trustees (the "Board") of the Trust and approved by the shareholders (the "Shareholders") of the Trust as required by law. 3. The Trustees desire that the Trust continue to qualify as a "real estate investment trust" under the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and under Title 8 of the Corporations and ---- Associations Article of the Annotated Code of Maryland, as amended ("Title 8"), ------- so long as such qualification, in the opinion of the Trustees, is advantageous to the Shareholders of the Trust. 4. The beneficial interests in the Trust are divided into transferable Shares of one or more classes of shares of beneficial interest evidenced by certificates. DECLARATION NOW, THEREFORE, the Trustees hereby declare that they hold the duties of Trustees hereunder in accordance with the terms and conditions hereinafter provided, which are all of the provisions of the Trust's declaration of trust as currently in effect and as amended hereby. ARTICLE I. THE TRUST Section 1. Name. (a) The Trust governed by this Amended and Restated Declaration of Trust (as amended, supplemented or restated from time to time, this "Declaration of -------------- Trust") is herein referred to as the "Trust" and shall be known by the name - ----- "Archstone-Smith Trust." So far as may be practicable, legal and convenient, the affairs of the Trust shall be conducted and transacted under such name, which name shall not refer to the Trustees individually or personally or to the beneficiaries or Shareholders of the Trust, or to any officers, employees or agents of the Trust. Under circumstances in which the Board determines that the use of the name "Archstone-Smith" is not practicable, legal or convenient, it may as appropriate use the Trustees' names with suitable reference to their Trustee status, or some other suitable designation, or it may adopt another name under which the Trust may 1 hold property or operate in any jurisdiction which name shall not, to the knowledge of the Board, refer to beneficiaries or Shareholders of the Trust. (b) Legal title to all of the properties subject from time to time to this Declaration of Trust shall be transferred to, vested in and held by the Trust in its own name except that the Board shall have the power to cause legal title to any property of the Trust to be held by and/or in the name of any other person as nominee, on such terms, in such manner and with such powers as the Board may determine, provided that the interest of the Trust therein is, in the judgment of the Board, appropriately protected. (c) The Trust shall have the authority to operate under an assumed name or names in such state or states or any political subdivision thereof where it would not be legal, practical or convenient to operate in the name of the Trust. The Trust shall have the authority to file such assumed name certificates or other instruments in such places as may be required by applicable law to operate under such assumed name or names. Section 2. Resident Agent. The name and address of the resident agent of the Trust in the State of Maryland is CSC-Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland 21202. The principal office of the Trust is 7670 South Chester Street, Suite 100, Englewood, Colorado 80112. The Trust may have such other offices or places of business within or without the State of Maryland as the Board may from time to time determine. Section 3. Nature of Trust. The Trust is a real estate investment trust under Title 8. 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 stock association or, except as provided in Section 2 of Article V, a corporation. The Shareholders shall be beneficiaries in such capacity in accordance with the rights conferred on them hereunder. Section 4. Powers and Purposes. The Trust is formed pursuant to the provisions of, and shall have all of the powers provided in, Title 8, as it may be amended from time to time, and shall have such additional powers as are not inconsistent with, and are appropriate with respect to, the purposes of the Trust as set forth in this Declaration of Trust. The purposes of the Trust are to purchase, hold, lease, manage, sell, exchange, develop, subdivide and improve real property and interests in real property and to invest in notes, bonds and other obligations secured by mortgages on real property, and in general, to do all other things in connection with the foregoing and to have and exercise all powers conferred by Maryland law on real estate investment trusts formed under Maryland law, and to do any or all of the things set forth herein to the same extent as natural persons might or could do. In addition, it is intended that the business of the Trust shall be conducted so that the Trust will qualify (so long as such qualification, in the opinion of the Board, is advantageous to the Shareholders) as a "real estate investment trust" as defined in the Code. Section 5. Conflicts of Interest. Any transactions between the Trust and any Trustee or any affiliates thereof shall be approved by a majority of the Trustees (whether or not constituting 2 a quorum for the transaction of business) not otherwise interested in such transactions as being fair and reasonable to the Trust. ARTICLE II. SHARES Section 1. Shares of Beneficial Interest. (a) The units into which the beneficial interests in the Trust shall be divided shall be designated as shares of beneficial interest ("Shares"), with a ------ par value of $0.01 per Share. Ownership of Shares shall be evidenced by certificates in such form as shall be determined by the Board from time to time in accordance with Maryland law; provided, however, that the Board may provide -------- ------- that some or all of any or all classes or series of Shares shall be uncertificated. The owners of the Shares shall be designated as "Shareholders." ------------ The certificates shall be negotiable and title thereto shall be transferred by assignment or delivery in all respects as a stock certificate of a Maryland corporation. The Shares shall consist of common shares of beneficial interest, par value $0.01 per Share (the "Common Shares"), and such other types or classes ------------- of Shares as the Board may create and authorize from time to time and designate as representing a beneficial interest in the Trust. The consideration paid for the issuance of Shares shall be determined by the Board and shall consist of money paid, tangible or intangible property or labor or services actually performed. Shares shall not be issued until the full amount of the consideration has been received by the Trust. The Board may authorize Share dividends or Share splits. All Shares issued hereunder shall be, when issued, fully paid, and no assessment shall ever be made on the Shareholders. (b) Immediately before the adoption of this Declaration of Trust, the total number of Shares which the Trust had authority to issue was 1,000 Common Shares, par value $0.01 per share, representing an aggregate par value of $10.00. Immediately after the adoption of this Declaration of Trust, the total number of Shares of all classes which the Trust has authority to issue is [__________________], consisting of [__________________] Common Shares, [3,237,435] Series A Cumulative Convertible Preferred Shares of Beneficial Interest, par value $0.01 per Share (the "Series A Preferred Shares"), ------------------------- [___________________] Series B Junior Participating Preferred Shares of Beneficial Interest, par value $0.01 per Share (the "Series B Junior --------------- Participating Preferred Shares"), 2,000,000 Series C Cumulative Redeemable - ------------------------------ Preferred Shares of Beneficial Interest, par value $0.01 per Share (the "Series ------ C Preferred Shares"), 2,300,000 Series D Cumulative Redeemable Preferred Shares - ------------------ of Beneficial Interest, par value $0.01 per Share (the "Series D Preferred ------------------ Shares"), 1,600,000 Series E Cumulative Redeemable Preferred Shares of - ------ Beneficial Interest par value $0.01 per Share (the "Series E Preferred Shares"), ------------------------- 800,000 Series F Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per Share (the "Series F Preferred Shares"), 600,000 Series G ------------------------- Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per Share (the "Series G Preferred Shares"), 2,640,325 Series H Cumulative ------------------------- Convertible Redeemable Preferred Shares, par value $0.01 per Share (the "Series H Preferred Shares"), 500 Series I Cumulative Redeemable Preferred ------------------------- Shares, par value $0.01 per Share (the "Series I Preferred Shares"), 684,931 ------------------------- Series J Cumulative Convertible Redeemable Preferred Shares, par value $0.01 per Share (the "Series J Preferred Shares"), 666,667 Series K Cumulative ------------------------- 3 Convertible Redeemable Preferred Shares, par value $0.01 per Share (the "Series K Preferred Shares"), 641,026 Series L Cumulative ------------------------- Convertible Redeemable Preferred Shares, par value $0.01 per Share (the "Series L Preferred Shares") and 2,200,000 Series M Cumulative ------------------------- Convertible Redeemable Preferred Shares, par value $0.01 per Share (the "Series M Pre ferred Shares"), representing an aggregate par value of -------------------------- [$____________________], provided that the Board may amend this Declaration of Trust, without Shareholder consent, to increase or decrease the aggregate number of Shares or the number of Shares of any class which the Trust has authority to issue. (c) The Board may classify or reclassify any unissued Shares from time to time by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or distributions, qualifications or terms or conditions of redemption of the Shares by filing articles supplementary pursuant to Maryland law. The Board is authorized to issue from the authorized but unissued Shares of the Trust preferred Shares in series and to establish from time to time the number of preferred Shares to be included in each such series and to fix the designation and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Shares of each series. Except for Shares so classified or reclassified and any preferred Shares issued hereunder, all other Shares shall be designated as Common Shares, each of which Common Shares shall be equal in all respects to every other Common Share. The authority of the Board with respect to each unissued series shall include, but not be limited to, determination of the following: (i) The number of Shares constituting such series and the distinctive designation of such series; (ii) The rate of dividend, if any, payable on Shares of such series and whether (and, if so, on what terms and conditions) such dividends shall be cumulative (and, if so, whether unpaid dividends shall compound or accrue interest) or shall be payable in preference or in any other relation to the dividends payable on any other class or series of Shares; (iii) Whether Shares of such series shall have voting rights in addition to the voting rights provided by law and, if so, the terms and extent of such voting rights; (iv) Whether Shares of such series shall be issued with the privilege of conversion or exchange and, if so, the terms and conditions of such conversion or exchange (including, without limitation, the price or prices or the rate or rates of conversion or exchange or any terms for adjustment thereof); (v) Whether Shares of such series may be redeemed and, if so, the terms and conditions on which they may be redeemed (including, without limitation, the dates on or after which they may be redeemed and the price or prices at which they may be redeemed, which price or prices may be different in different circumstances or at different redemption dates); 4 (vi) The amount, if any, payable on Shares of such series upon the voluntary liquidation, dissolution or winding up of the Trust in preference to Shares of any other class or series and whether Shares of such series shall be entitled to participate generally in distributions on the Common Shares under such circumstances; (vii) The amount, if any, payable on Shares of such series upon the involuntary liquidation, dissolution or winding up of the Trust in preference to Shares of any other class or series and whether Shares of such series shall be entitled to participate generally in distributions on the Common Shares under such circumstances; (viii) Sinking fund provisions, if any, for the redemption or purchase of Shares of such series (including any similar fund, however designated); and (ix) Any other relative rights, preferences, limitations and powers of Shares of such series. Section 2. Series A Preferred Shares. The Board has classified [3,237,435] Shares of the Trust as Series A Preferred Shares. A description of the Series A Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex A hereto, which is hereby incorporated by reference as if it were set forth in this Section 2 in its entirety. Section 3. Series B Junior Participating Preferred Shares. The Board has classified [___________________] Shares of the Trust as Series B Junior Participating Preferred Shares. A description of the Series B Junior Participating Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex B hereto, which is hereby incorporated by reference as if it were set forth in this Section 3 in its entirety. Section 4. Series C Preferred Shares. The Board has classified 2,000,000 Shares of the Trust as Series C Preferred Shares. A description of the Series C Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex C hereto, which is hereby incorporated by reference as if it were set forth in this Section 4 in its entirety. Section 5. Series D Preferred Shares. The Board has classified 2,300,000 shares of the Trust as Series D Preferred Shares. A description of the Series D Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex D hereto, which is hereby incorporated by reference as if it were set forth in this Section 5 in its entirety. Section 6. Series E Preferred Shares. The Board has classified 1,600,000 shares of the Trust as Series E Preferred Shares. A description of the Series E Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, 5 qualifications, and terms and conditions of redemption thereof, is set forth in Annex E hereto, which is hereby incorporated by reference as if it were set forth in this Section 6 in its entirety. Section 7. Series F Preferred Shares. The Board has classified 800,000 shares of the Trust as Series F Preferred Shares. A description of the Series F Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex F hereto, which is hereby incorporated by reference as if it were set forth in this Section 7 in its entirety. Section 8. Series G Preferred Shares. The Board has classified 600,000 shares of the Trust as Series G Preferred Shares. A description of the Series G Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex G hereto, which is hereby incorporated by reference as if it were set forth in this Section 8 in its entirety. Section 9. Series H Preferred Shares. The Board has classified 2,640,325 shares of the Trust as Series H Preferred Shares. A description of the Series H Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex H hereto, which is hereby incorporated by reference as if it were set forth in this Section 9 in its entirety. Section 10. Series I Preferred Shares. The Board has classified 500 shares of the Trust as Series I Preferred Shares. A description of the Series I Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex I hereto, which is hereby incorporated by reference as if it were set forth in this Section 10 in its entirety. Section 11. Series J Preferred Shares. The Board has classified 684,931 shares of the Trust as Series J Preferred Shares. A description of the Series J Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex J hereto, which is hereby incorporated by reference as if it were set forth in this Section 11 in its entirety. Section 12. Series K Preferred Shares. The Board has classified 666,667 shares of the Trust as Series K Preferred Shares. A description of the Series K Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex K hereto, which is hereby incorporated by reference as if it were set forth in this Section 12 in its entirety. Section 13. Series L Preferred Shares. The Board has classified 641,026 shares of the Trust as Series L Preferred Shares. A description of the Series L Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, 6 qualifications, and terms and conditions of redemption thereof, is set forth in annex hereto, which is hereby incorporated by reference as if it were set forth in thes section 13 in the entirety conditions of redemption thereof, is set forth in Annex L hereto, which is hereby incorporated by reference as if it were set forth in this Section 13 in its entirety. Section 14. Series M Preferred Shares. The Board has classified 2,200,000 shares of the Trust as Series M Preferred Shares. A description of the Series M Preferred Shares, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption thereof, is set forth in Annex M hereto, which is hereby incorporated by reference as if it were set forth in this Section 14 in its entirety. Section 15. Sale of Shares. The Board, in its discretion, may from time to time issue or sell or contract to issue or sell to such party or parties and for such consideration, as allowed by Maryland law, at such time or times, and on such terms as the Board may deem appropriate. In connection with any issuance of Shares, the Board, in its discretion, may provide for the issuance of fractional Shares or may provide for the issuance of scrip for fractions of Shares and determine the terms of such scrip including, but not limited to, the time within which any such scrip must be surrendered in exchange for Shares and the right, if any, of holders of scrip upon the expiration of the time so fixed, the right, if any, to receive proportional distributions, and the right, if any, to redeem scrip for cash, or the Board may, in its discretion, or if it sees fit at the option of each holder, provide in lieu of scrip for the adjustment of fractions in cash. Except as may be provided in this Declaration of Trust or in any agreement between the Trust and any of its Shareholders, the Shareholders shall have no preemptive rights of any kind whatsoever (including, but not limited to, the right to purchase or subscribe for or otherwise acquire any Shares of the Trust of any class, whether now or hereafter authorized, or any securities or obligations convertible into or exchangeable for, or any right, warrant or option to purchase such Shares, whether or not such Shares are issued and/or disposed of for cash, property or other consideration of any kind). Section 16. General Nature. All Shares shall be personal property entitling the Shareholders only to those rights provided in this Declaration of Trust or in the resolution creating any class or series of Shares. The legal ownership of the property of the Trust is exclusively vested in the Trust and the right to conduct the business of the Trust is vested exclusively in the Trustees; the Shareholders shall have no interest therein other than beneficial interest in the Trust conferred by their Shares and shall have no right to compel any partition, division, dividend or distribution of the Trust or any of its property. The death of a Shareholder shall not terminate the Trust or give his or her legal representative any rights against other Shareholders, the Trustees or the Trust property, except the right, exercised in accordance with applicable provisions of the Trust's Bylaws (the "Bylaws"), to receive a new ------ certificate for Shares in exchange for the certificate held by the deceased Shareholder. Section 17. Acquisition of Shares. The Trust may repurchase or otherwise acquire its own Shares at such price or prices as may be determined by the Board, and for such purpose the Trust may create and maintain such reserves as are deemed necessary and proper. Shares issued hereunder and purchased or otherwise acquired for the account of the Trust shall not, so long as they belong to the Trust, either receive distributions (except that they shall be entitled to receive distributions payable in Shares of the Trust) or be voted at any meeting of the Shareholders. Such 7 Shares may, in the discretion of the Board, be disposed of by the Board at such time or times, to such party or parties, and for such consideration, as the Board may deem appropriate or may be returned to the status of authorized but unissued Shares of the Trust. Section 18. Transferability; Transfer Restrictions and Ownership Limitations of Shares Other Than the Smith Preferred Shares. Shares in the Trust shall be transferable (subject to the further provisions of this Section 18) in accordance with the procedure prescribed from time to time in the Bylaws. The persons in whose name the Shares are registered on the books of the Trust shall be deemed the absolute owners thereof and, until a transfer is effected on the books of the Trust, the Board shall not be affected by any notice, actual or constructive, of any transfer. Any issuance, redemption or transfer of Trust Shares which would operate to disqualify the Trust as a REIT, shall be null and void ab initio. (a) Definitions. For purposes of this Section 18, the following terms shall have the following meanings: "Adoption Date" shall mean the date of the adoption of the ownership ------------- restrictions contained in this Section 18 by resolution of the Board, which shall be deemed to occur upon the Board's adoption of this Declaration of Trust. "Beneficial Ownership" shall mean, except as provided below in the -------------------- following sentence, ownership of Shares by a Person (whether or not treated as an individual for purposes of Section 544 of the Code) who is or would be treated as an owner of such Shares either directly or constructively through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. "Beneficial Ownership" shall also mean beneficial ownership as defined under Rule 13(d) under the Securities Exchange Act of 1934, as amended, and, with respect to such meaning, Beneficial Ownership by any Person shall include Beneficial Ownership by other Persons who are part of the same group as the original Person for purposes of such Rule 13(d). The terms "Beneficial Owner," "Beneficially Owns," "Beneficially ---------------- ----------------- ------------ Own" and "Beneficially Owned" shall have correlative meanings. ------------------ "Charitable Beneficiary" shall mean an organization or organizations ---------------------- described in Sections 170(b)(1)(A) and 170(c) of the Code and identified by the Board as the beneficiary or beneficiaries of the Excess Share Trust. "Code" shall mean the Internal Revenue Code of 1986, as amended from ---- time to time. "Constructive Ownership" shall mean ownership of Shares by a Person ---------------------- who would be treated as an owner of such Shares, either directly or constructively, through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive Owner", ------------------- "Constructively Owns", "Constructively Owning" and "Constructively Owned" ------------------- --------------------- -------------------- shall have correlative meanings. 8 "Excess Shares" shall mean Shares resulting from an exchange described ------------- in subsection (c) of this Section 18. "Excess Share Trust" shall mean the trust created pursuant to ------------------ subsections (c) and (o) of this Section 18. "Excess Share Trustee" shall mean a person, who shall be unaffiliated -------------------- with the Trust, any Purported Beneficial Transferee and any Purported Record Transferee, identified by the Board as the trustee of the Excess Share Trust. "Existing Holder" shall mean any Person who is, or would be upon the --------------- exchange of Units, debt or any security of the Trust, the Beneficial Owner of Shares in excess of the Ownership Limit both on and immediately after the Adoption Date, so long as, but only so long as, such Person Beneficially Owns or would, upon exchange of Units, debt or any security of the Trust, Beneficially Own Shares in excess of the Ownership Limit. "Existing Holder Limit" for any Existing Holder shall mean the --------------------- percentage of the outstanding Shares Beneficially Owned, or which would be Beneficially Owned upon the exchange of Units, debt or any security of the Trust, by such Existing Holder on and immediately after the Adoption Date, and, after any adjustment pursuant to subsection (i) of this Section 18, shall mean such percentage of the outstanding Shares as so adjusted. Any Existing Holder Limit shall not be modified except as provided in subsection (i) of this Section 18. From the Adoption Date until the Restriction Termination Date, the Trust shall maintain and, upon request, make available to each Existing Holder, a schedule which sets forth the then current Existing Holder Limit for each Existing Holder. "Market Price" shall mean the last reported sales price reported on ------------ the NYSE for Shares on the trading day immediately preceding the relevant date, or if not then traded on the NYSE, the last reported sales price for Shares on the trading day immediately preceding the relevant date as reported on any exchange or quotation system over or through which such Shares may be traded, or if not then traded over or through any exchange or quotation system, then the market price of such Shares on the relevant date as determined in good faith by the Board. "Non-U.S. Person" shall mean a Person other than a U.S. Person. --------------- "Ownership Limit" shall initially mean 9.8%, in number of Shares or --------------- value, of the outstanding Shares, and, after any adjustment as set forth in subsection (j) of this Section 18, shall mean such lesser or greater percentage of the outstanding Shares as so adjusted. The number and value of the outstanding Shares of the Trust shall be determined by the Board in good faith, which determination shall be conclusive for all purposes hereof. "Person" shall mean an individual, corporation, partnership, estate, ------ trust (including a trust qualified under Section 401(a) or 501(c)(17) of the Code), portion of a trust 9 permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity. "Purported Beneficial Transferee" shall mean, with respect to any ------------------------------- purported Transfer which results in Excess Shares, as defined in subsection (c) of this Section 18, the beneficial holder of such Shares, if such Transfer had been valid under subsection (b) of this Section 18. "Purported Record Transferee" shall mean, with respect to any --------------------------- purported Transfer which results in Excess Shares, as defined in subsection (c) of this Section 18, the record holder of such Shares, if such Transfer had been valid under subsection (b) of this Section 18. "REIT" shall mean a real estate investment trust under Section 856 of ---- the Code. "REIT Provisions of the Code" means Sections 856 through 860 of the --------------------------- Code and any successor or other provisions of the Code relating to REITs (including provisions as to the attribution of ownership of beneficial interests therein) and the regulations promulgated thereunder. "Related Tenant Limit" shall mean 9.9% by value of the outstanding -------------------- Shares of the Trust. "Related Tenant Owner" shall mean any Constructive Owner who also -------------------- owns, directly or indirectly, an interest in a Tenant, which interest is equal to or greater than (i) 9.9% of the combined voting power of all classes of stock of such Tenant, (ii) 9.9% of the total number of shares of all classes of stock of such Tenant or (iii) if such Tenant is not a corporation, 9.9% of the assets or net profits of such Tenant, in each case only if such ownership would cause the Trust to fail the 95% gross income test set forth in Section 856(c)(2) of the Code or the 75% gross income test set forth in Section 856(c)(3) of the Code. "Restriction Termination Date" shall mean the first day after the ---------------------------- Adoption Date on which the Board determines that it is no longer in the best interests of the Trust to continue to qualify as a REIT. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to this Article II. "Smith Preferred Shares" shall mean the Series H Preferred Shares, ---------------------- Series I Preferred Shares, Series J Preferred Shares, Series K Preferred Shares, Series L Preferred Shares and Series M Preferred Shares of the Trust or any of the foregoing. 10 "Tenant" shall mean any tenant (including a subtenant) of (i) the ------ Trust, (ii) a subsidiary of the Trust which is deemed to be a "qualified REIT subsidiary" under Section 856(i) (2) of the Code or (iii) a partnership or limited liability company in which the Trust or one or more of its qualified REIT subsidiaries is a partner or a member. "Transfer" shall mean any sale, transfer, gift, assignment, devise or -------- other disposition of Shares other than Smith Preferred Shares (including (i) the granting of any option or entering into any agreement for the sale, transfer or other disposition of such Shares, (ii) the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for such Shares, but excluding the exchange of Units, debt or any security of the Trust for such Shares and (iii) any transfer or other disposition of any interest in such Shares as a result of a change in the marital status of the holder thereof), whether voluntary or involuntary, whether of record, constructively or beneficially and whether by operation of law or otherwise. The terms "Transfers" and "Transferred" --------- ----------- shall have correlative meanings. "Units" shall mean units or other equity interests of any partnership ----- or other entity (which for purposes of the provisions hereof shall include Archstone-Smith Operating Trust, a Maryland real estate investment trust) which are convertible into or exchangeable for Shares or in respect of which any Shares may be issued in satisfaction of a unitholder's redemption right. "U.S. Person" shall mean a person defined as a "United States Person" ----------- in Section 7701(a)(30) of the Code. (b) Ownership Limitation. (i) Except as provided in subsections (l) and (u) of this Section 18 and subject to subsection (b)(ix) of this Section 18, from the Adoption Date until the Restriction Termination Date, no Person or Persons acting as a group (other than an Existing Holder) shall Beneficially Own Shares in excess of the Ownership Limit. (ii) Except as provided in subsections (l) and (u) of this Section 18 and subject to subsection (b)(ix) of this Section 18, from the Adoption Date until the Restriction Termination Date, any Transfer which, if effective, would result in any Person (other than an Existing Holder) Beneficially Owning Shares in excess of the Ownership Limit shall be void ab initio as to the Transfer of the Shares which would be otherwise Beneficially Owned by such Person in excess of the Ownership Limit; and the intended transferee shall acquire no rights in such Shares. (iii) Except as provided in subsections (l) and (u) of this Section 18 and subject to subsection (b)(ix) of this Section 18, from the Adoption Date until the Restriction Termination Date, any Transfer which, if effective, would result in any Existing Holder Beneficially Owning Shares in excess of the applicable Existing Holder Limit shall be void 11 ab initio as to the Transfer of the Shares which would be otherwise Beneficially Owned by such Existing Holder in excess of the applicable Existing Holder Limit; and such Existing Holder shall acquire no rights in such Shares. (iv) Except as provided in subsections (l) and (u) of this Section 18 and subject to subsection (b)(ix) of this Section 18, from the Adoption Date until the Restriction Termination Date, any Transfer which, if effective, would result in the Shares being beneficially owned (as provided in Section 856(a) of the Code) by fewer than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio as to the Transfer of the Shares which would be otherwise beneficially owned (as provided in Section 856(a) of the Code) by the transferee; and the intended transferee shall acquire no rights in such Shares. (v) Except as provided in subsection (l) of this Section 18 and subject to subsection (b)(ix) of this Section 18, from the Adoption Date until the Restriction Termination Date, any Transfer which, if effective, would result in the Trust being "closely held" within the meaning of Section 856(h) of the Code shall be void ab initio as to the Transfer of the Shares which would cause the Trust to be "closely held" within the meaning of Section 856(h) of the Code; and the intended transferee shall acquire no rights in such Shares. (vi) Subject to subsection (b)(ix) of this Section 18, from the Adoption Date until the Restriction Termination Date, any Transfer to a Non-U.S. Person shall be void ab initio as to the Transfer of such Shares if, as a result of such Transfer, the fair market value of Shares owned directly or indirectly by Non-U.S. Persons would comprise 50% or more of the fair market value of the issued and outstanding Shares of the Trust; and such Non-U.S. Person shall acquire no rights in such Shares. (vii) Subject to subsection (b)(ix) of this Section 18, from the Adoption Date until the Restriction Termination Date, any Transfer which, if effective, would result in any Related Tenant Owner Constructively Owning Shares in excess of the Related Tenant Limit shall be void ab initio as to the Transfer of such Shares which would be otherwise Constructively Owned by such Related Tenant Owner in excess of the Related Tenant Limit; and the intended transferee shall acquire no rights in such Shares. (viii) Subject to subsection (b)(ix) of this Section 18, from the Adoption Date until the Restriction Termination Date, any Transfer which, if effective, would result in the disqualification of the Trust as a REIT by virtue of actual, Beneficial or Constructive Ownership of Shares shall be void ab initio as to such portion of the Transfer resulting in the disqualification; and the intended transferee shall acquire no rights in such Shares. (ix) Nothing contained in this Section 18 shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange (the "NYSE"). The fact that the settlement of any ---- transaction is permitted shall not negate the 12 effect of any other provision of this Section 18 and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Section 18. (c) Excess Shares. (i) If, notwithstanding the other provisions contained in this Section 18, at any time after the Adoption Date until the Restriction Termination Date, there is a purported Transfer which is not void ab initio pursuant to subsection (b) of this Section 18 such that (i) any Person (other than an Existing Holder) would Beneficially Own Shares in excess of the applicable Ownership Limit or (ii) any Existing Holder would Beneficially Own Shares in excess of the applicable Existing Holder Limit, then, except as otherwise provided in subsection (l) of this Section 18, Shares (other than Smith Preferred Shares) directly owned by such Person or Existing Holder, as the case may be, shall be automatically exchanged for an equal number of Excess Shares until such Person or Existing Holder, as the case may be, does not Beneficially Own Shares in excess of the applicable Ownership Limit or Existing Holder Limit. Such exchange shall be effective as of the close of business on the business day prior to the date of the purported Transfer. If, after exchanging all of the Shares owned directly by a Person or Existing Holder, such Person or Existing Holder still Beneficially Owns Shares in excess of the applicable Ownership Limit or Existing Holder Limit, Shares (other than Smith Preferred Shares) owned by such Person or Existing Holder constructively through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code, shall be exchanged for an equal number of Excess Shares until such Person or Existing Holder, as the case may be, does not Beneficially Own Shares in excess of the applicable Ownership Limit or Existing Holder Limit. If such Person or Existing Holder owns Shares constructively through one or more Persons and the Shares held by such other Persons must be exchanged for an equal number of Excess Shares, the exchange of Shares by such other Persons shall be pro rata. (ii) If, notwithstanding the other provisions contained in this Section 18, at any time after the Adoption Date until the Restriction Termination Date, there is a purported Transfer or any sale, transfer, gift, assignment, devise or other disposition of Shares or other interests of a direct or indirect Shareholder of the Trust which is not void ab initio pursuant to subsection (b) of this Section 18 and which, if effective, would cause the Trust to become "closely held" within the meaning of Section 856(h) of the Code, then any Shares (other than Smith Preferred Shares) being Transferred which would cause the Trust to be "closely held" within the meaning of Section 856(h) of the Code (rounded up to the nearest whole Share) shall be automatically exchanged for an equal number of Excess Shares and be treated as provided in this Section 18. Such designation and treatment shall be effective as of the close of business on the business day prior to the date of the purported Transfer. If, after the exchange of any such Shares, the Trust is still "closely held" within the meaning of Section 856(h) of the Code, any individual whose Beneficial Ownership of Shares in the Trust increased as a result of the sale, transfer, gift, assignment, devise or other disposition of shares or other interests of a direct or indirect Shareholder of the Trust or any other event and is one of the five individuals who caused the Trust to be "closely held" within the 13 meaning of Section 856(h) of the Code, shall exchange Shares (other than Smith Preferred Shares) owned directly for an equal number of Excess Shares until the Trust is not "closely held" within the meaning of Section 856(h) of the Code. If similarly situated individuals exist, the exchange shall be pro rata. If, after applying the foregoing provisions, the Trust is still "closely held" within the meaning of Section 856(h) of the Code, then any Shares (other than Smith Preferred Shares) constructively owned by such individuals shall be exchanged for Excess Shares, on a pro rata basis among similarly situated individuals, until the Trust is not "closely held" within the meaning of Section 856(h) of the Code. (iii) If, at any time after the Adoption Date until the Restriction Termination Date, an event other than a purported Transfer (an "Event") ----- occurs which would (i) cause any Person (other than an Existing Holder) to Beneficially Own Shares in excess of the Ownership Limit or (ii) cause an Existing Holder to Beneficially Own Shares in excess of the Existing Holder Limit, then, except as otherwise provided in subsection (l) of this Section 18, Shares (other than Smith Preferred Shares) Beneficially Owned by such Person or Existing Holder, as the case may be, shall be automatically exchanged for an equal number of Excess Shares to the extent necessary to eliminate such excess ownership. Such exchange shall be effective as of the close of business on the business day prior to the date of the Event. In determining which Shares are exchanged, Shares (other than Smith Preferred Shares) Beneficially Owned by any Person who caused the Event to occur shall be exchanged before any Shares not so held are exchanged. If similarly situated Persons exist, the exchange shall be pro rata. If any Person is required to exchange Shares pursuant to this subsection (c)(iii), such Person shall first exchange Shares (other than Smith Preferred Shares) directly held by such Person before exchanging Shares owned constructively through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. If such Person or Existing Holder owns Shares constructively through one or more Persons and the Shares held by such other Persons must be exchanged for an equal number of Excess Shares, the exchange of Shares by such other Persons shall be pro rata. (iv) If, at any time after the Adoption Date until the Restriction Termination Date, an Event occurs which would cause the Trust to become "closely held" within the meaning of Section 856(h) of the Code, then Shares (other than Smith Preferred Shares) Beneficially Owned by any Person or Existing Holder, as the case may be, shall be automatically exchanged for an equal number of Excess Shares to the extent necessary to eliminate such excess ownership. Such exchange shall be effective as of the close of business on the business day prior to the date of the Event. In determining which Shares are exchanged, Shares (other than Smith Preferred Shares) Beneficially Owned by any Person who caused the Event to occur shall be exchanged before any Shares not so held are exchanged. If similarly situated Persons exist, the exchange shall be pro rata. If any Person is required to exchange Shares pursuant to this subsection (c)(iv), such Person shall first exchange Shares (other than Smith Preferred Shares) directly held by such Person before exchanging Shares owned constructively through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. If any Person owns Shares constructively through one or 14 more Persons and the Shares held by such other Persons must be exchanged for an equal number of Excess Shares, the exchange of Shares by such other Persons shall be pro rata. (v) If, notwithstanding the other provisions contained in this Article II, there is a purported Transfer which is not void ab initio pursuant to subsection (b) of this Section 18 to (i) a Non-U.S. Person or (ii) a U.S. Person whose Shares would be treated as owned indirectly by a Non-U.S. Person, then any Shares (other than Smith Preferred Shares) being Transferred which would result in the fair market value of Shares owned directly or indirectly by Non-U.S. Persons comprising 50% or more of the fair market value of the issued and outstanding Shares of the Trust shall be automatically exchanged for an equal number of Excess Shares and be treated as provided in this Section 18. Such designation and treatment shall be effective as of the close of business on the business day prior to the date of the purported Transfer. (vi) If, notwithstanding the other provisions contained in this Article II, there is an event other than those described in subsection (c)(v) of this Section 18 (a "Non-U.S. Event") which would result in the -------------- fair market value of Shares owned directly or indirectly by Non-U.S. Persons comprising 50% or more of the fair market value of the issued and outstanding Shares of the Trust, then Shares (other than Smith Preferred Shares) owned directly or indirectly by Non-U.S. Persons shall be automatically exchanged for an equal number of Excess Shares to the extent necessary to eliminate such excess ownership. Such exchange shall be effective as of the close of business on the business day prior to the date of the Non-U.S. Event. In determining which Shares are exchanged, Shares (other than Smith Preferred Shares) owned directly or indirectly by any Non-U.S. Person who caused the Non-U.S. Event to occur shall be exchanged before any Shares not so held are exchanged. If similarly situated Persons exist, the exchange shall be pro rata. If the Non-U.S. Event was not caused by a Non-U.S. Person, Shares (other than Smith Preferred Shares) owned directly or indirectly by Non-U.S. Persons shall be chosen by random lot and exchanged for Excess Shares until Non-U.S. Persons do not own directly or indirectly 50% or more of the issued and outstanding Shares. (vii) If, notwithstanding the other provisions contained in this Section 18, at any time after the Adoption Date until the Restriction Termination Date, there is a purported Transfer or any sale, transfer, gift, assignment, devise or other disposition of Shares or other interests of a direct or indirect Shareholder of the Trust which, if effective, would cause any Related Tenant Owner to Constructively Own Shares in excess of the Related Tenant Limit, then any Shares (other than Smith Preferred Shares) purportedly owned by such Related Tenant Owner which would cause such Related Tenant to Constructively Own Shares in excess of the Related Tenant Limit shall be automatically exchanged for an equal number of Excess Shares and be treated as provided in this Section 18. Such designation and treatment shall be effective as of the close of business on the business day prior to the date of the purported Transfer or event described in the preceding sentence. In determining which Shares are exchanged, Shares (other than Smith Preferred Shares) owned directly or indirectly by any Person who caused the Related Tenant Event to occur shall be exchanged 15 before any Shares not so held are exchanged. If similarly situated Persons exist, the exchange shall be pro rata. If the Related Tenant Limit is still exceeded and the Related Tenant Event was not caused by the Related Tenant Owner in question, Shares (other than Smith Preferred Shares) owned directly or indirectly by such Related Tenant Owner shall be exchanged for Excess Shares until the Related Tenant Owner does not own Shares in excess of the Related Tenant Limit. (viii) If, at any time after the Adoption Date until the Restriction Termination Date, there is an event (a "Related Tenant Event") which would -------------------- cause any Related Tenant Owner to Constructively Own Shares in excess of the Related Tenant Limit, then Shares (other than Smith Preferred Shares) which would cause the Related Tenant Limit to be exceeded shall be automatically exchanged for an equal number of Excess Shares to the extent necessary to eliminate such excess ownership. Such exchange shall be effective as of the close of business on the business day prior to the date of the Related Tenant Event. In determining which Shares are exchanged, Shares (other than Smith Preferred Shares) owned directly or indirectly by any Person who caused the Related Tenant Event to occur shall be exchanged before any Shares not so held are exchanged. If similarly situated Persons exist, the exchange shall be pro rata. If the Related Tenant Limit is still exceeded and the Related Tenant Event was not caused by the Related Tenant Owner in question, Shares (other than Smith Preferred Shares) owned directly or indirectly by such Related Tenant Owner shall be exchanged for Excess Shares until the Related Tenant Owner does not own Shares in excess of the Related Tenant Limit. (ix) If, notwithstanding the other provisions contained in this Section 18, at any time after the Adoption Date until the Restriction Termination Date, there is a purported Transfer or any sale, transfer, gift, assignment, devise or other disposition of Shares or other interests of a direct or indirect Shareholder of the Trust which, if effective, would result in the disqualification of the Trust as a REIT by virtue of actual, Beneficial or Constructive Ownership of Shares, then any Shares (other than Smith Preferred Shares) being Transferred which would result in such disqualification shall be automatically exchanged for an equal number of Excess Shares and shall be treated as provided in this Section 18. Such designation and treatment shall be effective as of the close of business on the business day prior to the date of the purported Transfer. (x) If, at any time after the Adoption Date until the Restriction Termination Date, notwithstanding the other provisions contained in this Section 18, there is an event (a "Prohibited Owner Event") which would ---------------------- result in the disqualification of the Trust as a REIT by virtue of actual, Beneficial or Constructive Ownership of Shares, then Shares (other than Smith Preferred Shares) which would result in the disqualification of the Trust shall be automatically exchanged for an equal number of Excess Shares to the extent necessary to avoid such disqualification. Such exchange shall be effective as of the close of business on the business day prior to the date of the Prohibited Owner Event. In determining which Shares are exchanged, Shares (other than Smith Preferred Shares) owned directly or indirectly by any Person who caused the Prohibited Owner Event to occur shall be 16 exchanged before any Shares not so held are exchanged. If similarly situated Persons exist, the exchange shall be pro rata. If the Trust is still disqualified, Shares (other than Smith Preferred Shares) owned directly or indirectly by Persons who did not cause the Prohibited Owner Event to occur shall be chosen by random lot and exchanged for Excess Shares until the Trust is no longer disqualified as a REIT. (d) Prevention of Transfer. If the Board or its designee shall at any time determine in good faith that a Transfer has taken place in violation of subsection (b) of this Section 18 or that a Person intends to acquire or has attempted to acquire Beneficial Ownership (determined without reference to any rules of attribution) of any Shares in violation of subsection (b) of this Section 18, the Board or its designee shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer, including, but not limited to, refusing to give effect to such Transfer on the books of the Trust or instituting proceedings to enjoin such Transfer; provided, however, that any Transfers or attempted Transfers in violation of subsection (b) of this Section 18 shall automatically result in the designation and treatment described in subsection (c) of this Section 18, irrespective of any action (or non-action) by the Board. (e) Notice to Trust. Any Person who acquires or attempts to acquire Shares in violation of subsection (b) of this Section 18, or any Person who is a transferee such that Excess Shares result under subsection (c) of this Section 18, shall immediately give written notice or, with respect to a proposed or attempted Transfer, give at least 30 days' prior written notice to the Trust of such event and shall provide to the Trust such other information as the Trust may request in order to determine the effect, if any, of such Transfer or attempted Transfer on the Trust's status as a REIT. (f) Information for Trust. From the Adoption Date until the Restriction Termination Date: (i) Every Beneficial Owner of more than 5% (or such other percentage, between 0.5% and 5%, as provided in the income tax regulations promulgated under the Code) of the number or value of outstanding Shares of the Trust, if such Beneficial Ownership includes Shares other than Smith Preferred Shares, shall, within 30 days after January 1 of each year, give written notice to the Trust stating the name and address of such Beneficial Owner, the number of Shares Beneficially Owned and a description of how such Shares are held; and each such Beneficial Owner shall provide to the Trust such additional information as the Trust may reasonably request in order to determine the effect, if any, of such Beneficial Ownership on the Trust's status as a REIT; and (ii) Each Person who is a Beneficial Owner of Shares, if such Beneficial Ownership includes Shares other than Smith Preferred Shares, and each Person (including the Shareholder of record) who is holding Shares for a Beneficial Owner, if such Beneficial Ownership includes Shares other than Smith Preferred Shares, shall provide to the Trust in writing such information with respect to direct, indirect and constructive ownership of Shares as the Board deems reasonably necessary to comply with the provisions of the Code applicable to a REIT, to determine the Trust's status as a REIT, to comply with the 17 requirements of any taxing authority or governmental agency or to determine any such compliance. (g) Other Action by Board. Subject to subsection (b) of this Section 18, nothing contained in this Section 18 shall limit the authority of the Board to take such other action as it deems necessary or advisable to protect the Trust and the interests of its Shareholders by preservation of the Trust's status as a REIT; provided, however, that no provision of this Section 18 shall preclude the settlement of any transaction entered into through the facilities of the NYSE. (h) Ambiguities. In the case of an ambiguity in the application of any of the provisions of this Section 18, including any definition contained in subsection (a) of this Section 18, the Board shall have the power to determine the application of the provisions of this Section 18 with respect to any situation based on the facts known to it. (i) Modification of Existing Holder Limits. The Existing Holder Limits may be modified as follows: (i) Subject to the limitations provided in subsection (k) of this Section 18, the Board may grant options which result in Beneficial Ownership of Shares by an Existing Holder pursuant to an option plan approved by the Board and/or the Shareholders. Any such grant shall increase the Existing Holder Limit for the affected Existing Holder to the maximum extent possible under subsection (k) of this Section 18 to permit the Beneficial Ownership of Shares issuable upon the exercise of such option. (ii) Subject to the limitations provided in subsection (k) of this Section 18, an Existing Holder may elect to participate in a dividend reinvestment plan approved by the Board which results in Beneficial Ownership of Shares by such participating Existing Holder and any comparable reinvestment plan of any partnership, wherein those Existing Holders holding Units are entitled to purchase additional Units. Any such participation shall increase the Existing Holder Limit for the affected Existing Holder to the maximum extent possible under subsection (k) of this Section 18 to permit Beneficial Ownership of the Shares acquired as a result of such participation. (iii) The Board shall reduce the Existing Holder Limit for any Existing Holder after any Transfer permitted in this Section 18 by such Existing Holder by the percentage of the outstanding Shares so Transferred or after the lapse (without exercise) of an option described in subsection (i)(i) of this Section 18 by the percentage of the Shares which the option, if exercised, would have represented, but in either case no Existing Holder Limit shall be reduced to a percentage which is less than the Ownership Limit. (j) Increase or Decrease in Ownership Limit. Subject to the limitations provided in subsection (k) of this Section 18, the Board may from time to time increase or decrease the Ownership Limit; provided, however, that any decrease may only be made prospectively as to subsequent holders (other than a decrease as a result of a retroactive change in existing law which 18 would require a decrease to retain REIT status, in which case such decrease shall be effective immediately). (k) Limitations on Changes in Existing Holder and Ownership Limits. (i) Neither the Ownership Limit nor any Existing Holder Limit may be increased (nor may any additional Existing Holder Limit be created) if, after giving effect to such increase (or creation), five individual Beneficial Owners of Shares (including all of the then Existing Holders) could Beneficially Own, in the aggregate, more than 49.9% in number or value of the outstanding Shares. (ii) Prior to the modification of any Existing Holder Limit or Ownership Limit pursuant to subsection (i) or (j) of this Section 18, the Board may require such opinions of counsel, affidavits, undertakings or agreements as it may deem necessary or advisable in order to determine or ensure the Trust's status as a REIT. (iii) No Ownership Limit may be increased to a percentage which is greater than 9.9%. (l) Waivers by the Board. The Board, upon receipt of a ruling from the Internal Revenue Service, an opinion of counsel to the effect that such exemption will not result in the Trust being "closely held" within the meaning of Section 856(h) of the Code or such other evidence as the Board deems necessary in its sole discretion, may exempt, on such conditions and terms as the Board deems necessary in its sole discretion, a Person from the Ownership Limit or the Existing Holder Limit, as the case may be, if the Board obtains such representations and undertakings from such Person as the Board may deem appropriate and such Person agrees that any violation or attempted violation shall result in, to the extent necessary, the exchange of Shares held by such Person for Excess Shares in accordance with subsection (c) of this Section 18. (m) Legend. Each certificate for Shares (other than Smith Preferred Shares) shall bear substantially the following legend: "The securities represented by this certificate are subject to restrictions on ownership and transfer for purposes of the Trust's maintenance of its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended. Except as otherwise provided pursuant to the Amended and Restated Declaration of Trust of the Trust, no Person may Beneficially Own Shares in excess of 9.8% (or such greater percentage as may be determined by the Board of Trustees of the Trust) of the number or value of the outstanding Shares of the Trust. Any Person who attempts or proposes to Beneficially Own Shares in excess of the above limitations must notify the Trust in writing at least 30 days prior to such proposed or attempted Transfer. In addition, Share ownership by and transfers of Shares to non- U.S. persons and certain tenants of the Trust are subject to certain restrictions. If the restrictions on transfer are violated, the securities represented hereby shall be designated and treated as 19 Excess Shares which shall be held in trust by the Excess Share Trustee for the benefit of the Charitable Beneficiary. All capitalized terms in this legend have the meanings defined in the Amended and Restated Declaration of Trust of the Trust, a copy of which, including the restrictions on transfer, shall be furnished to each Shareholder on request and without charge." (n) Severability. If any provision of this Section 18 or any application of any such provision is determined to be void, invalid or unenforceable by any court having jurisdiction over the issue, the validity and enforceability of the remaining provisions shall be affected only to the extent necessary to comply with the determination of such court. (o) Transfer of Excess Shares. Upon any purported Transfer which results in Excess Shares pursuant to subsection (c) of this Section 18, such Excess Shares shall be deemed to have been transferred to the Excess Share Trustee, as trustee of a special trust for the exclusive benefit of the Charitable Beneficiary or Charitable Beneficiaries to whom an interest in such Excess Shares may later be transferred pursuant to subsection (c) of this Section 18. Excess Shares so held in trust shall be issued and outstanding Shares of the Trust. The Purported Record Transferee or Purported Record Holder shall have no rights in such Excess Shares except as provided in subsection (r) of this Section 18. (p) Distributions on Excess Shares. Any dividends (whether taxable as a dividend, return of capital or otherwise) on Excess Shares shall be paid to the Excess Share Trust for the benefit of the Charitable Beneficiary. Upon liquidation, dissolution or winding up, the Purported Record Transferee shall receive the lesser of (i) the amount of any distribution made upon liquidation, dissolution or winding up or (ii) the price paid by the Purported Record Transferee for the Shares, or if the Purported Record Transferee did not give value for the Shares, the Market Price of the Shares on the day of the event causing the Shares to be held in trust. Any such dividend paid or distribution paid to the Purported Record Transferee in excess of the amount provided in the preceding sentence prior to the discovery by the Trust that the Shares with respect to which the dividend or distribution was made had been exchanged for Excess Shares shall be repaid to the Excess Share Trust for the benefit of the Charitable Beneficiary. (q) Voting of Excess Shares. The Excess Share Trustee shall be entitled to vote the Excess Shares for the benefit of the Charitable Beneficiary on any matter. Any vote taken by a Purported Record Transferee prior to the discovery by the Trust that the Excess Shares were held in trust shall, subject to applicable law, be rescinded ab initio, provided, however, that if the Trust has taken irreversible action, a vote need not be rescinded. The owner of the Excess Shares shall be deemed to have given an irrevocable proxy to the Excess Share Trustee to vote the Excess Shares for the benefit of the Charitable Beneficiary. (r) Non-Transferability of Excess Shares. Excess Shares shall be transferable only as provided in this subsection (r). At the direction of the Trust, the Excess Share Trustee shall transfer the Shares held in the Excess Share Trust to a Person whose ownership of the Shares will not violate the Ownership Limit or Existing Holder Limit. If Shares were transferred to the Excess Share 20 Trustee pursuant to subsection (c)(i), (c)(ii), (c)(iii) or (c)(iv) of this Section 18, at the direction of the Trust, the Excess Share Trustee shall transfer the Shares held by the Excess Share Trustee to a Person who makes the highest offer for the Excess Shares and pays the purchase price and whose ownership of the Shares will not violate the Ownership Limit. If Shares were transferred to the Excess Shares Trustee pursuant to subsection (c)(v) or (c)(vi) of this Section 18, at the direction of the Trust, the Excess Share Trustee shall transfer the Shares held by the Excess Share Trustee to the U.S. Person who makes the highest offer for the Excess Shares and pays the purchase price. If such a transfer is made to a Person, the interest of the Charitable Beneficiary shall terminate and proceeds of the sale shall be payable to the Purported Record Transferee and to the Charitable Beneficiary. The Purported Record Transferee shall receive (i) the lesser of (A) the price paid by the Purported Record Transferee for the Shares or, if the Purported Record Transferee did not give value for the Shares, the Market Price of the Shares on the day of the event causing the Shares to be held in trust, and (B) the price received by the Excess Share Trust from the sale or other disposition of the Shares minus (ii) any dividend paid or distribution paid to the Purported Record Transferee which the Purported Record Transferee was under an obligation to repay to the Excess Share Trustee but has not repaid to the Excess Share Trustee at the time of the distribution of the proceeds. Any proceeds in excess of the amount payable to the Purported Record Transferee shall be paid to the Charitable Beneficiary. Prior to any transfer of any Excess Shares by the Excess Share Trustee, the Trust must have waived in writing its purchase rights under subsection (t) of this Section 18. It is expressly understood that the Purported Record Transferee may enforce the provisions of this Section 18 against the Charitable Beneficiary. (s) Acting as Agent. If any of the foregoing restrictions on transfer of Excess Shares is determined to be void, invalid or unenforceable by any court of competent jurisdiction, then the Purported Record Transferee may be deemed, at the option of the Trust, to have acted as an agent of the Trust in acquiring such Excess Shares and to hold such Excess Shares on behalf of the Trust. (t) Call by Trust on Excess Shares. Excess Shares shall be deemed to have been offered for sale to the Trust, or its designee, at a price per Share equal to the lesser of (i) the price per Share in the transaction which created such Excess Shares (or, in the case of a devise, gift or other transaction in which no value was given for such Excess Shares, the Market Price at the time of such devise, gift or other transaction) and (ii) the Market Price of the Shares to which such Excess Shares relate on the date the Trust, or its designee, accepts such offer (the "Redemption Price"). The Trust shall have the right to accept ---------------- such offer for a period of 90 days after the later of (A) the date of the Transfer which resulted in such Excess Shares and (B) the date the Board determines in good faith that a Transfer resulting in Excess Shares has occurred, if the Trust does not receive a notice of such Transfer pursuant to subsection (e) of this Section 18, but in no event later than a permitted Transfer pursuant to and in compliance with the terms of subsection (r) of this Section 18. Unless the Board determines that it is in the interests of the Trust to make earlier payments of all of the amount determined as the Redemption Price per Share in accordance with the preceding sentence, the Redemption Price may be payable at the option of the Board at any time up to but not later than five years after the date the Trust accepts the offer to purchase the Excess Shares. In no event shall the Trust have an obligation to pay interest to the Purported Record Transferee. 21 (u) Underwritten Offerings. The Ownership Limit shall not apply to the acquisition of Shares or rights, options or warrants for, or securities convertible into, Shares by an underwriter in a public offering, provided that the underwriter makes a timely distribution of such Shares or rights, options or warrants for, or securities convertible into, Shares. Section 18A. Transferability; Transfer Restrictions and Ownership Limitations of the Smith Preferred Shares. (a) Definitions. For purposes of this Section 18A, the following terms shall have the following meanings: "Acquire" shall mean the acquisition of Beneficial or Constructive ------- Ownership of Shares of the Trust by any means including, without limitation, (i) the acquisition of direct ownership of Shares by any Person, including through the exercise of Acquisition Rights or any other option, warrant, pledge, other security interest or similar right to acquire Shares, and (ii) the acquisition of indirect ownership of Shares (taking into account the constructive ownership rules of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code) by a Person who is an individual within the meaning of Section 542(a)(2) of the Code, including, without limitation, through the acquisition by any Person of Acquisition Rights or any option, warrant, pledge, security interest, or similar right to acquire Shares. The term "Acquisition" shall have the correlative meaning. "Acquisition Rights" shall mean rights to Acquire Shares pursuant to: ------------------ (i) the exercise of any option to acquire Shares; or (ii) any pledge of Shares. "Adoption Date" shall mean the date of the adoption of the ownership ------------- restrictions contained in this Section 18A by resolution of the Board, which shall be deemed to occur upon the Board's adoption of this Declaration of Trust. "Beneficial Ownership" shall mean, with respect to any Person, -------------------- ownership of Shares by that Person equal to the sum of (i) the Shares directly owned by such Person and (ii) the Shares indirectly owned by such Person (if such Person is an "individual" as defined in Section 542(a)(2) of the Code) taking into account constructive ownership determined under Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code (except where expressly provided otherwise). The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall have the correlative meanings. "Code" shall mean the Internal Revenue Code of 1986, as amended, and ---- the regulations promulgated thereunder. "Constructive Ownership" shall mean ownership of Shares either ---------------------- directly by a Person or constructively by a Person through the application of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive Owner," "Constructively Owns," and "Constructively Owned" shall have the correlative meanings. 22 "Constructive Ownership Prohibitions" shall mean as follows: (i) no ----------------------------------- Smith and Kogod Holder, nor any Person whose ownership of Shares would cause a Smith and Kogod Holder to be considered to Constructively Own such Shares, nor any Person who would be considered to Constructively Own Shares that are Constructively Owned by a Smith and Kogod Holder, shall be permitted to Acquire Shares (whether by reason of the exercise of the Redemption Right or otherwise) if, after giving effect to and as a result of such Acquisition, (a) as the result of such Acquisition, any tenant or subtenant of real property considered owned, directly or indirectly, by the Trust for purposes of Section 856(d)(2)(B) of the Code would be regarded as a "related party tenant" of the Trust for purposes of Section 856(d)(2)(B) of the Code and (b) the total rental income considered derived by the Trust for the calendar year of such Acquisition or any calendar year thereafter from all "related party tenants" could reasonably be expected (either at such time or in the foreseeable future) to exceed one-half of one percent (0.5%) of the gross income of the Trust (as determined for purposes of Section 856(c)(2) of the Code) for such calendar year, and (ii) no Person (other than a Person subject to (i) of this paragraph) shall be permitted to Acquire Shares (whether by reason of the exercise of the Redemption Right or otherwise) if, after giving effect to and as a result of such acquisition, such Person would Constructively Own more than 9.8% of the outstanding Shares. "Excess Shares" shall have the meaning given to such term in Section ------------- 18 of the Declaration of Trust. "Market Price" on any date shall mean, with respect to any class or ------------ series of outstanding Shares, the average of the Closing Price for such Shares for the five consecutive Trading Days ending on such date. The "Closing Price" on any date shall mean the last sale price for such series Shares, regular way, or, in case no such sale takes place on such date, the average of the closing bid and asked prices, regular way, for such Shares, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such series of Shares in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if such Shares are not listed or admitted to trading on the NYSE, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such Shares are listed or admitted to trading or, if such Shares are not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotation systems that may then be in use or, if such Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such Shares selected by the Board of the Trust. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the applicable Shares are listed or admitted to trading is open for the transaction of business, or, if such Shares are not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or 23 a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. "Ownership Limit" shall mean 9.8% either in number of shares or value --------------- (whichever is more restrictive) of the outstanding Shares of the Trust. "Person" shall mean an individual, corporation, partnership, estate, ------ trust (including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended; but does not include an underwriter which participates in a public offering of Shares for a period of 90 days following the purchase by such underwriter of the Shares, provided that the ownership of Shares by such underwriter would not result in the Trust being "closely held" within the meaning of Section 856(h) of the Code or otherwise result in the Trust failing to qualify as a REIT. "REIT" shall mean a "real estate investment trust" under Section 856 ---- of the Code. "REIT Provisions of the Code" means Sections 856 through 860 of the --------------------------- Code and any successor or other provisions of the Code relating to real estate investment trusts (including provisions as to the attribution of ownership of beneficial interests therein) and the regulations promulgated thereunder. "Redemption Right" shall mean the right set forth in Section 6.6 of ---------------- the Declaration of Trust of the Archstone-Smith Operating Trust. "Restriction Termination Date" shall mean the first day after the ---------------------------- Adoption Date on which the Trust determines that it is no longer in the best interests of the Trust to attempt to, or continue to, qualify as a REIT. "Shares" shall mean all classes or series of shares of the Trust, ------ including without limitation, Common Shares, Smith Preferred Shares and Excess Shares. "Smith and Kogod Holders" shall mean, collectively, Robert H. Smith, ----------------------- Robert P. Kogod, each of the spouses and children of Robert H. Smith and Robert P. Kogod, Charles E. Smith Management, Inc., Charles E. Smith Construction Management, Inc., Consolidated Engineering Services, Inc. and any other Person who is or would be either a Beneficial Owner or Constructive Owner of Shares as a result of the Beneficial Ownership or Constructive Ownership of Shares by any of Robert H. Smith, Robert P. Kogod or the spouses of Robert H. Smith and Robert P. Kogod, or whose ownership of Shares would cause any of Robert H. Smith, Robert P. Kogod or the spouses of Robert H. Smith and Robert P. Kogod, to be a Beneficial Owner or Constructive Owner of such Shares. 24 "Smith Preferred Shares" shall mean the Series H Preferred Shares, ---------------------- Series I Preferred Shares, Series J Preferred Shares, Series K Preferred Shares, Series L Preferred Shares, or Series M Preferred Shares of the Trust or any of the foregoing . "Transfer" shall mean any sale, transfer, gift, assignment, devise or -------- other disposition of Smith Preferred Shares that results in a change in the record, Beneficial Ownership or Constructive Ownership of the Smith Preferred Shares or the right to vote or receive dividends on the Smith Preferred Shares (including without limitation (i) the granting of any option or entering into any agreement for the sale, transfer or other disposition of the Smith Preferred Shares or the right to vote or receive dividends on the Smith Preferred Shares or (ii) the sale, transfer, assignment or other disposition or grant of any Acquisition Rights or other securities or rights convertible into or exchangeable for the Smith Preferred Shares, or the right to vote or receive dividends on the Smith Preferred Shares), whether voluntary or involuntary, whether of record, Beneficially or Constructively and whether by operation of law or otherwise. (b) Ownership Limitation. (i) Except as provided in subsection (i) of this Section 18A, during the period commencing on the date of the Adoption Date and prior to the Restriction Termination Date: (A) no Person shall Acquire or Beneficially Own any Smith Preferred Shares if, as the result of such Acquisition or Beneficial Ownership, such Person would Beneficially Own Shares in excess of the Ownership Limit; (B) no Person shall Acquire or Constructively Own any Smith Preferred Shares if, as the result of such Acquisition or Constructive Ownership, any Person would Constructively Own Shares in violation of the Constructive Ownership Prohibitions; (C) no Person shall Acquire any Smith Preferred Shares if, as a result of such Acquisition, the Shares would be Beneficially Owned by less than 100 Persons (determined without reference to any rules of attribution); and (D) no Person shall Acquire or Beneficially Own any Smith Preferred Shares if, as a result of such Acquisition or Beneficial Ownership, the Trust would be "closely held" within the meaning of Section 856(h) of the Code. (ii) Any Transfer (whether or not such Transfer is the result of a transaction entered into through the facilities of the New York Stock Exchange) that, if effective, would result in a violation of the restrictions in this subsection (b) of this Section 18A shall be void ab initio as to the Transfer of such Shares that would cause the violation of the applicable restriction in this subsection (b) of this Section 18A, and the intended transferee shall acquire no rights in such Shares. 25 (c) Remedies for Breach. If the Board or a committee thereof shall at any time determine in good faith that a purported Transfer or other event has taken place in violation of subsection (b) of this Section 18A or that a Person intends to Acquire or has attempted to Acquire Beneficial Ownership or Constructive Ownership of any Shares that will result in violation of subsection (b) of this Section 18A (whether or not such violation is intended), the Board or a committee thereof shall take such action as it or they deem advisable to refuse to give effect to or to prevent such Transfer or other event, including, but not limited to, refusing to give effect to such Transfer on the books of the Trust or instituting proceedings to enjoin such Transfer. (d) Notice to Trust. Any Person who Acquires or attempts or intends to Acquire Shares in violation of subsection (b) of this Section 18A or any Person who is a transferee in a Transfer or is otherwise affected by an event, shall immediately give written notice to the Trust of such Transfer or other event and shall provide to the Trust such other information as the Trust may request in order to determine the effect, if any, of such Transfer or attempted, intended or purported Transfer or other event on the Trust's status as a REIT. (e) Information for Trust. From after the Adoption Date and prior to the Restriction Termination Date: (i) every shareholder of record of more than 5% (or such lower percentage as required by the Code or regulations promulgated thereunder) of the number or value of the outstanding Shares shall, if such Shares include Smith Preferred Shares, within 30 days after December 31 of each year, give written notice to the Trust stating the name and address of such record shareholder, the number of Shares Beneficially Owned by it, and a description of how such Shares are held; provided that a shareholder of record who holds outstanding Shares as nominee for another person, which other person is required to include in gross income, for U.S. federal income tax purposes, the dividends received on such Shares (an "Actual Owner"), shall give written notice to the Trust stating the name and address of such Actual Owner and the number of shares of such Actual Owner with respect to which the shareholder of record is nominee. (ii) every Actual Owner of more than 5% (or such lower percentage as required by the Code or regulations promulgated thereunder) of the number or value of the outstanding Shares who is not a shareholder of record, shall, if such Shares include Smith Preferred Shares, within 30 days after December 31 of each year give written notice to the Trust stating the name and address of such Actual Owner, the number of Shares Beneficially Owned, and a description of how such Shares are held. (iii) each person who is a Beneficial Owner or Constructive Owner of Shares, if such Shares include Smith Preferred Shares, and each Person (including the shareholder of record) who is holding Shares for a Beneficial Owner or Constructive Owner, if such Shares include Smith Preferred Shares, shall provide to the Trust such information as the Trust may request, in good faith, in order to determine the Trust's compliance with the REIT provisions of the Code. 26 (f) Remedies Not Limited. Nothing contained in this Section 18A shall limit the authority of the Board to take such other action as it deems necessary or advisable to protect the Trust and the interests of its shareholders in preserving the Trust's status as a REIT. (g) No Remedy Against Transferor. A purported transferee shall have no claim, cause of action, or any other recourse whatsoever against a transferor of Shares acquired by such purported transferee in violation of subsection (b) of this Section 18A. (h) Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Section 18A, including any definition contained in subsection (a) of Section 18A, the Board shall have the power to determine the application of the provisions of this Section 18A with respect to any situation based on the facts known to it. (i) Exception. The Board, in its sole discretion, may exempt a Person from the Ownership Limit or the Constructive Ownership Prohibitions, as the case may be, with respect to Smith Preferred Shares to be Acquired, Beneficially Owned, or Constructively Owned by such Person (A) if such Person is not an individual for purposes of Section 542(a)(2) of the Code and the Board obtains such representations and undertakings from such Person as it determines are reasonably necessary to ascertain that no individual's Beneficial or Constructive Ownership of such Shares will violate the Ownership Limit, or the Constructive Ownership Prohibitions, as the case may be, or otherwise violate subsection (b) of this Section 18A and (B) if such Person does not own, actually or Constructively, an interest in a tenant of the Trust (or a tenant of an entity owned or controlled by the Trust) that would cause the Trust to own, actually or Constructively, more than a 9.8% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant. Prior to granting any exception pursuant to this subsection (i) of this Section 18A, the Board may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board in its sole discretion, as it may deem necessary or advisable in order to determine or ensure the Trust's status as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board may impose such conditions or restrictions as it deems appropriate in connection with granting such exception. (j) Legend. Each certificate for Smith Preferred Shares shall bear substantially the following legend: "The shares represented by this certificate are subject to restrictions on transfer and ownership for the purpose of the Trust's maintenance of its status as a Real Estate Investment Trust under the Internal Revenue Code of 1986, as amended. Subject to certain further restrictions and except as expressly provided in the Trust's Amended and Restated Declaration of Trust, no Person may Beneficially Own Shares of the Trust in excess of 9.8 percent in number or value of the outstanding Shares of the Trust. Separate restrictions set forth in Sections 18 and 18A of the Trust's Amended and Restated Declaration of Trust apply to restrict the permissible Constructive Ownership of Shares. Any Person who Beneficially Owns or attempts to Beneficially Own Shares in excess of the above limitations must immediately notify 27 the Trust, Shares so held may be subject to mandatory redemption or sale in certain events, certain purported acquisitions of Shares in excess of such limitations shall be void ab initio. A Person who attempts to Beneficially Own Shares in violation of the ownership limitations set forth in Sections 18 or 18A of the Trust's Amended and Restated Declaration of Trust shall have no claim, cause of action, or any other recourse whatsoever against a transferor of such shares. All capitalized terms in this legend have the meanings defined in the Trust's Amended and Restated Declaration of Trust, a copy of which, including the restrictions on transfer, will be sent without charge to each shareholder who so requests." ARTICLE III. SHAREHOLDERS Section 1. Meetings. (a) There shall be an annual meeting of Shareholders at such time and place, either within or without the State of Maryland, as the Board shall prescribe, at which Trustees shall be elected or re-elected and any other proper business may be conducted. The annual meeting of Shareholders shall be held upon proper notice at a convenient location and within a reasonable period following delivery of the annual report. Special meetings of Shareholders may be called by a majority of the Trustees or by the Chairman of the Board, President or Chief Executive Officer of the Trust, and shall be called upon the written request of Shareholders holding in the aggregate not less than 25 percent of the outstanding Shares entitled to vote 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 for the election of successor Trustees. Written or printed notice stating the place, date and time of the Shareholders' meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the day of the meeting either personally or by mail, by or at the direction of the Board or any officer or the person calling the meeting, to each Shareholder of record entitled to vote at such meeting. No other business than that which is stated in the call for a special meeting shall be considered at such meeting. (b) A majority of the outstanding Shares entitled to vote at any meeting represented in person or by proxy shall constitute a quorum at such meeting. Whenever any action is to be taken by the Shareholders, it shall, except as otherwise required by law or this Declaration of Trust or the Bylaws, be authorized by a majority of the number of votes entitled to be cast on the matter. Section 2. Voting. At each meeting of Shareholders, each Shareholder entitled to vote shall have the right to vote, in person or by proxy in any manner permitted under Maryland law, the number of Shares owned by him or her on each matter on which the vote of the Shareholders is taken. In any election of Trustees in which more than one vacancy is to be filled, each Shareholder may vote the number of Shares owned by him or her for each vacancy to be filled as to which such Shares are entitled to vote. There shall be no right of cumulative voting. Each outstanding Share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of 28 Shareholders, except (i) to the extent that this Declaration of Trust or articles supplementary (to the extent permitted by Maryland law) provide otherwise or (ii) as otherwise provided by Maryland law. Section 3. Distributions. The Board may from time to time pay to Shareholders such dividends or distributions in cash, property or other assets of the Trust or in securities of the Trust or from any other source as the Board in its discretion shall determine. The Board shall endeavor to authorize the Trust to pay such dividends and distributions as shall be necessary for the Trust to qualify as a REIT under the REIT Provisions of the Code (so long as such qualification, in the opinion of the Board, is in the best interests of the Shareholders); however, Shareholders shall have no right to any dividend or distribution unless and until authorized by the Board. The exercise of the powers and rights of the Board pursuant to this Section 3 shall be subject to the provisions of any class or series of Shares at the time outstanding and to applicable law. The receipt by any Person in whose name any Shares are registered on the records of the Trust or by his or her duly authorized agent shall be a sufficient discharge for all dividends or distributions payable or deliverable in respect of such Shares and from all liability with respect to the application thereof. Section 4. Annual Report. The Trust shall prepare an annual report concerning its operations for the preceding fiscal year in the manner and within the time prescribed by Title 8. Section 5. Inspection Rights. The books and records of the Trust shall be open to inspection upon the written demand of a Shareholder at any reasonable time for a purpose reasonably related to his or her interests as a Shareholder. Such inspection by a Shareholder may be made in person or by agent or attorney and the right of inspection includes the right to make extracts. Demand of inspection shall be made in writing on the Chief Executive Officer or the Secretary of the Trust at the principal office of the Trust. Section 6. Nonliability and Indemnification. Shareholders shall not be personally or individually liable in any manner whatsoever for any debt, act, omission or obligation incurred by the Trust or the Board and shall be under no obligation to the Trust or its creditors with respect to their Shares other than the obligation to pay to the Trust the full amount of the consideration for which the Shares were issued or to be issued. The Shareholders shall not be liable to assessment and the Board shall have no power to bind the Shareholders personally. The Trust shall indemnify and hold each Shareholder harmless from and against all claims and liabilities, whether they proceed to judgment or are settled or otherwise brought to a conclusion, to which such Shareholder may become subject by reason of his or her being or having been a Shareholder, and shall reimburse such Shareholder for all legal and other expenses reasonably incurred by him or her in connection with any such claim or liability; provided, however, that such Shareholder must give prompt notice as to any such claims or liabilities or suits and must take such action as will permit the Trust to conduct the defense thereof. The rights accruing to a Shareholder under this Section 6 shall not exclude any other right to which such Shareholder may be lawfully entitled, nor shall anything contained herein restrict the right of the Trust to indemnify or reimburse a Shareholder in any appropriate situation even though not specifically provided herein; provided, however, that the Trust shall have no liability to reimburse Shareholders for taxes assessed against them by reason of their ownership of Shares, nor for any losses suffered by reason of changes in the market value of securities of the 29 Trust. No amendment to this Declaration of Trust increasing or enlarging the liability of the Shareholders shall be made without the unanimous vote or written consent of all of the Shareholders. Section 7. Notice of Nonliability. The Board shall use every reasonable means to assure that all persons having dealings with the Trust shall be informed that the private property of the Shareholders and the Trustees shall not be subject to claims against and obligations of the Trust to any extent whatever. The Board shall cause to be inserted in every written agreement, undertaking or obligation made or issued on behalf of the Trust, an appropriate provision to the effect that the Shareholders and the Trustees shall not be personally liable thereunder, and that all parties concerned shall look solely to the Trust property for the satisfaction of any claim thereunder, and appropriate reference shall be made to this Declaration of Trust. The omission of such a provision from any such agreement, undertaking or obligation, or the failure to use any other means of giving such notice, shall not, however, render the Shareholders or the Trustees personally liable or such agreement, undertaking or obligation unenforceable. ARTICLE IV. THE TRUSTEES Section 1. Number, Qualification, Compensation and Term. (a) The Board shall be comprised of not less than three nor more than 15 Trustees. The current number of Trustees is 9, which may be changed from time to time by resolution of the Board within the limits provided in the preceding sentence. Trustees may succeed themselves in office. Trustees shall be individuals who are at least 21 years old and not under any legal disability. No Trustee shall be required to give bond, surety or securities to secure the performance of his or her duties or obligations hereunder. No reduction in the number of Trustees shall have the effect of removing any Trustee from office prior to the expiration of his or her term. Whenever a vacancy among the Trustees shall occur, until such vacancy is filled as provided in Section 3, the Trustee or Trustees continuing in office, regardless of their number, shall have all of the powers granted to the Board and shall discharge all of the duties imposed on the Board by this Declaration of Trust. The Trustees shall receive such fees for their services and expenses as they shall deem reasonable and proper. A majority of the Trustees shall not be officers or employees of the Trust. (b) The Board shall be divided into three classes of Trustees, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of Trustees constituting the entire Board. The term of office of each Trustee shall be three years and until his or her successor is elected and qualifies, subject to prior death, resignation or removal. At the 2002 annual meeting of Shareholders, Class I Trustees shall be elected; at the 2003 annual meeting of Shareholders, Class II Trustees shall be elected; and at the 2004 annual meeting of Shareholders, Class III Trustees shall be elected. At each succeeding annual meeting of Shareholders, beginning in 2002, successors to the class of Trustees whose term expires at such annual meeting shall be elected. If the authorized number of Trustees constituting the Board is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of Trustees in each class as nearly equal as possible, and any additional Trustee of any class elected to fill a vacancy resulting from an increase in such class shall hold office until the next 30 annual meeting of shareholders, but in no case shall a decrease in the number of Trustees constituting the Board shorten the term of any incumbent Trustee. The names, classes and addresses of the current Trustees, are as follows:
Name Class Address - ---- ----- ------- James A. Cardwell I 7670 South Chester Street, Englewood, Colorado 80112 Ernest A. Gerardi, Jr. III 2345 Crystal Drive, Crystal Park #4, Arlington, Virginia 22202 Robert P. Kogod I 2345 Crystal Drive, Crystal Park #4, Arlington,Virginia 22202 James H. Polk, III I 7670 South Chester Street, Englewood, Colorado 80112 Ned S. Holmes III 7670 South Chester Street, Englewood, Colorado 80112 John M. Richman II 7670 South Chester Street, Englewood, Colorado 80112 John C. Schweitzer II 7670 South Chester Street, Englewood, Colorado 80112 R. Scot Sellers III 7670 South Chester Street, Englewood, Colorado 80112 Robert H. Smith II 2345 Crystal Drive, Crystal Park #4, Arlington, Virginia 22202
The records of the Trust shall be revised to reflect the names, classes and addresses of the current Trustees, at such times as any change has occurred. Section 2. Resignation, Removal and Death. A Trustee may resign at any time by giving written notice thereof in recordable form to the other Trustees at the principal office of the Trust. The acceptance of a resignation shall not be necessary to make it effective. A Trustee may be removed with or without cause by the shareholders by the affirmative vote of two-thirds of all of the votes entitled to be cast in the election of Trustees or by the Trustees then in office by a two-thirds vote (which action shall be taken only by vote at a meeting and not by authorization without a meeting, notwithstanding anything in Section 4 of this Article IV to the contrary); provided, however, that in the -------- ------- case of any Trustees elected by holders of a class or series of preferred Shares, such Trustees may be removed without cause solely by the affirmative unanimous vote of the holders of that class or series of preferred Shares. Upon the resignation or removal of any Trustee, he or she shall execute and deliver such documents and render such accounting as the remaining Trustee or Trustees shall require and shall thereupon be discharged as Trustee. Upon the incapacity or death of any Trustee, his or her status as a Trustee shall immediately terminate, and his or her legal representatives shall perform the acts set forth in the preceding sentence. Section 3. Vacancies. The resignation, removal, incompetency or death of any or all of the Trustees shall not terminate the Trust or affect its continuity. During a vacancy, the remaining Trustee or Trustees may exercise the powers of the Trustees hereunder. Whenever there shall be a vacancy or vacancies among the Trustees (including vacancies resulting from an increase in the number of Trustees), such vacancy or vacancies shall be filled (i) at a special meeting of Shareholders called for such purpose (which may be by written consent), (ii) by the Trustee or Trustees then in office or (iii) at the next annual meeting of Shareholders provided, however, than any vacancy among the Trustees elected by a -------- ------- class or series of preferred Shares may be filled by a majority of the remaining Trustees elected by that class or series of preferred Shares (or the sole remaining such Trustee) or by the holders of that class or series of Preferred Shares. Trustees elected at special 31 meetings of Shareholders to fill vacancies shall hold office for the balance of the unexpired term of the Trustees whom they are replacing or whose vacancy they are filling (or in the case of a vacancy created by an increase in the number of Trustees, for the balance of the unexpired term of Trustees of the same class of Trustees). Any Trustee appointed by the remaining Trustee or Trustees to fill vacancies shall hold office until the next annual meeting of Shareholders and until his or her successor is elected and qualifies. Section 4. Meetings and Action Without a Meeting. The Board may act with or without a meeting. Except as otherwise provided herein, any action of a majority of Trustees present at a duly convened meeting of the Board shall be conclusive and binding as an action of the Board. A quorum for meetings of the Board shall be a majority of all of the Trustees in office. Action may be taken without a meeting in any manner and by any means permitted by Maryland law only by unanimous consent of all of the Trustees in office and shall be evidenced by a written certificate or instrument signed by all of the Trustees in office. Any action taken by the Board in accordance with the provisions of this Section 5 shall be conclusive and binding on the Trust, the Trustees and the Shareholders, as an action of all of the Trustees, collectively, and of the Trust. Any deed, mortgage, evidence of indebtedness or other instrument, agreement or document of any character, whether similar or dissimilar, executed by one or more of the Trustees, when authorized at a meeting or by written authorization without a meeting in accordance with the provisions of this Section 5, shall be valid and binding on the Trustees, the Trust and the Shareholders. Section 5. Authority. The Trustees shall have absolute and exclusive control over the management and conduct of the business affairs of the Trust, free from any power or control on the part of the Shareholders, subject only to the express limitations in this Declaration of Trust. Section 6. Powers. The Board shall have all of the powers necessary, convenient or appropriate to effectuate the purposes of the Trust and may take any action which it deems necessary or desirable and proper to carry out such purposes. Any determination of the purposes of the Trust made by the Board in good faith shall be conclusive. In construing the provisions of this Declaration of Trust, the presumption shall be in favor of the grant of powers to the Board. Without limiting the generality of the foregoing, the Board's powers on behalf of the Trust shall include the following: (a) To purchase, acquire through the issuance of Shares in the Trust, obligations of the Trust or otherwise, mortgage, sell, acquire on lease, hold, manage, improve, lease to others, option, exchange, release and partition real estate interests of every nature, including freehold, leasehold, mortgage, ground rent and other interests therein; and to erect, construct, alter, repair, demolish or otherwise change buildings and structures of every nature. (b) To purchase, acquire through the issuance of Shares in the Trust, obligations of the Trust or otherwise, option, sell and exchange stocks, bonds, notes, certificates of indebtedness and securities of every nature. (c) To purchase, acquire through the issuance of Shares in the Trust, obligations of the Trust or otherwise, mortgage, sell, acquire on lease, hold, manage, improve, lease to others, option and exchange personal property of every nature. (d) To hold legal title to property of the Trust in the name of the Trust. 32 (e) To borrow money for the purposes of the Trust and to give notes or other negotiable or nonnegotiable instruments of the Trust therefor; to enter into other obligations or guarantee the obligations of others on behalf of and for the purposes of the Trust; and to mortgage or pledge or cause to be mortgaged or pledged real and personal property of the Trust to secure such notes, debentures, bonds, instruments or other obligations. (f) To lend money on behalf of the Trust and to invest the funds of the Trust. (g) To create reserve funds for such purposes as it deems advisable. (h) To deposit funds of the Trust in banks and other depositories without regard to whether such accounts will draw interest. (i) To pay taxes and assessments imposed on or chargeable against the Trust or the Trustees by virtue of or arising out of the existence, property, business or activities of the Trust. (j) To purchase, issue, sell or exchange Shares as provided in Article II. (k) To exercise with respect to property of the Trust, all options, privileges and rights, whether to vote, assent, subscribe or convert, or of any other nature; to grant proxies; and to participate in and accept securities issued under any voting trust agreement. (l) To participate in any reorganization, readjustment, consolidation, merger, dissolution, sale or purchase of assets, lease or similar proceedings of any corporation, partnership or other organization in which the Trust shall have an interest and in connection therewith to delegate discretionary powers to any reorganization, protective or similar committee and to pay assessments and other expenses in connection therewith. (m) To engage or employ agents, representatives and employees of any nature, or independent contractors, including, but not limited to, transfer agents for the transfer of Shares in the Trust, registrars, underwriters for the sale of Shares in the Trust, independent certified public accountants, attorneys at law, appraisers and real estate agents and brokers; and to delegate to one or more Trustees, agents, representatives, employees, independent contractors or other persons such powers and duties as the Board deems appropriate. (n) To determine conclusively the allocation between capital and income of the receipts, holdings, expenses and disbursements of the Trust, regardless of the allocation which might be considered appropriate in the absence of this provision. (o) To determine conclusively the value from time to time and to revalue the real estate, securities and other property of the Trust by means of independent appraisals. (p) To compromise or settle claims, questions, disputes and controversies by, against or affecting the Trust. 33 (q) To solicit proxies of the Shareholders. (r) To adopt a fiscal year for the Trust and to change such fiscal year in accordance with the REIT Provisions of the Code. (s) To adopt and use a seal. (t) To merge the Trust with or into any other trust, corporation or other entity in accordance with Maryland law and the other provisions of this Declaration of Trust. (u) To deal with the Trust property in every way, including joint ventures, partnerships and any other combinations or associations, which it would be lawful for an individual to deal with the same, whether similar to or different from the ways herein specified. (v) To determine whether or not, at any time or from time to time, to attempt to cause the Trust to qualify for taxation, or to terminate the status of the Trust, as a REIT. (w) To make, adopt, amend or repeal Bylaws containing provisions relating to the business of the Trust, the conduct of its affairs, its rights or powers and the rights or powers of its Shareholders, Trustees or officers not inconsistent with law or this Declaration of Trust. (x) To serve as a trustee of a real estate investment trust or of any other entity or to act as a fiduciary, partner, limited partner, manager, member, or in any other representative capacity, as the case may be, with respect to any other entity. (y) 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, to promote any of the purposes of the Trust and to carry out the provisions of this Declaration of Trust. Section 7. Right to Own Shares. A Trustee may acquire, hold and dispose of Shares in the Trust for his or her individual account and may exercise all rights of a Shareholder to the same extent and in the same manner as if he or she were not a Trustee. Section 8. Transactions with Trust. Subject to the provisions of Section 5 of Article I, and to any restrictions in this Declaration of Trust or adopted by the Board in the Bylaws or by resolution, the Trust may enter into any contract or transaction of any kind (including, but not limited to, for the purchase or sale of property or for any type of services, including those in connection with underwriting or the offer or sale of securities of the Trust) with any person, including any Trustee, officer, employee or agent of the Trust or any person affiliated with a Trustee, officer, employee or agent of the Trust, whether or not any of them has a financial interest in such transaction. Section 9. Limitation of Liability. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of trustees of a real estate investment trust, no Trustee of the Trust shall be liable to the Trust or to any Shareholder for money damages. Neither 34 the amendment nor repeal of this Section 9, nor the adoption or amendment of any other provision of this Declaration of Trust inconsistent with this Section 9, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. In the absence of any Maryland statute limiting the liability of trustees of a Maryland real estate investment trust for money damages in a suit by or on behalf of the Trust or by any Shareholder, no Trustee of the Trust shall be liable to the Trust or to any Shareholder for money damages except to the extent that (i) the Trustee actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received; or (ii) a judgment or other final adjudication adverse to the Trustee is entered in a proceeding based on a finding in the proceeding that the Trustee's action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Section 10. Indemnification. The Trust shall indemnify each Trustee, to the fullest extent permitted by Maryland law, as amended from time to time, in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she was a Trustee of the Trust or is or was serving at the request of the Trust as a director, trustee, officer, partner, manager, member, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, limited liability company, other enterprise or employee benefit plan, from all claims and liabilities to which such person may become subject by reason of service in such capacity and shall pay or reimburse reasonable expenses, as such expenses are incurred, of each Trustee in connection with any such proceedings. Section 11. Persons Dealing with Trustees. No corporation, person, transfer agent or other party shall be required to examine or investigate the trust, terms or conditions contained in this Declaration of Trust or otherwise applicable to the Trust, and no such corporation, person, transfer agent or other party dealing with the Trustees or with the Trust or Trust property and assets shall be required to see to the application of any money or property paid or delivered to any Trustee, or nominee, agent or representative of the Trust or the Trustees. A certificate executed by or on behalf of the Trustees or by any other duly authorized representative of the Trust delivered to any person or party dealing with the Trust or Trust property and assets, or, if relating to real property, recorded in the deed records for the county or district in which such real property lies, certifying as to the identity and authority of the Trustees, agents or representatives of the Trust for the time being, or as to any action of the Trustees or of the Trust, or of the Shareholders, or as to any other fact affecting or relating to the Trust or this Declaration of Trust, may be treated as conclusive evidence thereof by all persons dealing with the Trust. No provision of this Declaration of Trust shall diminish or affect the obligation of the Trustees and every other representative or agent of the Trust to deal fairly and act in good faith with respect to the Trust and the Shareholders insofar as the relationship and accounting among the parties to the Trust is concerned; but no third party dealing with the Trust or with any Trustee, agent or representative of the Trust shall be obliged or required to inquire into, investigate or be responsible for the discharge and performance of such obligation. Section 12. Administrative Powers. The Board shall have the power to pay the expenses of administration of the Trust, including all legal and other expenses in connection with the 35 preparation and carrying out of the acquisition of properties and the issuance of Shares; and to employ such officers, experts, counsel, managers, salesmen, agents, workmen, clerks and other persons as they deem appropriate. Section 13. Election of Officers. The Board shall annually elect a Chairman of the Board (or two or more Co-Chairmen of the Board) and a Secretary of the Trust. The Board may also annually elect one or more Chief Financial Officers, Chief Operating Officers, Vice Presidents, a Treasurer, Assistant Secretaries, Assistant Treasurers and such other officers as the Board shall deem proper. Except as required by law, the officers of the Trust need not be Trustees. All officers and agents of the Trust shall have such authority and perform such duties in the management of the Trust as may be provided in the Bylaws or as may be determined by the Board not inconsistent with the Bylaws. Any officer or agent elected or appointed by the Board may be removed by the Board whenever in its judgment the best interest of the Trust will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of any officer or agent shall not of itself create contract rights. The Board shall fix the compensation of all officers. Section 14. Committees and Delegation of Powers and Duties. The Board may, in its discretion, by resolution passed by a majority of the Trustees, designate from among its members one or more committees which shall consist of one or more Trustees. The Board may designate one or more Trustees as alternate members of any such committee, who may replace any absent or disqualified member at any meeting of the committee. Such committees shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing them (including, but not limited to, the determination of the type and amount of consideration at which Shares are to be issued). A majority of any such committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. The Board, by resolution passed by a majority of the Trustees, may at any time change the membership of any such committee, fill vacancies on it or dissolve it. The Bylaws, or a majority of the Trustees, may authorize any one or more of the Trustees, or any one or more of the officers or employees or agents of the Trust, on behalf of the Trust, to exercise and perform any and all powers granted to the Board, and to discharge any and all duties imposed on the Board, and to do any acts and to execute any instruments deemed by such person or persons to be necessary or appropriate to exercise such power or to discharge such duties, and to exercise his or her own judgment in so doing. ARTICLE V. TERMINATION AND DURATION Section 1. Termination. Subject to the provisions of any class or series of Shares at the time outstanding, after approval by a majority of the entire Board of Trustees the Trust may be terminated at any meeting of Shareholders called for such purpose, by the affirmative vote of the holders of not less than a majority of the outstanding Shares. In connection with any termination of the Trust, the Board, upon receipt of such releases or indemnity as they deem necessary for their protection, may 36 (a) Sell and convert into cash the property of the Trust and distribute the net proceeds among the Shareholders ratably; or (b) Convey the property of the Trust to one or more persons, entities, trusts or corporations for consideration consisting in whole or in part of cash, shares of stock or other property of any kind, and distribute the net proceeds among the Shareholders ratably, at valuations fixed by the Board, in cash or in kind, or partly in cash and partly in kind. Upon termination of the Trust and distribution to the Shareholders as herein provided, a majority of the Trustees shall execute and place among the records of the Trust an instrument in writing setting forth the fact of such termination, and the Trustees shall thereupon be discharged from all further liabilities and duties hereunder, and the right, title and interest of all Shareholders shall cease and be canceled and discharged. Section 2. Organization as a Corporation. If the Board deems it in the best interests of the Shareholders that the Trust be organized as a corporation under the laws of any state, the Board shall have the power to organize such corporation, under the laws of such state as it may consider appropriate, in the place and stead of the Trust upon the affirmative vote of a majority of all the votes entitled to be cast on the matter, in which event the capital stock of such corporation shall be and remain the same as fixed under this Declaration of Trust unless otherwise approved in accordance with this Declaration of Trust and applicable law, and the Shareholders shall receive and accept stock in such corporation on the same basis as they hold Shares in the Trust. Section 3. Merger, Consolidation or Sale. The Trust shall have the power to (i) merge with or into another entity, (ii) consolidate the Trust with one or more other entities into a new entity or (iii) sell or otherwise dispose of all or substantially all of the assets of the Trust; provided that such action shall have been approved by the Board of Trustees and by the Shareholders, at a meeting called for such purpose, by the affirmative vote of the holders of not less than a majority of the Shares then outstanding and entitled to vote thereon; provided, however, that the Shareholders shall not be -------- ------- entitled to vote on a merger or consolidation of the Trust which Title 8 or this Declaration of Trust permits to be approved without a vote of the Shareholders. Section 4. Duration. Subject to possible earlier termination in accordance with the provisions of this Article V, the duration of the Trust shall be perpetual or, in any jurisdiction in which such duration is not permitted, then the Trust shall terminate on the latest date permitted by the law of such jurisdiction. ARTICLE VI. AMENDMENTS Section 1. Amendment by Shareholders. Except as provided in Section 2 of this Article VI and in Section 1 of Article II and in Article IV, this Declaration of Trust may be amended only by the affirmative vote or written consent of the holders of at least a majority of the Shares then outstanding and entitled to vote thereon after approval of a majority of the entire Board. 37 Section 2. Amendment by Trustees. The Trustees by a two-thirds vote may amend provisions of this Declaration of Trust from time to time to enable the Trust to qualify as a real estate investment trust under the REIT Provisions of the Code or under Title 8. Section 3. Requirements of Maryland Law. Except as provided in Article II, Section 1(b) or in this Article VI, this Declaration of Trust may only be amended in accordance with Section 8-501 of Title 8. ARTICLE VII. MISCELLANEOUS Section 1. Construction. This Declaration of Trust shall be construed in such a manner as to give effect to the intent and purposes of the Trust and this Declaration of Trust. If any provisions hereof appear to be in conflict, more specific provisions shall control over general provisions. This Declaration of Trust shall govern all of the relationships among the Trustees and Shareholders of the Trust; and each provision hereof shall be effective for all purposes and to all persons dealing with the Trust to the fullest extent possible under applicable law in each jurisdiction in which the Trust shall engage in business. In defining or interpreting the powers and duties of the Trust and the Trustees and officers of the Trust, reference may be made, to the extent appropriate and not inconsistent with the Code, Title 8 and this Declaration of Trust, to Titles 1 through 3 of the Corporations and Associations Article of the Annotated Code of Maryland. Section 2. Headings for Reference Only. Headings preceding the text of articles, sections and subsections hereof have been inserted solely for convenience and reference, and shall not be construed to affect the meaning, construction or effect of this Declaration of Trust. Section 3. Filing and Recording. This Declaration of Trust shall be filed in the manner prescribed for real estate investment trusts under Maryland law and may be filed for record in any county where real property is owned by the Trust. Section 4. Applicable Law. This Declaration of Trust has been executed with reference to, and its construction and interpretation shall be governed by, Maryland law, and the rights of all parties and the construction and effect of every provision hereof shall be subject to and construed according to Maryland law. Section 5. Certifications. Any certificates signed by a person who, according to the records of the State Department of Assessments and Taxation of Maryland, appears to be a Trustee hereunder, shall be conclusive evidence as to the matters so certified in favor of any person dealing with the Trust or the Trustees or any one or more of them, and the successors or assigns of such persons, which certificate may certify to any matter relating to the affairs of the Trust, including, but not limited to, any of the following: a vacancy among the Trustees; the number and identity of Trustees; this Declaration of Trust and any amendments or supplements thereto, or any restated declaration of trust and any amendments or supplements thereto, or that there are no amendments to this Declaration of Trust or any restated declaration of trust; a copy of the Bylaws or any amendment thereto; the due authorization of the execution of any instrument or writing; the vote at any meeting 38 of the Board or a committee thereof or Shareholders; the fact that the number of Trustees present at any meeting or executing any written instrument satisfies the requirements of this Declaration of Trust; a copy of any Bylaw adopted by the Shareholders or the identity of any officer elected by the Board; or the existence or nonexistence of any fact or facts which in any manner relate to the affairs of the Trust. If this Declaration of Trust or any restated declaration of trust is filed or recorded in any recording office other than the State Department of Assessments and Taxation of Maryland, any one dealing with real estate so located that instruments affecting the same should be filed or recorded in such recording office may rely conclusively on any certificate of the kind described above which is signed by a person who according to the records of such recording office appears to be a Trustee hereunder. In addition, the Secretary or any Assistant Secretary of the Trust or any other officer of the Trust designated by the Bylaws or by action of the Board may sign any certificate of the kind described in this Section 5, and such certificate shall be conclusive evidence as to the matters so certified in favor of any person dealing with the Trust, and the successors and assigns of such person. Section 6. Severability. If any provision of this Declaration of Trust shall be 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 of Trust and this Declaration of Trust shall be carried out, if possible, as if such invalid or unenforceable provision were not contained herein. Section 7. Bylaws. The Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, at any meeting of the Board by vote of a majority of the Trustees, subject to repeal or change by action of the Shareholders of the Trust entitled to vote thereon. Section 8. Recording. This Declaration of Trust shall be filed in the manner prescribed for real estate investment trusts under Maryland law and may also be filed or recorded in such other places as the Board deems appropriate, but failure to file for record this Declaration of Trust or any amendment hereto in any office other than in the State Department of Assessments and Taxation of Maryland shall not affect or impair the validity or effectiveness of this Declaration of Trust or any amendment or supplement hereto. ARTICLE VIII. LIMITATION OF LIABILITY AND INDEMNIFICATION Section 1. Limitation of Liability of Officers. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of officers of a real estate investment trust, no officer of the Trust shall be liable to the Trust or to any Shareholder for money damages. Neither the amendment nor repeal of this Section 1, nor the adoption or amendment of any other provision of this Declaration of Trust inconsistent with this Section 1, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. In the absence of any Maryland statute limiting the liability of officers of a Maryland real estate investment trust for money damages in a suit by or on behalf of the Trust or by any Shareholder, no officer of the Trust shall be liable to the Trust or to any Shareholder for money damages except to the extent that (i) the officer actually received an improper benefit or profit in money, property or services, for the amount of the benefit or profit in money, property or services actually received; or (ii) a judgment or other final 39 adjudication adverse to the officer is entered in a proceeding based on a finding in the proceeding that the officer's action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Section 2. Indemnification of Officers and Employees. The Trust shall indemnify each officer and employee, and shall have the power to indemnify each agent, of the Trust to the fullest extent permitted by Maryland law, as amended from time to time, in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she was an officer, employee or agent of the Trust or is or was serving at the request of the Trust as a director, trustee, officer, partner, manager, member, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, limited liability company, other enterprise or employee benefit plan, from all claims and liabilities to which such person may become subject by reason of service in such capacity and shall pay or reimburse reasonable expenses, as such expenses are incurred, of each officer, employee or agent in connection with any such proceedings. Section 3. Insurance. Notwithstanding any other provisions of this Declaration of Trust, the Trust, for purposes of providing indemnification for its Trustees, officers, employees and agents, shall have the authority, without specific Shareholder approval, to enter into insurance or other arrangements, with persons or entities which are regularly engaged in the business of providing insurance coverage, to indemnify all Trustees, officers, employees and agents of the Trust against any and all liabilities and expenses incurred by them by reason of their being Trustees, officers, employees or agents of the Trust, whether or not the Trust would otherwise have the power under this Declaration of Trust or under Maryland law to indemnify such persons against such liability. Without limiting the power of the Trust to procure or maintain any kind of insurance or other arrangement, the Trust may, for the benefit of persons indemnified by it, (i) create a trust fund, (ii) establish any form of self-insurance, (iii) secure its indemnity obligation by grant of any security interest or other lien on the assets of the Trust or (iv) establish a letter of credit, guaranty or surety arrangement. Any such insurance or other arrangement may be procured, maintained or established within the Trust or with any insurer or other person deemed appropriate by the Board regardless of whether all or part of the stock or other securities thereof are owned in whole or in part by the Trust. In the absence of fraud, the judgment of the Board as to the terms and conditions of insurance or other arrangement and the identity of the insurer or other person participating in any arrangement shall be conclusive, and such insurance or other arrangement shall not be subject to voidability, nor subject the Trustees approving such insurance or other arrangement to liability, on any ground, regardless of whether Trustees participating in and approving such insurance or other arrangement shall be beneficiaries thereof. * * * * * 40 IN WITNESS WHEREOF, the Trust has caused this Amended and Restated Declaration of Trust to be signed in its name and on its behalf as of the date first written above, by the undersigned _______________and attested by its __________. The undersigned __________ acknowledges this Amended and Restated Declaration of Trust to be the trust act of the Trust and as to all matters and facts required to be verified under oath that to the best of his or her knowledge, information and belief, the matters and facts set forth herein are true in all material respects and that this statement is made under the penalties for perjury. NEW GARDEN RESIDENTIAL TRUST By:__________________________________ Name: Title: ATTEST: _____________________________ Name: Title: Being duly authorized by resolution of the Board of Trustees ANNEX A SERIES A CUMULATIVE CONVERTIBLE PREFERRED SHARES OF BENEFICIAL INTEREST (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series A Cumulative Convertible Preferred Shares of Beneficial Interest ("Series A Preferred Shares") and the number of Shares which shall ------------------------- constitute such series shall not be more than 9,200,000 Shares, par value $0.01 per Share, which number may be decreased (but not below the number thereof then outstanding plus the number required to fulfill the Trust's obligations under options, warrants or similar rights issued by the Trust) from time to time by the Board. (b) Definitions. For purposes of the Series A Preferred Shares, the following terms shall have the meanings indicated: "Archstone Communities Trust" shall mean Archstone Communities Trust, --------------------------- a Maryland real estate investment trust now known as Archstone-Smith Operating Trust; provided, however, that notwithstanding anything to the contrary herein, all references to Archstone Communities Trust shall refer solely to such real estate investment trust as it existed prior to the Issue Date and solely with respect to time periods, actions, events or circumstances prior to the Issue Date. "Board" shall mean the Board or any committee authorized by the Board ----- to perform any of its responsibilities with respect to the Series A Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date of the notice to holders required --------- under subsection (e)(iv) of this Section 2. "Common Shares" shall mean the common shares of beneficial interest of ------------- the Trust, par value $0.01 per Share. "Constituent Person" shall have the meaning set forth in subsection ------------------ (f)(viii) of this Section 2. "Conversion Price" shall mean the conversion price per Common Share ---------------- for which the Series A Preferred Shares are convertible, as such Conversion Price may have been and may be adjusted pursuant to subsection (f) of this Section 2. The initial conversion price is $18.561 (equivalent to a conversion rate of 1.3469 Common Shares for each Series A preferred Share). "Current Market Price" of publicly traded common shares or any other -------------------- class of shares or capital stock or other security of the Trust or any other issuer for any day shall mean the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange (the "NYSE") or, if such ---- security is not listed A-1 or admitted for trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or, if such security ------ is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Chairman of the Board or the Board. "Dividend Payment Date" shall mean the last calendar day of March, --------------------- June, September and December in each year, commencing on the first of such days to occur following the Issue Date; provided, however, that if any Dividend Payment Date falls on any day other than a Business Day, the dividend payment due on such Dividend Payment Date shall be paid on the Business Day immediately following such Dividend Payment Date. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- April 1, July 1, October 1 and January 1 of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period. "Fair Market Value" shall mean the average of the daily Current Market ----------------- Prices of a Common Share during the five consecutive Trading Days selected by the Trust commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. The term "ex date," when used with respect to any issuance or distribution, means the first day on which the Common Shares trade regular way, without the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine such day's Current Market Price. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding over which the Series A Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the first date on which the Series A Preferred ---------- Shares were issued . "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding over which the Series A Preferred Shares have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. A-2 "Non-Electing Share" shall have the meaning set forth in subsection ------------------ (f)(viii) of this Section 2. "Parity Shares" shall have the meaning set forth in subsection (h)(ii) ------------- of this Section 2. "Person" shall mean any individual, firm, partnership, corporation or ------ other entity, and shall include any successor (by merger or otherwise) of such entity. "Securities" and "Security" shall have the meanings set forth in ---------- -------- paragraph (C) of subsection (f)(vii) of this Section 2. "Series A Preferred Shares" shall have the meaning set forth in ------------------------- subsection (a) of this Section 2. "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any series or class of Shares; provided, however, that if any funds for any class or series of Junior Shares or any class or series of Shares ranking on a parity with the Series A Preferred Shares as to the payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series A Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Trading Day" shall mean any day on which the securities in question ----------- are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the National Market System of NASDAQ, or if such securities are not quoted on such National Market System, in the applicable securities market in which the securities are traded. "Transaction" shall have the meaning set forth in subsection (f)(viii) ----------- of this Section 2. "Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., New -------------- York City, New York, or such other agent or agents of the Trust as may be designated by the Board or its designee as the transfer agent for the Series A Preferred Shares. A-3 "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (i) of this Section 2. (c) Dividends. (i) The holders of Series A Preferred Shares shall be entitled to receive, when, as and if declared by the Board out of funds legally available for such purpose, dividends payable in cash in an amount per Series A Preferred Share equal to the greater of (A) $1.75 per annum or (B) the dividends (determined on each Dividend Payment Date) on the Common Shares, or portion thereof, into which a Series A Preferred Share is convertible. Such dividends shall equal the number of Common Shares, or portion thereof, into which a Series A Preferred Share is convertible, multiplied by the most current quarterly dividend on a Common Share on or before the applicable Dividend Payment Date. Such dividends shall begin to accrue and shall be fully cumulative from [INSERT MOST RECENT DIVIDEND PAYMENT DATE PRIOR TO CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there shall be funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on Dividend Payment Dates, commencing on the first Dividend Payment Date after the Issue Date. Each such dividend shall be payable in arrears to the holders of record of Series A Preferred Shares, as they appear on the Share records of the Trust at the close of business on such record dates, not more than 50 days preceding such Dividend Payment Dates thereof, as shall be fixed by the Board. Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such date, not exceeding 50 days preceding the payment date thereof, as may be fixed by the Board. (ii) The amount of dividends payable for each full Dividend Period for the Series A Preferred Shares shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for any period shorter or longer than a full Dividend Period on the Series A Preferred Shares shall be computed on the basis of twelve 30-day months and a 360-day year. Holders of Series A Preferred Shares shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of cumulative dividends, as herein provided, on the Series A Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred Shares which may be in arrears. (iii) So long as any Series A Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series A Preferred Shares for all Dividend Periods terminating on or prior to the Dividend Payment Date on such class or series of Parity Shares. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared on Series A Preferred Shares and A-4 all dividends declared on any other class or series of Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series A Preferred Shares and accumulated and unpaid on such Parity Shares. (iv) So long as any Series A Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in, or options, warrants or rights to subscribe for or purchase, Fully Junior Shares) shall be declared, or paid or set apart for payment or other distribution declared or made on Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) the full cumulative dividends on all outstanding Series A Preferred Shares and any other Parity Shares shall have been paid or declared and set apart for payment for all past Dividend Periods with respect to the Series A Preferred Shares and all past dividend periods with respect to such Parity Shares and (B) sufficient funds shall have been paid or declared and set apart for the payment of the dividend for the current Dividend Period with respect to the Series A Preferred Shares and the current dividend period with respect to such Parity Shares. (d) Liquidation Preference. (i) Upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares, the holders of the Series A Preferred Shares shall be entitled to receive Twenty-Five Dollars ($25.00) per Series A Preferred Share plus an amount equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable among the holders of the Series A Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series A Preferred Shares and any such other Parity Shares ratably in accordance with the respective amounts which would be payable on such Series A Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full. For purposes of this subsection (d), (A) a consolidation or merger of the Trust with one or more corporations, (B) a sale or transfer of all or substantially all of the Trust's assets or (C) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (ii) Subject to the rights of the holders of any series or class or classes of Shares ranking on a parity with or senior to the Series A Preferred Shares upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Trust, after A-5 payment shall have been made in full to the holders of the Series A Preferred Shares, as provided in this subsection (d), any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series A Preferred Shares shall not be entitled to share therein. (e) Redemption at the Option of the Trust. (i) Subject to subsection (j) of this Section 2, the Series A Preferred Shares shall not be redeemable by the Trust prior to November 30, 2003. On and after November 30, 2003, the Trust, at its option, may redeem the Series A Preferred Shares, in whole at any time or from time to time in part at the option of the Trust at a redemption price of Twenty-Five Dollars ($25.00) per Series A Preferred Share, plus the amounts indicated in subsection (e)(ii) of this Section 2. (ii) Upon any redemption of Series A Preferred Shares pursuant to this subsection (e), the Trust shall pay any accrued and unpaid dividends in arrears for any Dividend Period ending on or prior to the Call Date. If the Call Date falls after a dividend payment record date and prior to the corresponding Dividend Payment Date, then each holder of Series A Preferred Shares at the close of business on such dividend payment record date shall be entitled to the dividend payable on such Series A Preferred Shares on the corresponding dividend payment date notwithstanding the redemption of such Series A Preferred Shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A Preferred Shares called for redemption. (iii) If full cumulative dividends on the Series A Preferred Shares and any other class or series of Parity Shares have not been paid or declared and set apart for payment, the Series A Preferred Shares may not be redeemed under this subsection (e) in part and the Trust may not purchase or acquire Series A Preferred Shares, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Series A Preferred Shares or pursuant to subsection (j) of this Section 2. (iv) Notice of the redemption of any Series A Preferred Shares under this subsection (e) shall be mailed by first-class mail to each holder of record of Series A Preferred Shares to be redeemed at the address of each such holder as shown on the Trust's record, not less than 30 nor more than 90 days prior to the Call Date. Neither the failure to mail any notice required by this subsection (e)(iv), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (A) the Call Date; (B) the number of Series A Preferred Shares to be redeemed and, if fewer than all of the Series A Preferred Shares held by such holder are to be redeemed, A-6 the number of Series A Preferred Shares to be redeemed from such holder; (C) the place or places at which certificates for such Series A Preferred Shares are to be surrendered; (D) the then-current Conversion Price; and (E) that dividends on the Series A Preferred Shares to be redeemed shall cease to accrue on such Call Date except as otherwise provided herein. Notice having been mailed as aforesaid, from and after the Call Date (unless the Trust shall fail to make available an amount of cash necessary to effect such redemption), (x) except as otherwise provided herein, dividends on the Series A Preferred Shares so called for redemption shall cease to accrue, (y) such Series A Preferred Shares shall no longer be deemed to be outstanding and (z) all rights of the holders thereof as holders of Series A Preferred Shares of the Trust shall cease (except the rights to convert and to receive cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Call Date, the Trust shall deposit with a bank or trust company (which may be an affiliate of the Trust) which has an office in the Borough of Manhattan, City of New York, and which has, or is an affiliate of a bank or trust company which has, capital and surplus of at least $50,000,000, necessary for such redemption, in trust, with irrevocable instructions that such cash be applied to the redemption of the Series A Preferred Shares so called for redemption. No interest shall accrue for the benefit of the holders of Series A Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years from the Call Date shall revert to the general funds of the Trust, after which reversion the holders of such Series A Preferred Shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. (v) As promptly as practicable after the surrender in accordance with such notice of the certificates for any such Series A Preferred Shares so redeemed (properly endorsed or assigned for transfer, if the Trust shall so require and if the notice shall so state), such Series A Preferred Shares shall be exchanged for any cash (without interest thereon) for which such Series A Preferred Shares have been redeemed. If fewer than all of the outstanding Series A Preferred Shares are to redeemed, the Series A Preferred Shares to be redeemed shall be selected by the Trust from outstanding Series A Preferred Shares not previously called for redemption by lot or pro rata (as nearly as may be) or by any other method determined by the Trust in its sole discretion to be equitable. If fewer than all of the Series A Preferred Shares represented by any certificate are redeemed, then new certificates representing the unredeemed Series A Preferred Shares shall be issued without cost to the holder thereof. (f) Conversion. Holders of Series A Preferred Shares shall have the right to convert all or a portion of such Series A Preferred Shares into Common Shares, as follows: (i) Subject to and upon compliance with the provisions of this subsection (f), a holder of Series A Preferred Shares shall have the right, at his or her option, at any time to convert such Series A A-7 Preferred Shares into the number of fully paid and non-assessable Common Shares obtained by dividing the aggregate liquidation preference of such Series A Preferred Shares by the Conversion Price (as in effect at the time and on the date provided for in subsection (f)(v) of this Section 2 by surrendering such Series A Preferred Shares to be converted, such surrender to be made in the manner provided in subsection (f)(ii) of this Section 2; provided, however, that the right to convert Series A Preferred Shares called for redemption pursuant to subsection (e) of this Section 2 shall terminate at the close of business on the fifth Business Day prior to the Call Date fixed for such redemption, unless the Trust shall default in making payment of the cash payable upon such redemption under subsection (e) of this Section 2. (ii) In order to exercise the conversion right, the holder of each Series A Preferred Share to be converted shall surrender the certificate representing such Series A Preferred Share, duly endorsed or assigned to the Trust or in blank, at the office of the Transfer Agent, accompanied by written notice to the Trust that the holder thereof elects to convert such Series A Preferred Shares. Unless the Series A Preferred Shares issuable on conversion are to be issued in the same name as the name in which such Series A Preferred Share is registered, each Series A Preferred Share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Trust, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Trust demonstrating that such taxes have been paid). (iii) Holders of Series A Preferred Shares at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such Series A Preferred Shares on the corresponding Dividend Payment Date notwithstanding the conversion thereof following such dividend payment record date and prior to such Dividend Payment Date. However, Series A Preferred Shares surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding Dividend Payment Date (except Series A Preferred Shares converted after the issuance of notice of redemption with respect to a Call Date during such period, such Series A Preferred Shares being entitled to such dividend on the Dividend Payment Date) must be accompanied by payment of an amount equal to the dividend payable on such Series A Preferred Shares on such Dividend Payment Date. A holder of Series A Preferred Shares on a dividend payment record date who (or whose transferee) tenders any such Series A Preferred Shares for conversion into Common Shares on the corresponding Dividend Payment Date shall receive the dividend payable by the Trust on such Series A Preferred Shares on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of Series A Preferred Shares for conversion. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted Series A Preferred Shares or for dividends on the Common Shares issued upon such conversion. (iv) As promptly as practicable after the surrender of certificates for Series A Preferred Shares as aforesaid, the Trust shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full A-8 Common Shares issuable upon the conversion of such Series A Preferred Shares in accordance with provisions of this subsection (f), and any fractional interest in respect of a Common Share arising upon such conversion shall be settled as provided in subsection (f) (vi) of this Section 2. (v) Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series A Preferred Shares shall have been surrendered and such notice (and if applicable, payment of an amount equal to the dividend payable on such Series A Preferred Shares) received by the Trust as aforesaid, and the person or persons in whose name or names any certificate or certificates for Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the Common Shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date unless the Share transfer books of the Trust shall be closed on such date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such Share transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such Series A Preferred Shares shall have been surrendered and such notice received by the Trust. (vi) No fractional Common Shares or scrip representing fractions of Common Shares shall be issued upon conversion of the Series A Preferred Shares. Instead of any fractional interest in a Common Share which would otherwise be deliverable upon the conversion of a Series A Preferred Share, the Trust shall pay to the holder of such Series A Preferred Share an amount in cash based on the Current Market Price of Common Shares on the Trading Day immediately preceding the date of conversion. If more than one Series A Preferred Share shall be surrendered for conversion at one time by the same holder, the number of full Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series A Preferred Shares so surrendered. (vii) The Conversion Price shall be adjusted from time to time as follows: (A) If the Trust shall after the Issue Date (i) pay a dividend or make a distribution on its Shares in Common Shares, (ii) subdivide its outstanding Common Shares into a greater number of Common Shares, (iii) combine its outstanding Common Shares into a smaller number of Common Shares or (iv) issue any Shares by reclassification of its Common Shares, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of Shareholders entitled to receive such dividend or distribution or at the opening of business on the Business Day next following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series A Preferred Share thereafter surrendered for conversion shall be entitled to receive the number of Common Shares which such holder would have owned or have been entitled to receive after the happening of any of the events described above as if such Series A Preferred Shares had been converted A-9 immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this paragraph (A) shall become effective immediately after the opening of business on the Business Day next following the record date (except as provided in subsection (f)(xi) of this Section 2) in the case of a dividend or distribution and shall become effective immediately after the opening of business on the Business Day next following the effective date in the case of a subdivision, combination or reclassification. (B) If the Trust shall issue after the Issue Date rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Shares at a price per Common Share less than 94% (100% if a stand-by underwriter is used and charges the Trust a commission) of the Fair Market Value per Common Share on the record date for the determination of Shareholders entitled to receive such rights, option or warrants, then the Conversion Price in effect at the opening of business on the Business Day next following such record date shall be adjusted to equal the price determined by multiplying (i) the Conversion Price in effect immediately prior to the opening of business on the Business Day next following the date fixed for such determination by (ii) a fraction, the numerator of which shall be the sum of (A) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (B) the number of Common Shares which the aggregate proceeds to the Trust from the exercise of such rights, option or warrants for Common Shares would purchase at 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), and the denominator of which shall be the sum of (X) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (Y) the number of additional Common Shares offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in subsection (f)(xi) of this Section 2). In determining whether any rights, options or warrants entitle the holders of Common Shares to subscribe for or purchase Common Shares at less than 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), there shall be taken into account any consideration received by the Trust upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined by the Chairman of the Board or the Board. (C) If the Trust shall distribute to all holders of its Common Shares any Shares (other than Common Shares) or evidence of its indebtedness or assets (excluding cumulative cash dividends or distributions paid with respect to the Common Shares or the common shares of Archstone Communities Trust after September 30, 1993 which are not in excess of the following: the sum of (i) the Trust's cumulative undistributed funds from operations at September 30, 1993, plus (ii) the Trust's cumulative amount of funds from operations, as determined by the A-10 Board, after September 30, 1993, minus (iii) the cumulative amount of dividends accrued or paid in respect of the Series A Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Archstone Communities Trust after November 30, 1993) or rights, options or warrants to subscribe for or purchase any of its securities (excluding those rights, options and warrants issued to all holders of Common Shares entitling them for a period expiring within 45 days after the record date referred to in paragraph (B) above to subscribe for or purchase Common Shares, which rights and warrants are referred to in and treated under paragraph (B) above) (any of the foregoing being hereinafter in this paragraph (C) collectively called the "Securities" and individually a ---------- "Security"), then in each such case the Conversion Price shall be -------- adjusted so that it shall equal the price determined by multiplying (x) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of Shareholders entitled to receive such distribution by (y) a fraction, the numerator of which shall be the Fair Market Value per Common Share on the record date mentioned below less the then fair market value (as determined by the Chairman of the Board or the Board, whose determination shall be conclusive), of the portion of the Shares or assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one Common Share, and the denominator of which shall be the Fair Market Value per Common Share on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the Business Day next following (except as provided in subsection (f)(xi) of this Section 2) the record date for the determination of Shareholders entitled to receive such distribution. For purposes of this paragraph (C), the distribution of a Security, which is distributed not only to the holders of the Common Shares on the date fixed for the determination of Shareholders entitled to such distribution of such Security, but also is distributed with each Common Share delivered to a Person converting a Series A Preferred Share after such determination date, shall not require an adjustment of the Conversion Price pursuant to this paragraph (C); provided that on the date, if any, on which a person converting a Series A Preferred Share would no longer be entitled to receive such Security with a Common Share (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred and the Conversion Price shall be adjusted as provided in this paragraph (C) (and such day shall be deemed to be "the date fixed for the determination of the Shareholders entitled to receive such distribution" and "the record date" within the meaning of the two preceding sentences). (D) In case a tender or exchange offer made by the Trust or any subsidiary of the Trust for all or any portion of the Common Shares shall expire and such tender or exchange offer shall involve the payment by the Trust or such subsidiary of consideration per Common Share having a fair market value (as determined in good faith by the Board, whose determination shall be conclusive and described in a resolution of the Board), at the last time (the "Expiration Time") --------------- tenders or exchanges may be made pursuant to such tender or exchange offer, which exceeds the Current Market Price per Common Share on the Trading Day next succeeding the Expiration A-11 Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this paragraph (D), by a fraction of which the numerator shall be the number of Common Shares outstanding (including any tendered or exchanged Common Shares) at the Expiration Time, multiplied by the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to Shareholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all Common Shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the Common Shares deemed so accepted, up to any maximum, being referred to as the "Purchased Shares") and (ii) the product of the number of Common ---------------- Shares outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (E) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this paragraph (E) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment shall be required and made in accordance with the provisions of this subsection (f) (other than this paragraph (E)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Shares. Notwithstanding any other provisions of this subsection (f), the Trust shall not be required to make any adjustment of the Conversion Price for the issuance of any Common Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Trust and the investment of additional optional amounts in Common Shares under such plan. All calculations under this subsection (f) shall be made to the nearest cent (with $0.005 being rounded upward) or to the nearest one-tenth of a Share (with 0.05 of a Share being rounded upward), as the case may be. Anything in this subsection (f)(vii) to the contrary notwithstanding, the Trust shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this subsection (f)(vii), as it in its discretion shall determine to be advisable in order that any Share dividends, subdivision of Shares, reclassification or combination of Shares, distribution of rights or warrants to purchase Shares or securities, or a distribution of other assets (other than cash dividends) hereafter made by the Trust to its Shareholders shall not be taxable. (viii) If the Trust shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, self tender offer for all or substantially all A-12 Common Shares, sale of all or substantially all of the Trust's assets or recapitalization of the Common Shares and excluding any transaction as to which paragraph (A) of subsection (f)(vii) of this Section 2 applies) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result ----------- of which all or substantially all Common Shares are converted into the right to receive stock, securities or other property (including cash or any combination thereof), each Series A Preferred Share which is not redeemed or converted into the right to receive stock, securities or other property prior to such Transaction shall thereafter be convertible into the kind and amount of shares of stock, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of such number of Common Shares into which one Series A Preferred Share was convertible immediately prior to such Transaction, assuming such holder of Common Shares (A) is not a Person with which the Trust consolidated or into which the Trust merged or which merged into the Trust or to which such sale or transfer was made, as the case may be (a "Constituent Person"), or an affiliate ------------------ of a Constituent Person and (B) failed to exercise his rights of election, if any, as to the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of stock, securities and other property (including cash) receivable upon such Transaction is not the same for each Common Share held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised (a "Non- ---- Electing Share"), then for purposes of this subsection (f)(viii) the kind and - -------------- amount of stock, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The Trust shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this subsection (f)(viii), and it shall not consent or agree to the occurrence of any Transaction until the Trust has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series A Preferred Shares which shall contain provisions enabling the holders of the Series A Preferred Shares which remain outstanding after such Transaction to convert into the consideration received by holders of Common Shares at the Conversion Price in effect immediately prior to such Transaction. The provisions of this subsection (f)(viii) shall similarly apply to successive Transactions. (ix) If: (A) the Trust shall declare a dividend (or any other distribution) on the Common Shares (other than cash dividends or distributions paid with respect to the Common Shares or the common shares of Archstone Communities Trust after September 30, 1993 not in excess of the sum of the Trust's cumulative undistributed funds from operations at September 30, 1993, plus the Trust's cumulative amount of funds from operations, as determined by the Board, after September 30, 1993, minus the cumulative amount of dividends accrued or paid in respect of the Series A Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Archstone Communities Trust after November 30, 1993); or A-13 (B) the Trust shall authorize the granting to the holders of Common Shares of rights, options or warrants to subscribe for or purchase any Shares of any class or any other rights, options or warrants; or (C) there shall be any reclassification of the Common Shares (other than an event to which paragraph (A) of subsection (f)(vii) of this Section 2 applies) or any consolidation or merger to which the Trust is a party and for which approval of any Shareholders of the Trust is required, or a statutory share exchange, or a self tender offer by the Trust for all or substantially all of the outstanding Common Shares or the sale or transfer of all or substantially all of the assets of the Trust as an entirety; or (D) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Trust, then the Trust shall cause to be filed with the Transfer Agent and shall cause to be mailed to the holders of Series A Preferred Shares at their addresses as shown on the Share records of the Trust, as promptly as possible, but at least 10 days prior to the applicable date hereinafter specified, a notice stating (i) the date on which a record is to be taken for purposes of such dividend, distribution or granting of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Shares of record to be entitled to such dividend, distribution or granting of rights, options or warrants are to be determined or (ii) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Shares of record shall be entitled to exchange their Common Shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this subsection (f). (x) Whenever the Conversion Price is adjusted as herein provided, the Trust shall promptly file with the Transfer Agent an officer's certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date of such adjustment and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series A Preferred Share at such holder's last address as shown on the Share records of the Trust. (xi) In any case in which subsection (f)(vii) of this Section 2 provides that an adjustment shall become effective on the day next following the record date for an event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any Series A Preferred Share converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment A-14 required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of any fraction pursuant to subsection (f)(vi) of this Section 2. (xii) There shall be no adjustment of the Conversion Price in case of the issuance of any Shares in a reorganization, acquisition or other similar transaction except as specifically set forth in this subsection (f). If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this subsection (f), only one adjustment shall be made and such adjustment shall be the amount of adjustment which has the highest absolute value. (xiii) If the Trust shall take any action affecting the Common Shares, other than action described in this subsection (f), which in the opinion of the Board would materially and adversely affect the conversion rights of the holders of the Series A Preferred Shares, the Conversion Price for the Series A Preferred Shares may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board, in its sole discretion, may determine to be equitable in the circumstances. (xi) (A) The Trust covenants that it shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Shares, for purposes of effecting conversion of the Series A Preferred Shares, the full number of Common Shares deliverable upon the conversion of all outstanding Series A Preferred Shares not theretofore converted. For purposes of this subsection (f)(xiv), the number of Common Shares which shall be deliverable upon the conversion of all outstanding Series A Preferred Shares shall be computed as if at the time of computation all such outstanding Series A Preferred Shares were held by a single holder. (B) The Trust covenants that any Common Shares issued upon conversion of the Series A Preferred Shares shall be validly issued, fully paid and non-assessable. Before taking any action which would cause an adjustment reducing the Conversion Price below the then-par value of the Common Shares deliverable upon conversion of the Series A Preferred Shares, the Trust shall take any trust action which, in the opinion of its counsel, may be necessary in order that the Trust may validly and legally issue fully paid and (subject to any customary qualification based on the nature of a business trust) non-assessable Common Shares at such adjusted Conversion Price. (C) The Trust shall endeavor to list the Common Shares required to be delivered upon conversion of the Series A Preferred Shares, prior to such delivery, on each national securities exchange, if any, on which the outstanding Common Shares are listed at the time of such delivery. A-15 (D) Prior to the delivery of any securities which the Trust shall be obligated to deliver upon conversion of the Series A Preferred Shares, the Trust shall endeavor to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority. (xv) The Trust shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Shares or other securities or property on conversion of the Series A Preferred Shares pursuant hereto; provided, however, that the Trust shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of Common Shares or other securities or property in a name other than that of the holder of the Series A Preferred Shares to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid. (xvi) For purposes of determining the Trust's funds from operations in accordance with this subsection (f), the Trust's funds from operations for all dates and periods prior to the Issue Date shall be the funds from operations of Archstone Communities Trust, and the Trust's funds from operations for all dates and periods from and after the Issue Date shall be the funds from operations of Archstone-Smith Trust. For purposes of determining the Trust's undistributed funds from operations in accordance with this subsection (f), the Trust's undistributed funds from operations for all dates and periods prior to the Issue Date shall be the undistributed funds from operations of Archstone Communities Trust, and the Trust's undistributed funds from operations for all dates and periods from and after the Issue Date shall be the undistributed funds from operations of Archstone-Smith Trust. (g) Shares To Be Retired. All Series A Preferred Shares which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (h) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series A Preferred Shares, in the payment of dividends and or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series A Preferred Shares; (ii) on a parity with the Series A Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per Share thereof are different from those of the Series A Preferred Shares, if the holders of such class or series and the holders of the Series A Preferred Shares are entitled to the receipt A-16 of dividends and amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and unpaid per Share or liquidation preferences, without preference or priority to each other ("Parity Shares"); --------------- (iii) junior to the Series A Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and (iv) junior to the Series A Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (i) Voting. (i) If and whenever six quarterly dividends (whether or not consecutive) payable on the Series A Preferred Shares or any series or class of Parity Shares shall be in arrears (which shall, with respect to any such quarterly dividend, mean that any such dividend has not been paid in full), whether or not earned or declared, the number of Trustees then constituting the Board shall be increased by two and the holders of Series A Preferred Shares, together with the holders of Shares of every other series of Parity Shares (any such other series, the "Voting Preferred ---------------- Shares"), voting as a single class regardless of series, shall be entitled ------ to elect the two additional Trustees to serve on the Board at any annual meeting of Shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series A Preferred Shares and the Voting Preferred Shares called as hereinafter provided. Whenever all arrears in dividends on the Series A Preferred Shares and the Voting Preferred Shares then outstanding shall have been paid and dividends thereon for the current quarterly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series A Preferred Shares and the Voting Preferred Shares to elect such additional two Trustees shall cease (but subject always to the same provision for the vesting of such voting rights in the case of any similar future arrearages in six quarterly dividends), and the terms of office of all persons elected as Trustees by the holders of the Series A Preferred Shares and the Voting Preferred Shares shall forthwith terminate and the number of the Board shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of Series A Preferred Shares and the Voting Preferred Shares, the Secretary of the Trust may, and upon the written request of any holder of Series A Preferred Shares (addressed to the Secretary at the principal office of the Trust) shall, call a special meeting of the holders of the Series A Preferred Shares and of the Voting Preferred Shares for the election of the two Trustees to be elected by them as herein provided, such call to be made by notice similar to that provided in the Trust's Bylaws (the "Bylaws") for a special meeting ------ of the Shareholders or as required by law. If any such special meeting required to be called as provided above shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of Series A Preferred Shares may call such meeting, upon the notice provided above, and for such purpose shall have access to the Share records of the Trust. The Trustees elected at any such special meeting shall hold office until A-17 the next annual meeting of the Shareholders or special meeting held in lieu thereof if such office shall not have previously terminated as provided above. If any vacancy shall occur among the Trustees elected by the holders of the Series A Preferred Shares and the Voting Preferred Shares, a successor shall be elected by the Board, upon the nomination of the then- remaining Trustee elected by the holders of the Series A Preferred Shares and the Voting Preferred Shares or the successor of such remaining Trustee, to serve until the next annual meeting of the Shareholders or special meeting held in place thereof if such office shall not have previously terminated as provided above. Notwithstanding any other provisions of this subsection (i), in any vote for the election of additional Trustees hereunder, the Series A Preferred Shares and Voting Preferred Shares beneficially owned by Security Capital Group Incorporated, a Maryland corporation ("Security Capital Group"), any of its direct or ---------------------- indirect subsidiaries and any of their respective directors, officers or controlling stockholders (together, the "Restricted Parties"), shall be ------------------ voted in the same respective percentages as the Series A Preferred Shares and Voting Preferred Shares which are not beneficially owned by the Restricted Parties. The provisions in the preceding sentence shall cease and be of no further force and effect from and after such time, but only as long as, the Restricted Parties together no longer beneficially own in excess of 10% of the Trust's outstanding Common Shares. (ii) So long as any Series A Preferred Shares are outstanding, in addition to any other vote or consent of Shareholders required by law or by this Declaration of Trust, the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of the Series A Preferred Shares and the Voting Preferred Shares, at the time outstanding, acting as a single class regardless of series, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (A) Any amendment, alteration or repeal of any of the provisions of this Declaration of Trust which materially and adversely affects the voting powers, rights or preferences of the holders of the Series A Preferred Shares or the Voting Preferred Shares; provided, however, that the amendment of the provisions of this Declaration of Trust so as to authorize or create or to increase the authorized amount of, any Fully Junior Shares, Junior Shares which are not senior in any respect to the Series A Preferred Shares, or any Shares of any class ranking on a parity with the Series A Preferred Shares or the Voting Preferred Shares shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series A Preferred Shares; and provided, further, that if any such amendment, alteration or repeal would materially and adversely affect any voting powers, rights or preferences of the Series A Preferred Shares or another series of Voting Preferred Shares which are not enjoyed by some or all of the other series otherwise entitled to vote in accordance herewith, the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of all series similarly affected, similarly given, shall be required in lieu of the affirmative vote of at least two-thirds of the votes entitled to be A-18 cast by the holders of the Series A Preferred Shares and the Voting Preferred Shares otherwise entitled to vote in accordance herewith; or (B) A share exchange which affects the Series A Preferred Shares, a consolidation with or merger of the Trust into another entity, or a consolidation with or merger of another entity into the Trust, unless in each such case each Series A Preferred Share (i) shall remain outstanding without a material and adverse change to its terms and rights or (ii) shall be converted into or exchanged for convertible preferred stock of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to that of a Series A Preferred Share (except for changes which do not materially and adversely affect the holders of the Series A Preferred Shares); or (C) The authorization or creation of, or the increase in the authorized amount of, any Shares of any class or any security convertible into Shares of any class ranking senior to the Series A Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust or in the payment of dividends; provided, however, that no such vote of the holders of Series A Preferred Shares shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such prior Shares or convertible security is to be made, as the case may be, provision is made for the redemption of all Series A Preferred Shares at the time outstanding. For purposes of the foregoing provisions, a "share exchange" means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and which does not affect the existence of either entity, and the term "surviving entity" shall include the entity acquiring equity securities in a share exchange. (iii) For purposes of the foregoing provisions of this subsection (i), each Series A Preferred Share shall have one vote per Share, except that when any other series of preferred Shares shall have the right to vote with the Series A Preferred Shares as a single class on any matter, then the Series A Preferred Shares and such other series shall have with respect to such matters one vote per $25.00 of stated liquidation preference. Except as otherwise required by applicable law or as set forth herein, the Series A Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any Trust action. (j) Limitation on Ownership. (i) Notwithstanding any other provision of the terms of the Series A Preferred Shares, except as provided in the next sentence and in subsection (j)(ii) of this Section 2, no Person, or Persons acting as a group, shall at any time directly or indirectly acquire ownership A-19 of more than 25% of the outstanding Series A Preferred Shares. Any Series A Preferred Shares owned by a Person or Persons acting as a group in excess of such 25% shall be deemed "Excess Preferred Shares," except that any such ----------------------- Series A Preferred Shares in excess of 25% shall not be considered Excess Preferred Shares if the 25% limitation is exceeded solely as a result of the Trust's redemption of Series A Preferred Shares, provided that thereafter any additional Series A Preferred Shares acquired by such Person or Persons acting as a group shall be considered Excess Preferred Shares. Within 10 days of becoming aware of the existence of Excess Preferred Shares (whether by notice on Schedule 13D or otherwise), the Trust shall redeem any and all Excess Preferred Shares by giving notice of redemption to the holder or holders thereof, unless, prior to the giving of such notice, the holder shall have disposed of its ownership in the Excess Preferred Shares. Such notice shall set forth the number of Series A Preferred Shares constituting Excess Preferred Shares, the redemption price and the place or places at which the certificates representing such Excess Preferred Shares are to be surrendered and such notice shall set forth the matters described in the following sentence. From and after the date of giving such notice of redemption, the Series A Preferred Shares called for redemption shall cease to be outstanding and the holder thereof shall cease to be entitled to dividends (other than dividends declared but unpaid prior to the notice of redemption), voting rights and other benefits with respect to such Series A Preferred Shares excepting the rights to payment of the redemption price determined and payable as set forth in the next two sentences. Subject to the limitation on payment set forth in the following sentence, the redemption price of each Excess Preferred Share called for redemption shall be the average daily per Series A Preferred Share closing sales price, if the Series A Preferred Shares are listed on a national securities exchange or, if not, are reported on the NASDAQ National Market System, and if the Series A Preferred Shares are not so listed or reported, shall be the mean between the average per Series A Preferred Share closing bid prices and the average per Series A Preferred Share closing asked prices, in each case during the 30 day period ending on the business day prior to the redemption date, or if there have been no sales on a national securities exchange or the NASDAQ National Market System and no published bid quotations and no published asked quotations with respect to Series A Preferred Shares during such 30 day period, the redemption price shall be the price determined by the Board in good faith. Unless the Board determines that it is in the interest of the Trust to make earlier payment of all of the amount determined as the redemption price per Series A Preferred Share in accordance with the preceding sentence, the redemption price may be payable, at the option of the Board, at any time or times up to, but not later than the earlier of (A) five years after the redemption date or (B) the liquidation of the Trust, in which latter event the redemption price shall not exceed an amount which is the sum of the per Series A Preferred Share distributions designated as liquidating distributions and return of capital distributions declared with respect to unredeemed Series A Preferred Shares of the Trust of record subsequent to the redemption date; and in any event, no interest shall accrue with respect to the period subsequent to the redemption date to the date of such payment. Nothing in this subsection (j)(i) shall preclude the settlement of any transaction entered into through the facilities of the NYSE. A-20 (ii) The limitation on ownership set forth in subsection (j)(i) of this Section 2 shall not apply to the acquisition of Series A Preferred Shares by an underwriter in a public offering of Series A Preferred Shares. The Board, in its sole and absolute discretion, may exempt from the ownership limitation set forth in subsection (j)(i) of this Section 2 certain designated Series A Preferred Shares owned by a person (other than any of the Restricted Parties) who has provided the Board with evidence and assurances acceptable to the Board that the qualification of the Trust as a REIT would not be jeopardized thereby. (k) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series A Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. (l) Sinking Fund. The Series A Preferred Shares shall not be entitled to the benefits of any retirement or sinking fund. A-21 ANNEX B SERIES B JUNIOR PARTICIPATING PREFERRED SHARES OF BENEFICIAL INTEREST [The terms of the Series B Junior Participating Preferred Stock are to be agreed upon.] B-1 ANNEX C SERIES C CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series C Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series C Preferred Shares") and the number of shares which shall ------------------------- constitute such series shall be not more than 2,000,000 Shares, par value $0.01 per Share, which number may be decreased (but not below the number then outstanding plus the number required to fulfill the Trust's obligations under options, warrants or similar rights issued by the Trust) from time to time by the Board. (b) Definitions. For purposes of the Series C Preferred Shares, the following terms shall have the meanings indicated: "Board" shall mean the Board or any committee authorized by the Board ----- to perform any of its duties or exercise any of its powers with respect to the Series C Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date specified in the notice to holders --------- required under subsection (e)(v) of this Section 4 as the Call Date. "Common Shares" shall mean the common shares of beneficial interest, ------------- par value $0.01 per share, of the Trust. "Dividend Payment Date" shall mean the last calendar day of March, --------------------- June, September and December in each year, commencing on the first of such days to occur following the Issue Date; provided, however, that if any Dividend Payment Date falls on any day other than a Business Day, the dividend payment due on such Dividend Payment Date shall be paid on the next succeeding Business Day. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period. "Dividend Record Date" shall have the meaning set forth in subsection -------------------- (c)(i) of this Section 4. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding to which the Series C Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. C-1 "Issue Date" shall mean the first date on which the Series C Preferred ---------- Shares were issued. "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding to which the Series C Preferred Shares have preference or priority in either (i) the payment of dividends or (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust and, unless the context clearly indicates otherwise, shall include Fully Junior Shares. "Parity Shares" shall have the meaning set forth in subsection (g)(i) ------------- of this Section 4. "Person" shall mean any individual, firm, partnership, corporation, ------ real estate investment trust or other entity, and shall include any successor (by merger or otherwise) of such entity. "Series C Preferred Shares" shall have the meaning set forth in ------------------------- subsection (a) of this Section 4. "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to authorization or declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any class or series of Shares; provided, however, that if any funds for any Junior Shares or any Parity Shares are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series C Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., New -------------- York City, New York, or such other agent or agents of the Trust as may be designated by the Board or its designee as the transfer agent for the Series C Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (h) of this Section 4. (c) Dividends. (i) The holders of Series C Preferred Shares shall be entitled to receive, when, as and if authorized or declared by the Board, out of funds legally available for such purpose, cash dividends in an amount per share equal to 8.625% of the liquidation preference per annum (equivalent to $2.15625 per share). Such dividends shall begin to accrue and shall be C-2 fully cumulative from [INSERT MOST RECENT DIVIDEND PAYMENT DATE PRIOR TO CONSUMMATION OF MERGER], whether or not in any Dividend Period or Periods there are funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on Dividend Payment Dates, commencing with the first Dividend Payment Date to occur following the Issue Date. Each such dividend shall be payable in arrears to the holders of record of Series C Preferred Shares, as they appear in the Share records of the Trust at the close of business on such record date as is fixed by the Board, which shall be not less than 10 nor more than 50 days prior to the corresponding Dividend Payment Date (each, a "Dividend Record Date"). Accrued and unpaid -------------------- dividends for any past Dividend Periods may be authorized or declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such record date as may be fixed by the Board, which shall be not less than 10 nor more than 50 days prior to the corresponding payment date. (ii) The dividend for each full Dividend Period for the Series C Preferred Shares shall be computed by dividing the annual dividend rate by four. The dividend for any period shorter than a full Dividend Period on the Series C Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series C Preferred Shares shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends, as provided herein, on the Series C Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series C Preferred Shares which may be in arrears. (iii) So long as any Series C Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any Parity Shares for any period unless (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series C Preferred Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period with respect to the Series C Preferred Shares. When dividends are not paid in full, or a sum sufficient for the payment thereof is not set apart for payment, on the Series C Preferred Shares and any Parity Shares as provided above, all dividends declared on the Series C Preferred Shares and any Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accrued and unpaid on the Series C Preferred Shares and on such Parity Shares. (iv) So long as any Series C Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in, or options, warrants or rights to subscribe for or purchase, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made on Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly C-3 or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series C Preferred Shares and all past dividend periods with respect to any Parity Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period with respect to the Series C Preferred Shares and the current dividend period with respect to any Parity Shares. (v) No distributions on Series C Preferred Shares shall be declared or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration, payment or setting apart for payment is restricted or prohibited by law. (d) Liquidation Preference. (i) Upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) is made to or set apart for the holders of the Common Shares or any other class or series of Shares now or hereafter issued and outstanding to which the Series C Preferred Shares have preference or priority in the distribution of assets on any liquidation, dissolution or winding up at the Trust, the holders of Series C Preferred Shares shall be entitled to receive out of assets of the Trust legally available for such purpose, liquidating distributions in the amount of $25.00 per Series C Preferred Share, plus an amount equal to all dividends (whether or not earned or authorized or declared) accrued and unpaid thereon to the date of final distribution to such holders, if any; but such holders shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or the proceeds thereof, distributable among the holders of Series C Preferred Shares are insufficient to pay in full such preferential amount with respect to the Series C Preferred Shares and the corresponding amounts with respect to all Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series C Preferred Shares and all such Parity Shares in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (ii) Subject to the rights of the holders of shares of any class or series of Shares ranking on a parity with or senior to the Series C Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust, upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, after payment has been made in full to the holders of Series C Preferred Shares, as provided in this Section 4, the holders of any Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of Series C Preferred Shares shall not be entitled to share therein. C-4 (iii) For the purposes of this Section 4, (A) a consolidation or merger of the Trust with or into one or more corporations, real estate investment trusts or other entities, (B) a sale or transfer of all or substantially all of the Trust's assets or (C) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary. (e) Redemption at the Option of the Trust. (i) Subject to subsection (i) of this Section 4, the Series C Preferred Shares are not redeemable by the Trust prior to August 20, 2002. On and after such date, the Trust, at its option, may redeem the Series C Preferred Shares, in whole at any time or in part from time to time, for cash at a redemption price of $25.00 per Series C Preferred Share, plus the amounts indicated in subsection (e)(ii) of this Section 4. (ii) Upon any redemption of Series C Preferred Shares pursuant to this subsection (e), the Trust shall pay all dividends accrued and unpaid thereon, if any, in arrears for any Dividend Period ending on or prior to the Call Date. If the Call Date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, then each holder of Series C Preferred Shares at the close of business on such Dividend Record Date shall be entitled to receive the dividend payable on such Series C Preferred Shares on the corresponding Dividend Payment Date notwithstanding the redemption of such Series C Preferred Shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series C Preferred Shares called for redemption. (iii) Unless (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series C Preferred Shares and all past dividend periods with respect to any Parity Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period with respect to the Series C Preferred Shares and the current dividend period with respect to any Parity Shares, the Series C Preferred Shares may not be redeemed under this subsection (e) in part and the Trust may not purchase or otherwise acquire Series C Preferred Shares, except pursuant to a purchase or exchange offer made on the same terms to all holders of Series C Preferred Shares or by conversion into or exchange for Fully Junior Shares or pursuant to subsection (i) of this Section 4. (iv) The redemption price to be paid upon any redemption of the Series C Preferred Shares (other than any amounts indicated in subsection (e)(ii) of this Section 4 and other than a redemption pursuant to subsection (i) of this Section 4) shall be payable solely out of the sale proceeds of other Shares and from no other source. (v) Notice of the redemption of any Series C Preferred Shares under this subsection (e) shall be mailed by first class mail, not less than 30 nor more than 90 days prior C-5 to the Call Date, to each holder of record of Series C Preferred Shares to be redeemed at the address of such holder as shown on the Trust's Share records. Neither the failure to mail any notice required by this subsection (e)(v), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to any other holder. Any notice which was mailed in the manner provided herein shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (A) the Call Date; (B) the number of Series C Preferred Shares to be redeemed and, if fewer than all Series C Preferred Shares held by such holder are to be redeemed, the number of Series C Preferred Shares to be redeemed from such holder; (C) the redemption price; (D) the place or places at which certificates representing such Series C Preferred Shares are to be surrendered; and (E) that dividends on the Series C Preferred Shares to be redeemed shall cease to accrue on the Call Date except as otherwise provided herein. If notice of redemption of any Series C Preferred Shares has been mailed as provided above, then from and after the Call Date (unless the Trust fails to make available an amount of cash necessary to effect such redemption), (x) except as otherwise provided herein, dividends shall cease to accrue on the Series C Preferred Shares so called for redemption, (y) such Series C Preferred Shares shall no longer be deemed to be outstanding and (z) all rights of the holders thereof as holders of Series C Preferred Shares shall terminate (except the right to receive cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Call Date, the Trust deposits with a bank or trust company (which may be an affiliate of the Trust) which has an office in the Borough of Manhattan, City of New York, and which has, or is an affiliate of a bank or trust company which has, capital and surplus of at least $50,000,000, the funds necessary for such redemption, in trust, with irrevocable instructions that such cash be applied to the redemption of the Series C Preferred Shares so called for redemption. No interest shall accrue for the benefit of the holders of Series C Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years after the Call Date shall revert to the general funds of the Trust, after which reversion the holders of Series C Preferred Shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. As promptly as practicable after the surrender in accordance with such notice of the certificates representing any Series C Preferred Shares so redeemed (properly endorsed or assigned for transfer, if the Trust so requires and if the notice so states), such Series C Preferred Shares shall be exchanged for any cash (without interest thereon) for which such Series C Preferred Shares have been redeemed. If fewer than all the outstanding Series C Preferred Shares are to redeemed, the Series C Preferred Shares to be redeemed shall be selected by the Trust from outstanding Series C Preferred Shares not previously called for redemption by lot or pro rata (as nearly as may be) or by any other method determined by the Board or the Chairman or any Co-Chairman of the Trust in its, his or her sole discretion to be equitable. If fewer than all the Series C Preferred Shares represented by any certificate are C-6 redeemed, then new certificates representing the unredeemed Series C Preferred Shares shall be issued without cost to the holder thereof. (f) Shares To Be Retired. All Series C Preferred Shares which are issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (g) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series C Preferred Shares, in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or amounts distributable on any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series C Preferred Shares; (ii) on a parity with the Series C Preferred Shares, in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series C Preferred Shares, if the holders of such class or series and the holders of Series C Preferred Shares are entitled to the receipt of dividends and amounts distributable on any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); ------------- (iii) junior to the Series C Preferred Shares, in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and (iv) junior to the Series C Preferred Shares, in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (h) Voting. (i) If and whenever six quarterly dividends (whether or not consecutive) payable on the Series C Preferred Shares or any Parity Shares are in arrears (which shall, with respect to any such quarterly dividend, mean that any such dividend has not been paid in full), whether or not earned or declared, the number of Trustees then constituting the Board shall be increased by two, and the holders of Series C Preferred Shares, together with the holders of any Parity Shares (any such Parity Shares, the "Voting Preferred Shares"), voting as a single class regardless of class or ----------------------- series, shall have the right to elect two additional Trustees to serve on the Board at the next annual meeting of Shareholders or a special meeting held in lieu thereof, or at a special meeting of the holders of Series C Preferred Shares and Voting Preferred Shares called as provided hereinafter. Whenever all dividends in arrears on the C-7 Series C Preferred Shares and Voting Preferred Shares then outstanding have been paid and a sum sufficient for the payment thereof has been set apart for payment of the dividend for the current Dividend Period with respect to the Series C Preferred Shares and the current dividend period with respect to the Voting Preferred Shares, then the right of the holders of Series C Preferred Shares and Voting Preferred Shares to elect such additional two Trustees shall cease (but subject always to the same provision for the vesting of such voting rights in the case of any similar future arrearages in six quarterly dividends), and the terms of office of all persons elected as Trustees by the holders of Series C Preferred Shares and Voting Preferred Shares shall immediately terminate and the number of Trustees constituting the Board shall be reduced accordingly. At any time after such voting rights have so vested in the holders of Series C Preferred Shares and Voting Preferred Shares, the Secretary of the Trust may, and upon the written request of any holder of Series C Preferred Shares (addressed to the Secretary at the principal office of the Trust) shall, call a special meeting of the holders of Series C Preferred Shares and Voting Preferred Shares for the election of the two Trustees to be elected by them as provided herein, such call to be made by notice similar to that provided in the Bylaws of the Trust for a special meeting of the Shareholders or as required by law. If any such special meeting required to be called as provided above is not called by the Secretary within 20 days after receipt of any such request, then any holder of Series C Preferred Shares may call such meeting, upon the notice provided above, and for such purpose shall have access to the Share records of the Trust. The Trustees elected at any such special meeting shall hold office until the next annual meeting of the Shareholders or special meeting held in lieu thereof if the term of such Trustees has not previously terminated as provided above. If any vacancy occurs among the Trustees elected by the holders of Series C Preferred Shares and Voting Preferred Shares, a successor shall be elected by the Board, upon the nomination of the then remaining Trustee elected by the holders of Series C Preferred Shares and Voting Preferred Shares or the successor of such remaining Trustee, to serve until the next annual meeting of the Shareholders or special meeting held in lieu thereof if the term of such Trustees has not previously terminated as provided above. Notwithstanding any other provisions of this subsection (h), in any vote for the election of additional Trustees hereunder, any Series C Preferred Shares and Voting Preferred Shares beneficially owned by Security Capital Group, any of its direct or indirect subsidiaries, and any of their respective directors, trustees, officers or controlling stockholders (together, the "Restricted Parties"), shall be voted in the same respective ------------------ percentages as the Series C Preferred Shares and Voting Preferred Shares which are not beneficially owned by the Restricted Parties. The provisions in the preceding sentence shall cease and be of no further force and effect from and after such time, but only for so long as, the Restricted Parties together no longer beneficially own in excess of ten percent of the Trust's outstanding Common Shares. (ii) So long as any Series C Preferred Shares are outstanding, in addition to any other vote or consent of Shareholders required by this Declaration of Trust, the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of Series C Preferred Shares and Voting Preferred Shares similarly affected, at the time outstanding, voting as a single class regardless of class or series, given in person or by proxy, either in writing without C-8 a meeting or by vote at any meeting called for such purpose, shall be necessary for effecting or validating: (A) any amendment, alteration or repeal of any of the provisions of this Declaration of Trust which materially and adversely affects the voting powers, rights or preferences of the holders of Series C Preferred Shares or Voting Preferred Shares; provided, however, that the amendment of the provisions of this Declaration of Trust so as to authorize or create or to increase the authorized amount of, any Fully Junior Shares, any Junior Shares which do not rank senior to the Series C Preferred Shares in any respect, or any Parity Shares shall not be deemed to materially and adversely affect the voting powers, rights or preferences of the holders of Series C Preferred Shares or Voting Preferred Shares, and provided, further, that, if any such amendment, alteration or repeal would materially and adversely affect any voting powers, rights or preferences of the holders of Series C Preferred Shares or another series of Voting Preferred Shares which are not enjoyed by the holders of some or all of the other series otherwise entitled to vote in accordance herewith, the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of all series similarly affected, similarly given, shall be required in lieu of the affirmative vote of at least two-thirds of the votes entitled to be cast by the holders of Series C Preferred Shares and Voting Preferred Shares otherwise entitled to vote in accordance herewith; or (B) a share exchange which affects the Series C Preferred Shares, a consolidation with or merger of the Trust into another entity, or a consolidation with or merger of another entity into the Trust, unless in each such case each Series C Preferred Share (i) remains outstanding without a material and adverse change to its terms and rights or (ii) is converted into or exchanged for preferred stock of the surviving entity having preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption identical to those of a Series C Preferred Share (except for changes which do not materially and adversely affect the holders of Series C Preferred Shares); or (C) the authorization, reclassification or creation of, or the increase in the authorized amount of, Shares of any class, or securities convertible into Shares of any class, ranking senior to the Series C Preferred Shares in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust; provided, however, that no such vote of the holders of Series C Preferred Shares shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such senior Shares or convertible security is to be made, as the case may be, provision is made for the redemption of all Series C Preferred Shares at the time outstanding. For purposes of the foregoing provisions, a "share exchange" means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and C-9 which does not affect the existence of either entity, and the term "surviving entity" shall include the entity acquiring equity securities in a share exchange. (ii) For purposes of the foregoing provisions of this subsection (h), each Series C Preferred Share shall have one vote per Share, except that when any other series of preferred Shares has the right to vote with the Series C Preferred Shares as a single class on any matter, then the Series C Preferred Shares and such other series shall have with respect to such matters one vote per $25.00 of stated liquidation preference. Except as otherwise set forth herein, the Series C Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any Trust action. (i) Limitation on Ownership. (i) Notwithstanding any other provision of the terms of the Series C Preferred Shares, except as provided in the next sentence and in subsection (i)(ii) of this Section 4, no Person, or Persons acting as a group, shall at any time directly or indirectly acquire ownership of more than 25% of the outstanding Series C Preferred Shares. Any Series C Preferred Shares owned by a Person or Persons acting as a group in excess of such 25% shall be deemed "Excess Preferred Shares," except that any such ----------------------- Series C Preferred Shares in excess of such 25% will not be considered Excess Preferred Shares if such 25% is exceeded solely as a result of the Trust's redemption of Series C Preferred Shares, provided that thereafter any additional Series C Preferred Shares acquired by such Person or Persons shall be considered Excess Preferred Shares. Within 10 days of becoming aware of the existence of Excess Preferred Shares (whether by notice on Schedule 13D or otherwise), the Trust shall redeem any and all Excess Preferred Shares by giving notice of redemption to the holder or holders thereof, unless prior to the giving of such notice the holders have disposed of such Excess Preferred Shares. Such notice shall set forth the number of Series C Preferred Shares constituting Excess Preferred Shares, the redemption price and the place or places at which certificates representing such Excess Preferred Shares are to be surrendered and such notice shall set forth the matters described in the following sentence. From and after the date of giving such notice of redemption, the Series C Preferred Shares so called for redemption shall cease to be outstanding and the holders thereof shall cease to be entitled to dividends (other than dividends authorized or declared but unpaid prior to the notice of redemption), voting rights and other benefits with respect to such Series C Preferred Shares except for the right to payment of the redemption price determined and payable as set forth in the next two sentences. Subject to the limitation on payment set forth in the following sentence, the redemption price of each Excess Preferred Share called for redemption shall be the average daily per Series C Preferred Share closing sales price, if the Series C Preferred Shares are listed on a national C-10 securities exchange or are reported on the NASDAQ National Market System, and if the Series C Preferred Shares are not so listed or reported, shall be the mean between the average per Series C Preferred Share closing bid prices and the average per Series C Preferred Share closing asked prices, in each case during the 30-day period ending on the business day prior to the redemption date, or if there have been no sales on a national securities exchange or the NASDAQ National Market System and no published bid quotations and no published asked quotations with respect to Series C Preferred Shares during such 30-day period, the redemption price shall be the price determined by the Board in good faith. Unless the Board determines that it is in the best interests of the Trust to make earlier payment of all of the amount determined as the redemption price per Series C Preferred Share in accordance with the preceding sentence, the redemption price may be payable, at the option of the Board, at any time or times up to, but not later than, the earlier of (A) five years after the redemption date or (B) the liquidation of the Trust, in which latter event the redemption price shall not exceed an amount which is equal to the sum of the per Series C Preferred Share distributions designated as liquidating distributions and return of capital distributions declared with respect to unredeemed Series C Preferred Shares with record dates subsequent to the redemption date; and in any event, no interest shall accrue with respect to the period subsequent to the redemption date to the date of such payment. Nothing in this subsection (i)(i) shall preclude the settlement of any transaction entered into through the facilities of the NYSE. (ii) The limitation on ownership set forth in subsection (i)(i) of this Section 4 shall not apply to the acquisition of Series C Preferred Shares by an underwriter in a public offering of Series C Preferred Shares and shall not apply to the ownership of Series C Preferred Shares by a managing underwriter in the initial public offering of Series C Preferred Shares. The Board, in its sole and absolute discretion, may exempt from the ownership limitation set forth in subsection (i)(i) of this Section 4 certain designated Series C Preferred Shares owned by a person (other than any of the Restricted Parties) who has provided the Board with evidence and assurances acceptable to the Board that the qualification of the Trust as a REIT would not be jeopardized thereby. (iii) Each certificate for Series C Preferred Shares shall bear a legend stating that the Trust will furnish information about the foregoing restrictions to any holder of Series C Preferred Shares on request and without charge. (j) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series C Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. (k) Sinking Fund. The Series C Preferred Shares shall not be entitled to the benefit of any retirement or sinking fund. C-11 ANNEX D SERIES D CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST (a) Number of Shares and Designation. This class of Preferred Shares of Beneficial Interest shall be designated as Series D Cumulative Redeemable Preferred Shares of Beneficial Interest (the "Series D Preferred Shares") and ------------------------- the number of shares which shall constitute such series shall be 2,300,000, $0.01 par value per share, which number may be decreased (but not below the number thereof then outstanding plus the number required to fulfill the Trust's obligations under options, warrants or similar rights issued by the Trust) from time to time by the Board of Trustees. (b) Definitions. For purposes of the Series D Preferred Shares, the following terms shall have the meanings indicated: "Board of Trustees" shall mean the Board of Trustees of the Trust or ----------------- any committee authorized by such Board of Trustees to perform any of its responsibilities with respect to the Series D Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date fixed for redemption of the Series D --------- Preferred Shares and specified in the notice to holders required under subsection (e)(v) of this Section 5 as the Call Date. "Common Shares" shall mean the Common Shares of Beneficial Interest of ------------- the Trust, par value $0.01 per share. "Dividend Payment Date" shall mean the last calendar day of March, --------------------- June, September and December in each year, commencing on the first of such days to occur following the Issue Date; provided, however, that if any -------- ------- Dividend Payment Date falls on any day other than a Business Day, the dividend payment due on such Dividend Payment Date shall be paid on the Business Day immediately following such Dividend Payment Date. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding over which the Series D Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. D-1 "Issue Date" shall mean the first date on which the Series D Preferred ---------- Shares are issued. "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding over which the Series D Preferred Shares have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust and, unless the context clearly indicates otherwise, shall include Fully Junior Shares. "Parity Shares" shall have the meaning set forth in subsection (g)(ii) ------------- of this Section 5. "Person" shall mean any individual, firm, partnership, corporation or ------ other entity, and shall include any successor (by merger or otherwise) of such entity. "Series D Preferred Shares" shall have the meaning set forth in ------------------------- subsection (a) of this Section 5. "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board of Trustees, the allocation of funds to be so paid on any series or class of shares of beneficial interest of the Trust; provided, however, that if any funds for -------- ------- any class or series of Junior Shares or any class or series of shares of beneficial interest ranking on a parity with the Series D Preferred Shares as to the payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series D Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Transfer Agent" means ChaseMellon Shareholder Services, LLC, New York -------------- city, New York, or such other agent or agents of the Trust as may be designated by the Board of Trustees or their designee as the transfer agent for the Series D Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (h) of this Section 5. D-2 (c) Dividends. (i) The holders of Series D Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Trustees out of funds legally available for that purpose, dividends payable in cash in an amount per share equal to $2.1875 per annum. Such dividends shall begin to accrue and shall be fully cumulative from [INSERT MOST RECENT DIVIDEND PAYMENT DATE PRIOR TO CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there shall be funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board of Trustees, in arrears on Dividend Payment Dates, commencing on the first Dividend Payment Date after the Issue Date. Each such dividend shall be payable in arrears to the holders of record of Series D Preferred Shares, as they appear on the stock records of the Trust at the close of business on such record dates, not less than 10 nor more than 50 days preceding such Dividend Payment Dates thereof, as shall be fixed by the Board of Trustees. Accrued and unpaid dividends on the Series D Preferred Shares for any past Dividend Periods may be declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such date, not less than 10 nor more than 50 days preceding the payment date thereof, as may be fixed by the Board of Trustees. (ii) The amount of dividends payable for each full Dividend Period for the Series D Preferred Shares shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for any period shorter or longer than a full Dividend Period on the Series D Preferred Shares shall be computed on the basis of twelve 30-day months and a 360-day year. Holders of Series D Preferred Shares shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of cumulative dividends, as herein provided, on the Series D Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series D Preferred Shares that may be in arrears. (iii) So long as any Series D Preferred Shares are outstanding, no full dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series D Preferred Shares for all past Dividend Periods terminating on or prior to the Dividend Payment Date on such class or series of Parity Shares. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart), as aforesaid, all dividends declared upon Series D Preferred Shares and all dividends declared upon any other class or series of Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series D Preferred Shares and accumulated and unpaid on such Parity Shares. D-3 (iv) So long as any Series D Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in shares of, or options, warrants or rights to subscribe for or purchase shares of, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution declared or made upon Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) the full cumulative dividends on all outstanding Series D Preferred Shares and any other Parity Shares shall have been paid or declared and set apart for payment for all past Dividend Periods with respect to the Series D Preferred Shares and all past dividend periods with respect to such Parity Shares and (B) sufficient funds shall have been paid or declared and set apart for the payment of the dividend for the current Dividend Period with respect to the Series D Preferred Shares and the current dividend period with respect to such Parity Shares. Any dividend payment on the Series D Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due which remains payable. (v) No distributions on Series D Preferred Shares shall be declared by the Board of Trustees of the Trust or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (d) Liquidation Preference. (i) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares, the holders of the Series D Preferred Shares shall be entitled to receive Twenty-Five Dollars ($25.00) per Series D Preferred Share plus an amount equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable among the holders of the Series D Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series D Preferred Shares and any such other Parity Shares ratably in accordance with the respective amounts that would be payable on such Series D Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full. For the purposes of this subsection (d), (A) a consolidation or merger of the Trust with one or more corporations, real estate investment trusts or other entities, (B) a sale, lease or transfer D-4 of all or substantially all of the Trust's assets or (C) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (ii) Subject to the rights of the holders of shares of any series or class or classes of shares of beneficial interest ranking on a parity with or senior to the Series D Preferred Shares upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the holders of the Series D Preferred Shares, as provided in this subsection (d), any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series D Preferred Shares shall not be entitled to share therein. (e) Redemption at the Option of the Trust. (i) Subject to subsection (i) of this Section 5, the Series D Preferred Shares shall not be redeemable by the Trust prior to August 6, 2004. On and after August 6, 2004, the Trust, at its option, may redeem the Series D Preferred Shares, in whole at any time or from time to time in part at the option of the Trust at a redemption price of Twenty-Five Dollars ($25.00) per Series D Preferred Share, plus the amounts indicated in subsection (e)(ii) of this Section 5. (ii) Upon any redemption of Series D Preferred Shares pursuant to this subsection (e), the Trust shall pay any accrued and unpaid dividends in arrears for any Dividend Period ending on or prior to the Call Date. If the Call Date falls after a dividend payment record date and prior to the corresponding Dividend Payment Date, then each holder of Series D Preferred Shares at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series D Preferred Shares called for redemption. (iii) If full cumulative dividends on the Series D Preferred Shares and any other class or series of Parity Shares have not been paid or declared and set apart for payment, the Series D Preferred Shares may not be redeemed under this subsection (e) in part and the Trust may not purchase or acquire Series D Preferred Shares, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Series D Preferred Shares or pursuant to subsection (i) of this Section 5. (iv) The redemption price to be paid upon any redemption of the Series D Preferred Shares (other than any amounts indicated in subsection (e)(ii) of this Section 5 and other than a redemption pursuant to subsection (i) of this Section 5) shall be payable solely out of the sale proceeds of other shares of beneficial interest of the Trust and from no other source. D-5 (v) Notice of the redemption of any Series D Preferred Shares under this subsection (e) shall be mailed by first-class mail to each holder of record of Series D Preferred Shares to be redeemed at the address of each such holder as shown on the Trust's records, not less than 30 nor more than 90 days prior to the Call Date. Neither the failure to mail any notice required by this subsection (e)(v), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (A) the Call Date; (B) the number of Series D Preferred Shares to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (C) the redemption price of $25.00 plus accrued and unpaid dividends through the Call Date; (D) the place or places at which certificates for such shares are to be surrendered; and (E) that dividends on the shares to be redeemed shall cease to accrue on such Call Date except as otherwise provided herein. Notice having been mailed as aforesaid, from and after the Call Date (unless the Trust shall fail to make available an amount of cash necessary to effect such redemption), (x) except as otherwise provided herein, dividends on the Series D Preferred Shares so called for redemption shall cease to accrue, (y) said shares shall no longer be deemed to be outstanding, and (z) all rights of the holders thereof as holders of Series D Preferred Shares of the Trust shall cease (except the right to receive cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Call Date, the Trust shall deposit with a bank or trust company (which may be an affiliate of the Trust) that has an office in the Borough of Manhattan, City of New York, and that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $50,000,000, funds necessary for such redemption, in trust, with irrevocable instructions that such cash be applied to the redemption of the Series D Preferred Shares so called for redemption. No interest shall accrue for the benefit of the holders of Series D Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years from the Call Date shall revert to the general funds of the Trust, after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. As promptly as practicable after the surrender in accordance with said notice of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Trust shall so require and if the notice shall so state), such shares shall be exchanged for any cash (without interest thereon) for which such shares have been redeemed. If fewer than all the outstanding Series D Preferred Shares are to redeemed, shares to be redeemed shall be selected by the Trust from outstanding Series D Preferred Shares not previously called for redemption by lot or pro rata (as nearly as may be) or by any other method determined by the Trust in its sole discretion to be equitable. If fewer than all the Series D Preferred Shares represented by any certificate are redeemed, D-6 then new certificates representing the unredeemed shares shall be issued without cost to the holder thereof. (f) Shares To Be Retired. All Series D Preferred Shares which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (g) Ranking. Any class or series of shares of beneficial interest of the Trust shall be deemed to rank: (i) senior to the Series D Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series D Preferred Shares; (ii) on a parity with the Series D Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series D Preferred Shares, if the holders of such class of stock or series and the holders of the Series D Preferred Shares are entitled to the receipt of dividends and amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); ------------- (iii) junior to the Series D Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such stock or series is Junior Shares; and (iv) junior to the Series D Preferred Shares, as to the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such stock or series is Fully Junior Shares. (h) Voting. If and whenever six quarterly dividends (whether or not consecutive) payable on the Series D Preferred Shares or any series or class of Parity Shares shall be in arrears (which shall, with respect to any such quarterly dividend, mean that any such dividend has not been paid in full), whether or not earned or declared, the number of trustees then constituting the Board of Trustees shall be increased by two and the holders of Series D Preferred Shares, together with the holders of shares of every other series of Parity Shares (any such other series, the "Voting Preferred Shares"), voting as ----------------------- a single class regardless of series, shall be entitled to elect two additional trustees to serve on the Board of Trustees at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series D Preferred Shares and the Voting Preferred Shares called as hereinafter provided. Whenever all arrears in dividends on the Series D D-7 Preferred Shares and the Voting Preferred Shares then outstanding shall have been paid and dividends thereon for the current quarterly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series D Preferred Shares and the Voting Preferred Shares to elect such additional two trustees shall cease (but subject always to the same provision for the vesting of such voting rights in the case of any similar future arrearages in six quarterly dividends), and the terms of office of all persons elected as trustees by the holders of the Series D Preferred Shares and the Voting Preferred Shares shall forthwith terminate and the number of the Board of Trustees shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of Series D Preferred Shares and the Voting Preferred Shares, the secretary of the Trust may, and upon the written request of any holder of Series D Preferred Shares (addressed to the secretary at the principal office of the Trust) shall, call a special meeting of the holders of the Series D Preferred Shares and of the Voting Preferred Shares for the election of the two trustees to be elected by them as herein provided, such call to be made by notice similar to that provided in the Bylaws of the Trust for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the secretary within 20 days after receipt of any such request, then any holder of Series D Preferred Shares may call such meeting, upon the notice above provided, and for that purpose shall have access to the stock records of the Trust. The trustees elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. If any vacancy shall occur among the trustees elected by the holders of the Series D Preferred Shares and the Voting Preferred Shares, a successor shall be elected by the Board of Trustees, upon the nomination of the then-remaining trustee elected by the holders of the Series D Preferred Shares and the Voting Preferred Shares or the successor of such remaining trustee, to serve until the next annual meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as provided above. Notwithstanding any other provisions of this paragraph, in any vote for the election of additional trustees hereunder, the Series D Preferred Shares and Voting Preferred Shares beneficially owned by Security Capital Group Incorporated, a Maryland corporation, any of its direct or indirect subsidiaries and any of their respective directors, officers or controlling stockholders (together, the "Restricted Parties"), shall be voted in the same respective ------------------ percentages as the Series D Preferred Shares and Voting Preferred Shares that are not beneficially owned by the Restricted Parties. The provisions in the preceding sentence shall cease and be of no further force and effect from and after such time, but only as long as, the Restricted Parties together no longer beneficially own in excess of 10% of the Trust's outstanding Common Shares. So long as any Series D Preferred Shares are outstanding, in addition to any other vote or consent of shareholders required by law or by the Declaration of Trust, the affirmative vote of at least 66% of the votes entitled to be cast by the holders of the Series D Preferred Shares and the Voting Preferred Shares, at the time outstanding, acting as a single class regardless of series, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) Any amendment, alteration or repeal of any of the provisions of the Declaration of Trust that materially and adversely affects the voting powers, rights or D-8 preferences of the holders of the Series D Preferred Shares or the Voting Preferred Shares; provided, however, that theamendment of the provisions of -------- ------- the Declaration of Trust so as to authorize or create or to increase the authorized amount of, any Fully Junior Shares, Junior Shares that are not senior in any respect to the Series D Preferred Shares, or any shares of any class ranking on a parity with the Series D Preferred Shares or the Voting Preferred Shares shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series D Preferred Shares, and provided, further, that if any such amendment, -------- ------- alteration or repeal would materially and adversely affect any voting powers, rights or preferences of the Series D Preferred Shares or another series of Voting Preferred Shares that are not enjoyed by some or all of the other series otherwise entitled to vote in accordance herewith, the affirmative vote of at least 66% of the votes entitled to be cast by the holders of all series similarly affected, similarly given, shall be required in lieu of the affirmative vote of at least 66% of the votes entitled to be cast by the holders of the Series D Preferred Shares and the Voting Preferred Shares otherwise entitled to vote in accordance herewith; or (ii) A share exchange that affects the Series D Preferred Shares, a consolidation with or merger of the Trust into another entity, or a consolidation with or merger of another entity into the Trust, unless in each such case each Series D Preferred Share (A) shall remain outstanding without a material and adverse change to its terms and rights or (B) shall be converted into or exchanged for preferred shares of the surviving entity having preferences, rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to that of a Series D Preferred Share (except for changes that do not materially and adversely affect the holders of the Series D Preferred Shares); or (iii) The authorization or creation of, or the increase in the authorized amount of, any shares of any class or any security convertible into shares of any class ranking senior to the Series D Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust or in the payment of dividends; provided, however, that no such vote of the holders of Series D Preferred Shares - -------- ------- shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such prior shares or convertible security is to be made, as the case may be, provision is made for the redemption of all Series D Preferred Shares at the time outstanding. For purposes of the foregoing provisions, a "share exchange" means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and which does not affect the existence of either entity, and the term "surviving entity" shall include the entity acquiring equity securities in a share exchange. For purposes of the foregoing provisions of this subsection (h), each Series D Preferred Share shall have one (1) vote per share, except that when any other series of Preferred Shares shall have the right to vote with the Series D Preferred Shares as a single class on any matter, then the Series D Preferred Shares and such other series shall have with respect to such matters one (1) vote per Twenty-Five Dollars ($25.00) of stated liquidation preference. Except as otherwise required by D-9 applicable law or as set forth herein, the Series D Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any trust action. (i) Limitation on Ownership. (i) Limitation. Notwithstanding any other provision of the terms of the Series D Preferred Shares, except as provided in the next sentence and in subsection (i)(ii) of this Section 5, no Person, or Persons acting as a group, shall at any time directly or indirectly acquire ownership of more than 25% of the outstanding Series D Preferred Shares. Any Series D Preferred Shares owned by a Person or Persons acting as a group in excess of such 25% shall be deemed "Excess Preferred Shares," except that any such ----------------------- shares in excess of 25% will not be considered Excess Preferred Shares if the 25% limitation is exceeded solely as a result of the Trust's redemption of Series D Preferred Shares, provided that thereafter any additional Series D Preferred Shares acquired by such Person or Persons acting as a group shall be considered Excess Preferred Shares. Within 10 days of becoming aware of the existence of Excess Preferred Shares (whether by notice on Schedule 13D or otherwise), the Trust shall redeem any and all Excess Preferred Shares by giving notice of redemption to the holder or holders thereof, unless, prior to the giving of such notice the holder shall have disposed of its ownership in the Excess Preferred Shares. Such notice shall set forth the number of Series D Preferred Shares constituting Excess Preferred shares, the redemption price and the place or places at which the certificates representing such Excess Preferred Shares are to be surrendered and such notice shall set forth the matters described in the following sentence. From and after the date of giving such notice of redemption, the Series D Preferred Shares called for redemption shall cease to be outstanding and the holder thereof shall cease to be entitled to dividends (other than dividends declared but unpaid prior to the notice of redemption), voting rights and other benefits with respect to such shares excepting the rights to payment of the redemption price determined and payable as set forth in the next two sentences. Subject to the limitation on payment set forth in the following sentence, the redemption price of each Excess Preferred Share called for redemption shall be the average daily per Series D Preferred Share closing sales price, if the Series D Preferred Shares are listed on a national securities exchange or, if not, are reported on the NASDAQ National Market System, and if the Series D Preferred Shares are not so listed or reported, shall be the mean between the average per Series D Preferred Share closing bid prices and the average per Series D Preferred Share closing asked prices, in each case during the 30 day period ending on the business day prior to the redemption date, or if there have been no sales on a national securities exchange or the NASDAQ National Market System and no published bid quotations and no published asked quotations with respect to Series D Preferred Shares during such 30 day period, the redemption price shall be the price determined by the Trustees in good faith. Unless the Trustees determine that it is in the interest of the Trust to make earlier payment of all of the amount determined as the redemption price per Series D Preferred Share in accordance with the preceding sentence, the redemption price may be payable, at the option of the Trustees, at any time or times up to, but not later than the earlier of (A) five years after the redemption date, or (B) the liquidation of the Trust, in which latter D-10 event the redemption price shall not exceed an amount which is the sum of the per Series D Preferred Share distributions designated as liquidating distributions and return of capital distributions declared with respect to unredeemed Series D Preferred Shares of the Trust of record subsequent to the redemption date; and in any event, no interest shall accrue with respect to the period subsequent to the redemption date to the date of such payment. Nothing in this subsection (i)(i) of this Section 5 shall preclude the settlement of any transaction entered into through the facilities of the New York Stock Exchange. (ii) Exemptions. The limitation on ownership set forth in subsection (i)(ii) of this Section 5 shall not apply to the acquisition of Series D Preferred Shares by an underwriter in a public offering of Series D Preferred Shares and shall not apply to the ownership of Series D Preferred Shares by a managing underwriter in the initial public offering of Series D Preferred Shares. The Trustees, in their sole and absolute discretion, may exempt from the ownership limitation set forth in subsection (i)(i) certain designated Series D Preferred Shares owned by a person (other than any of the Restricted Parties) who has provided the Trustees with evidence and assurances acceptable to the Trustees that the qualification of the Trust as a real estate investment trust would not be jeopardized thereby. (j) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series D Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. (k) Sinking Fund. The Series D Preferred Shares shall not be entitled to the benefits of any retirement or sinking fund. D-11 ANNEX E SERIES E CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series E Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series E Preferred Shares") and the number of shares which shall ------------------------- constitute such series shall be 1,600,000 Shares, par value $0.01 per Share. (b) Definitions. For purposes of the Series E Preferred Shares, the following terms shall have the meanings indicated: "Board" shall mean the Board of Trustees or any committee authorized ----- by the Board of Trustees to perform any of its duties or exercise any of its powers with respect to the Series E Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date specified in the notice to holders --------- required under subsection (e) of this Section 6 as the Call Date. "Common Shares" shall mean the common shares of beneficial interest, ------------- par value $0.01 per share, of the Trust. "Dividend Payment Date" shall mean the last calendar day of March, --------------------- June, September and December in each year, commencing on the first of such days to occur following the Issue Date; provided, however, that if any Dividend Payment Date falls on any day other than a Business Day, the dividend payment due on such Dividend Payment Date shall be paid on the next succeeding Business Day. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period. "Dividend Record Date" shall have the meaning set forth in subsection -------------------- (c) of this Section 6. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding to which the Series E Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. E-1 "Issue Date" shall mean the first date on which the Series E Preferred ---------- Shares were issued. "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding to which the Series E Preferred Shares have preference or priority in either (i) the payment of dividends or (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust and, unless the context clearly indicates otherwise, shall include Fully Junior Shares. "Parity Shares" shall have the meaning set forth in subsection (g) of ------------- this Section 6. "Person" shall mean any individual, firm, partnership, corporation, ------ real estate investment trust, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to authorization or declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any class or series of Shares; provided, however, that if any funds for any Junior Shares or any Parity Shares are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series E Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., New -------------- York City, New York, or such other agent or agents of the Trust as may be designated by the Board or its designee as the transfer agent for the Series E Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (h) of this Section 6. (c) Dividends. (i) The holders of Series E Preferred Shares shall be entitled to receive, when, as and if authorized or declared by the Board, out of funds legally available for such purpose, cash dividends in an amount per share equal to 8.375% of the liquidation preference per annum (equivalent to $2.09375 per share). Such dividends shall begin to accrue and shall be fully cumulative from and including [INSERT MOST RECENT DIVIDEND PAYMENT DATE PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there are funds of the Trust legally available for the payment of E-2 such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on each Dividend Payment Date. Each such dividend shall be payable in arrears to the holders of record of Series E Preferred Shares, as they appear in the Share records of the Trust at the close of business on such record date as is fixed by the Board, which shall be not less than 10 nor more than 50 days prior to the corresponding Dividend Payment Date (each, a "Dividend Record Date"). Accrued and unpaid -------------------- dividends for any past Dividend Periods may be authorized or declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such record date as may be fixed by the Board, which shall be not less than 10 nor more than 50 days prior to the corresponding payment date. (ii) The dividend for each full Dividend Period for the Series E Preferred Shares shall be computed by dividing the annual dividend rate by four. The dividend for any period shorter than a full Dividend Period on the Series E Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series E Preferred Shares shall not be entitled to any dividends, whether payable in cash, property or shares, in excess of full cumulative dividends, as provided herein, on the Series E Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series E Preferred Shares which may be in arrears. (iii) So long as any Series E Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any Parity Shares for any period unless (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series E Preferred Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period with respect to the Series E Preferred Shares. When dividends are not paid in full, or a sum sufficient for the payment thereof is not set apart for payment, on the Series E Preferred Shares and any Parity Shares as provided above, all dividends declared on the Series E Preferred Shares and any Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accrued and unpaid on the Series E Preferred Shares and on such Parity Shares. (iv) So long as any Series E Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in, or options, warrants or rights to subscribe for or purchase, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made on Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods E-3 with respect to the Series E Preferred Shares and all past dividend periods with respect to any Parity Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period with respect to the Series E Preferred Shares and the current dividend period with respect to any Parity Shares. Any dividend payment on the Series E Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due which remains payable. (v) No distributions on Series E Preferred Shares shall be declared or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration, payment or setting apart for payment is restricted or prohibited by law. (d) Liquidation Preference. (i) Upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) is made to or set apart for the holders of the Common Shares or any other class or series of Shares now or hereafter issued and outstanding to which the Series E Preferred Shares have preference or priority in the distribution of assets on any liquidation, dissolution or winding up of the Trust, the holders of Series E Preferred Shares shall be entitled to receive out of assets of the Trust legally available for such purpose, liquidating distributions in the amount of $25.00 per Series E Preferred Share, plus an amount equal to all dividends (whether or not earned or authorized or declared) accrued and unpaid thereon to the date of final distribution to such holders, if any; but such holders shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or the proceeds thereof, distributable among the holders of Series E Preferred Shares are insufficient to pay in full such preferential amount with respect to the Series E Preferred Shares and the corresponding amounts with respect to all Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series E Preferred Shares and all such Parity Shares in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (ii) Subject to the rights of the holders of shares of any class or series of Shares ranking on a parity with or senior to the Series E Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust, upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, after payment has been made in full to the holders of Series E Preferred Shares, as provided herein, the holders of any Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of Series E Preferred Shares shall not be entitled to share therein. E-4 (iii) For the purposes hereof, (A) a consolidation or merger of the Trust with or into one or more corporations, real estate investment trusts or other entities, (B) a sale, lease or transfer of all or substantially all of the Trust's assets or (C) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary. (e) Redemption at the Option of the Trust. (i) Subject to subsection (i) of this Section 6 below, the Series E Preferred Shares are not redeemable by the Trust prior to August 13, 2004. On and after such date, the Trust, at its option, may redeem the Series E Preferred Shares, in whole at any time or in part from time to time, for cash at a redemption price of $25.00 per Series E Preferred Share, plus the amounts indicated in subsection (e)(ii) of this Section 6. (ii) Upon any redemption of Series E Preferred Shares pursuant to this subsection (e), the Trust shall pay all dividends accrued and unpaid thereon, if any, in arrears for any Dividend Period ending on or prior to the Call Date. If the Call Date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, then each holder of Series E Preferred Shares at the close of business on such Dividend Record Date shall be entitled to receive the dividend payable on such Series E Preferred Shares on the corresponding Dividend Payment Date notwithstanding the redemption of such Series E Preferred Shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series E Preferred Shares called for redemption. (iii) Unless (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series E Preferred Shares and all past dividend periods with respect to any Parity Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period with respect to the Series E Preferred Shares and the current dividend period with respect to any Parity Shares, the Series E Preferred Shares may not be redeemed under this subsection (e) in part and the Trust may not purchase or otherwise acquire Series E Preferred Shares, except pursuant to a purchase or exchange offer made on the same terms to all holders of Series E Preferred Shares or by conversion into or exchange for Fully Junior Shares or pursuant to subsection (i) of this Section 6. (iv) The redemption price to be paid upon any redemption of the Series E Preferred Shares (other than any amounts indicated in subsection (e)(ii) of this Section 6 and other than a redemption pursuant to subsection (i) of this Section 6) shall be payable solely out of the sale proceeds of other shares of the Trust and from no other source. (v) Notice of the redemption of any Series E Preferred Shares under this subsection (e) shall be mailed by first class mail, not less than 30 nor more than 60 days prior E-5 to the Call Date, to each holder of record of Series E Preferred Shares to be redeemed at the address of such holder as shown on the Trust's Share records. Neither the failure to mail any notice required by this subsection (e)(v), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to any other holder. Any notice which was mailed in the manner provided herein shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (A) the Call Date; (B) the number of Series E Preferred Shares to be redeemed and, if fewer than all Series E Preferred Shares held by such holder are to be redeemed, the number of Series E Preferred Shares to be redeemed from such holder; (C) the redemption price; (D) the place or places at which certificates representing such Series E Preferred Shares are to be surrendered; and (E) that dividends on the Series E Preferred Shares to be redeemed shall cease to accrue on the Call Date except as otherwise provided herein. If notice of redemption of any Series E Preferred Shares has been mailed as provided above, then from and after the Call Date (unless the Trust fails to make available an amount of cash necessary to effect such redemption), (x) except as otherwise provided herein, dividends shall cease to accrue on the Series E Preferred Shares so called for redemption, (y) such Series E Preferred Shares shall no longer be deemed to be outstanding and (z) all rights of the holders thereof as holders of Series E Preferred Shares shall terminate (except the right to receive cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Call Date, the Trust deposits with a bank or trust company (which may be an affiliate of the Trust) which has an office in the Borough of Manhattan, City of New York, and which has, or is an affiliate of a bank or trust company which has, capital and surplus of at least $50,000,000, the funds necessary for such redemption, in trust, with irrevocable instructions that such cash be applied to the redemption of the Series E Preferred Shares so called for redemption. No interest shall accrue for the benefit of the holders of Series E Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years after the Call Date shall revert to the general funds of the Trust, after which reversion the holders of Series E Preferred Shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. (vi) As promptly as practicable after the surrender in accordance with such notice of the certificates representing any Series E Preferred Shares so redeemed (properly endorsed or assigned for transfer, if the Trust so requires and if the notice so states), such Series E Preferred Shares shall be exchanged for any cash (without interest thereon) for which such Series E Preferred Shares have been redeemed. If fewer than all the outstanding Series E Preferred Shares are to be redeemed, the Series E Preferred Shares to be redeemed shall be selected by the Trust from outstanding Series E Preferred Shares not previously called for redemption by lot or pro rata (as nearly as may be) or by any other method determined by the Board or the Chairman or any Co-Chairman of the Trust in its, his or her sole discretion to be equitable. If fewer than all the Series E Preferred Shares represented by any certificate are E-6 redeemed, then new certificates representing the unredeemed Series E Preferred Shares shall be issued without cost to the holder thereof. (f) Shares to Be Retired. All Series E Preferred Shares which are issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (g) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series E Preferred Shares, in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or amounts distributable on any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series E Preferred Shares; (ii) on a parity with the Series E Preferred Shares, in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series E Preferred Shares, if the holders of such class or series and the holders of Series E Preferred Shares are entitled to the receipt of dividends and amounts distributable on any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); ------------- (iii) junior to the Series E Preferred Shares, in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and (iv) junior to the Series E Preferred Shares, in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (h) Voting. Holders of the Series E Preferred Shares will not have any voting rights, except as set forth below. (i) If at any time full distributions shall not have been timely made on any Series E Preferred Shares with respect to any six (6) prior quarterly distribution periods, whether or not consecutive (a "Preferred --------- Distribution Default"), the holders of such Series E Preferred Shares, -------------------- voting together as a single class with the holders of each class or series of Parity Shares upon which like voting rights have been conferred and are exercisable, will have the right to elect two additional Trustees to serve on the Board (the "Preferred Shares Trustees") at a special meeting called by the holders of record of at least 10% of the outstanding Series E Preferred Shares or any such class or series of Parity Shares or at the next annual meeting of shareholders, and at each subsequent annual meeting of shareholders or special meeting E-7 held in place thereof, until all such distributions in arrears and distributions for the current quarterly period on the Series E Preferred Shares and each such class or series of Parity Shares have been paid in full. (ii) At any time when such voting rights shall have vested, a proper officer of the Trust shall call or cause to be called, upon written request of holders of record of at least 10% of the outstanding Series E Preferred Shares, a special meeting of the holders of Series E Preferred Shares and all the series of Parity Shares upon which like voting rights have been conferred and are exercisable (collectively, the "Voting Preferred Shares") ----------------------- by mailing or causing to be mailed to such holders a notice of such special meeting to be held not less than ten and not more than 45 days after the date such notice is given. The record date for determining holders of the Voting Preferred Shares entitled to notice of and to vote at such special meeting will be the close of business on the third Business Day preceding the day on which such notice is mailed. At any such special meeting, all of the holders of the Voting Preferred Shares, by plurality vote, voting together as a single class without regard to series will be entitled to elect two Trustees (the "Preferred Shares Trustees") on the basis of one ------------------------- vote per $25 of liquidation preference to which such Voting Preferred Shares are entitled by their terms (excluding amounts in respect of accumulated and unpaid dividends) and not cumulatively. The holder or holders of one-third of the Voting Preferred Shares then outstanding, present in person or by proxy, will constitute a quorum for the election of the Preferred Shares Trustees except as otherwise provided by law. Notice of all meetings at which holders of the Series E Preferred Shares shall be entitled to vote will be given to such holders at their addresses as they appear in the transfer records. At any such meeting or adjournment thereof in the absence of a quorum, subject to the provisions of any applicable law, a majority of the holders of the Voting Preferred Shares present in person or by proxy shall have the power to adjourn the meeting for the election of the Preferred Shares Trustees, without notice other than an announcement at the meeting, until a quorum is present. If a Preferred Distribution Default shall terminate after the notice of a special meeting has been given but before such special meeting has been held, the Trust shall, as soon as practicable after such termination, mail or cause to be mailed notice of such termination to holders of the Series E Preferred Shares that would have been entitled to vote at such special meeting. (iii) If and when all accumulated distributions and the distribution for the current distribution period on the Series E Preferred Shares shall have been paid in full or a sum sufficient for such payment is irrevocably deposited in trust for payment, the holders of the Series E Preferred Shares shall be divested of the voting rights set forth in subsection (h)(ii) of this Section 6 (subject to revesting in the event of each and every Preferred Distribution Default) and, if all distributions in arrears and the distributions for the current distribution period have been paid in full or set aside for payment in full on all other classes or series of Parity Shares upon which like voting rights have been conferred and are exercisable, the term and office of each Preferred Shares Trustee so elected shall terminate. Any Preferred Shares Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series E Preferred Shares when they have the voting rights set forth in subsection (h)(ii) of E-8 this Section 6 (voting separately as a single class with all other classes or series of Parity Shares upon which like voting rights have been conferred and are exercisable). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred Shares Trustee may be filled by written consent of the Preferred Shares Trustee remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding Series E Preferred Shares when they have the voting rights set forth in subsection (h)(ii) of this Section 6) (voting separately as a single class with all other classes or series of Parity Shares upon which like voting rights have been conferred and are exercisable). The Preferred Shares Trustee shall each be entitled to one vote per Trustee on any matter. (iv) So long as any Series E Preferred Shares remains outstanding, the Trust shall not, without the affirmative vote of the holders of at least two-thirds of the Series E Preferred Shares outstanding at the time (A) designate or create, or increase the authorized or issued amount of, any class or series of shares ranking senior to the Series E Preferred Shares with respect to payment of distributions or rights upon liquidation, dissolution or winding-up of the Trust or reclassify any authorized shares of the Trust into any such shares, or create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares, (B) designate or create, or increase the authorized or issued amount of, any Parity Shares or reclassify any authorized shares of the Trust into any such shares, or create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares, but only to the extent such Parity Shares are issued to an Affiliate of the Trust, or (C) either (x) consolidate, merge into or with, or convey, transfer or lease its assets substantially as an entirety, to any corporation, real estate investment trust or other entity, or (y) amend, alter or repeal the provisions of the Declaration of Trust or Bylaws, whether by merger, consolidation or otherwise, in each case that would materially and adversely affect the powers, special rights, preferences, privileges or voting power of the Series E Preferred Shares or the holders thereof; provided, however, that with respect to the occurrence of a merger, consolidation or a sale or lease of all of the Trust's assets as an entirety, so long as (1) the Trust is the surviving entity and the Series E Preferred Shares remain outstanding with the terms thereof unchanged, or (2) the resulting, surviving or transferee entity is a corporation or real estate investment trust organized under the laws of any state and substitutes the Series E Preferred Shares for other preferred shares having substantially the same terms and same rights as the Series E Preferred Shares, including with respect to distributions, voting rights and rights upon liquidation, dissolution or winding-up, then the occurrence of any such event shall not be deemed to materially and adversely affect such rights, privileges or voting powers of the holders of the Series E Preferred Shares and provided further that any increase in the amount of authorized preferred shares or the creation or issuance of any other class or series of preferred shares, or any increase in an amount of authorized shares of each class or series, in each case ranking either (m) junior to the Series E Preferred Shares with respect to payment of distributions and the distribution of assets upon liquidation, dissolution or winding-up, or (n) on a parity with the Series E Preferred Shares with respect to payment of distributions or the distribution of assets upon liquidation, dissolution or winding-up to the extent such preferred shares are not issued to an affiliate of E-9 the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. (i) Transfer Restrictions. The Series E Preferred Shares shall be subject to the provisions of Section 18, Article II of the Declaration of Trust. (j) No Conversion Rights. The holders of the Series E Preferred Shares shall not have any rights to convert such shares into shares of any other class or series of shares or into any other securities of, or interest in, the Trust. (k) No Preemptive Rights. No holder of the Series E Preferred Shares shall, as such holder, have any preemptive rights to purchase or subscribe for additional shares of shares of the Trust or any other security of the Trust which it may issue or sell. (l) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series E Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. (m) Sinking Fund. The Series E Preferred Shares shall not be entitled to the benefit of any retirement or sinking fund. E-10 ANNEX F SERIES F CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series F Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series F Preferred Shares") and the number of shares which shall ------------------------- constitute such series shall be 800,000 Shares, par value $0.01 per Share. (b) Definitions. For purposes of the Series F Preferred Shares, the following terms shall have the meanings indicated: "Board" shall mean the Board of Trustees or any committee authorized ----- by the Board of Trustees to perform any of its duties or exercise any of its powers with respect to the Series F Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date specified in the notice to holders --------- required under subsection (e) of this Section 7 as the Call Date. "Common Shares" shall mean the common shares of beneficial interest, ------------- par value $0.01 per share, of the Trust. "Dividend Payment Date" shall mean the 25th day of March, June, --------------------- September and December in each year, commencing with the first such date to occur following the issuance of Series F Preferred Shares; provided, however, that if any Dividend Payment Date falls on any day other than a Business Day, the dividend payment due on such Dividend Payment Date shall be paid on the next succeeding Business Day. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- the 26th day of March, June, September and December of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period. "Dividend Record Date" shall have the meaning set forth in subsection -------------------- (c) of this Section 7. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding to which the Series F Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. F-1 "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding to which the Series F Preferred Shares have preference or priority in either (i) the payment of dividends or (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust and, unless the context clearly indicates otherwise, shall include Fully Junior Shares. "Parity Shares" shall have the meaning set forth in subsection (g) of ------------- this Section 7. "Person" shall mean any individual, firm, partnership, corporation, ------ real estate investment trust, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to authorization or declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any class or series of Shares; provided, however, that if any funds for any Junior Shares or any Parity Shares are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series F Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., New -------------- York City, New York, or such other agent or agents of the Trust as may be designated by the Board or its designee as the transfer agent for the Series F Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (h) of this Section 7. (c) Dividends. (i) The holders of Series F Preferred Shares shall be entitled to receive, when, as and if authorized or declared by the Board, out of funds legally available for such purpose, cash dividends in an amount per share equal to 8.125% of the liquidation preference per annum (equivalent to $2.03125 per share). Such dividends shall begin to accrue and shall be fully cumulative from and including [INSERT MOST RECENT DIVIDEND PAYMENT DATE PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there are funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on each Dividend Payment Date. Each such dividend shall be payable in arrears to the holders of record of Series F Preferred Shares, as they appear in the Share records of the F-2 Trust at the close of business on such record date as is fixed by the Board, which shall be not less than 10 nor more than 50 days prior to the corresponding Dividend Payment Date (each, a "Dividend Record Date"). -------------------- Accrued and unpaid dividends for any past Dividend Periods may be authorized or declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such record date as may be fixed by the Board, which shall be not less than 10 nor more than 50 days prior to the corresponding payment date. (ii) The dividend for each full Dividend Period for the Series F Preferred Shares shall be computed by dividing the annual dividend rate by four. The dividend for any period shorter than a full Dividend Period on the Series F Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series F Preferred Shares shall not be entitled to any dividends, whether payable in cash, property or shares, in excess of full cumulative dividends, as provided herein, on the Series F Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series F Preferred Shares which may be in arrears. (iii) So long as any Series F Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any Parity Shares for any period unless (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series F Preferred Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period with respect to the Series F Preferred Shares. When dividends are not paid in full, or a sum sufficient for the payment thereof is not set apart for payment, on the Series F Preferred Shares and any Parity Shares as provided above, all dividends declared on the Series F Preferred Shares and any Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accrued and unpaid on the Series F Preferred Shares and on such Parity Shares. (iv) So long as any Series F Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in, or options, warrants or rights to subscribe for or purchase, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made on Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series F Preferred Shares and all past dividend periods with respect to any Parity Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period F-3 with respect to the Series F Preferred Shares and the current dividend period with respect to any Parity Shares. Any dividend payment on the Series F Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due which remains payable. (v) No distributions on Series F Preferred Shares shall be declared or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration, payment or setting apart for payment is restricted or prohibited by law. (d) Liquidation Preference. (i) Upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) is made to or set apart for the holders of the Common Shares or any other class or series of Shares now or hereafter issued and outstanding to which the Series F Preferred Shares have preference or priority in the distribution of assets on any liquidation, dissolution or winding up of the Trust, the holders of Series F Preferred Shares shall be entitled to receive out of assets of the Trust legally available for such purpose, liquidating distributions in the amount of $25.00 per Series F Preferred Share, plus an amount equal to all dividends (whether or not earned or authorized or declared) accrued and unpaid thereon to the date of final distribution to such holders, if any; but such holders shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or the proceeds thereof, distributable among the holders of Series F Preferred Shares are insufficient to pay in full such preferential amount with respect to the Series F Preferred Shares and the corresponding amounts with respect to all Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series F Preferred Shares and all such Parity Shares in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (ii) Subject to the rights of the holders of shares of any class or series of Shares ranking on a parity with or senior to the Series F Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust, upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, after payment has been made in full to the holders of Series F Preferred Shares, as provided herein, the holders of any Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of Series F Preferred Shares shall not be entitled to share therein. (iii) For the purposes hereof, (A) a consolidation or merger of the Trust with or into one or more corporations, real estate investment trusts or other entities, (B) a sale, lease or transfer of all or substantially all of the Trust's assets or (C) a statutory share exchange shall F-4 not be deemed to be a liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary. (e) Redemption at the Option of the Trust. (i) Subject to subsection (i) of this Section 7, the Series F Preferred Shares are not redeemable by the Trust prior to September 27, 2004. On and after such date, the Trust, at its option, may redeem the Series F Preferred Shares, in whole at any time or in part from time to time, for cash at a redemption price of $25.00 per Series F Preferred Share, plus the amounts indicated in subsection (e)(ii) of this Section 7. (ii) Upon any redemption of Series F Preferred Shares pursuant to this subsection (e), the Trust shall pay all dividends accrued and unpaid thereon, if any, in arrears for any Dividend Period ending on or prior to the Call Date. If the Call Date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, then each holder of Series F Preferred Shares at the close of business on such Dividend Record Date shall be entitled to receive the dividend payable on such Series F Preferred Shares on the corresponding Dividend Payment Date notwithstanding the redemption of such Series F Preferred Shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series F Preferred Shares called for redemption. (iii) Unless (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series F Preferred Shares and all past dividend periods with respect to any Parity Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period with respect to the Series F Preferred Shares and the current dividend period with respect to any Parity Shares, the Series F Preferred Shares may not be redeemed under this subsection (e) in part and the Trust may not purchase or otherwise acquire Series F Preferred Shares, except pursuant to a purchase or exchange offer made on the same terms to all holders of Series F Preferred Shares or by conversion into or exchange for Fully Junior Shares or pursuant to subsection (i) of this Section 7. (iv) The redemption price to be paid upon any redemption of the Series F Preferred Shares (other than any amounts indicated in subsection (e)(ii) of this Section 7 and other than a redemption pursuant to subsection (i) of this Section 7) shall be payable solely out of the sale proceeds of other shares of the Trust and from no other source. (v) Notice of the redemption of any Series F Preferred Shares under this subsection (e) shall be mailed by registered mail, not less than 10 nor more than 60 days prior to the Call Date, to each holder of record of Series F Preferred Shares to be redeemed at the address of such holder as shown on the Trust's Share records. Neither the failure to mail any notice required by this subsection (e)(v), nor any defect therein or in the mailing thereof, to F-5 any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to any other holder. Any notice which was mailed in the manner provided herein shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (A) the Call Date; (B) the number of Series F Preferred Shares to be redeemed and, if fewer than all Series F Preferred Shares held by such holder are to be redeemed, the number of Series F Preferred Shares to be redeemed from such holder; (C) the redemption price; (D) the place or places at which certificates representing such Series F Preferred Shares are to be surrendered; and (E) that dividends on the Series F Preferred Shares to be redeemed shall cease to accrue on the Call Date except as otherwise provided herein. If notice of redemption of any Series F Preferred Shares has been mailed as provided above, then from and after the Call Date (unless the Trust fails to make available an amount of cash necessary to effect such redemption), (x) except as otherwise provided herein, dividends shall cease to accrue on the Series F Preferred Shares so called for redemption, (y) such Series F Preferred Shares shall no longer be deemed to be outstanding and (z) all rights of the holders thereof as holders of Series F Preferred Shares shall terminate (except the right to receive cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Call Date, the Trust deposits with a bank or trust company (which may be an affiliate of the Trust) which has an office in the Borough of Manhattan, City of New York, and which has, or is an affiliate of a bank or trust company which has, capital and surplus of at least $50,000,000, the funds necessary for such redemption, in trust, with irrevocable instructions that such cash be applied to the redemption of the Series F Preferred Shares so called for redemption. No interest shall accrue for the benefit of the holders of Series F Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years after the Call Date shall revert to the general funds of the Trust, after which reversion the holders of Series F Preferred Shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. As promptly as practicable after the surrender in accordance with such notice of the certificates representing any Series F Preferred Shares so redeemed (properly endorsed or assigned for transfer, if the Trust so requires and if the notice so states), such Series F Preferred Shares shall be exchanged for any cash (without interest thereon) for which such Series F Preferred Shares have been redeemed. If fewer than all the outstanding Series F Preferred Shares are to be redeemed, the Series F Preferred Shares to be redeemed shall be selected by the Trust from outstanding Series F Preferred Shares not previously called for redemption by lot or pro rata (as nearly as may be) or by any other method determined by the Board or the Chairman or any Co-Chairman of the Trust in its, his or her sole discretion to be equitable. If fewer than all the Series F Preferred Shares represented by any certificate are redeemed, then new certificates representing the unredeemed Series F Preferred Shares shall be issued without cost to the holder thereof. F-6 (f) Shares to Be Retired. All Series F Preferred Shares which are issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (g) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series F Preferred Shares, in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or amounts distributable on any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series F Preferred Shares; (ii) on a parity with the Series F Preferred Shares, in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series F Preferred Shares, if the holders of such class or series and the holders of Series F Preferred Shares are entitled to the receipt of dividends and amounts distributable on any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); ------------- (iii) junior to the Series F Preferred Shares, in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and (iv) junior to the Series F Preferred Shares, in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (h) Voting. Holders of the Series F Preferred Shares will not have any voting rights, except as set forth below. (i) If at any time full distributions shall not have been timely made on any Series F Preferred Shares with respect to any six (6) prior quarterly distribution periods, whether or not consecutive (a "Preferred --------- Distribution Default"), the holders of such Series F Preferred Shares, -------------------- voting together as a single class with the holders of each class or series of Parity Shares upon which like voting rights have been conferred and are exercisable, will have the right to elect two additional Trustees to serve on the Board (the "Preferred Shares Trustees") at a special meeting called ------------------------- by the holders of record of at least 10% of the outstanding Series F Preferred Shares or any such class or series of Parity Shares or at the next annual meeting of shareholders, and at each subsequent annual meeting of shareholders or special meeting held in place thereof, until all such distributions in arrears and distributions for the current quarterly period on the Series F Preferred Shares and each such class or series of Parity Shares have been paid in full. F-7 (ii) At any time when such voting rights shall have vested, a proper officer of the Trust shall call or cause to be called, upon written request of holders of record of at least 10% of the outstanding Series F Preferred Shares, a special meeting of the holders of Series F Preferred Shares and all the series of Parity Shares upon which like voting rights have been conferred and are exercisable (collectively, the "Voting Preferred Shares") ----------------------- by mailing or causing to be mailed to such holders a notice of such special meeting to be held not less than ten and not more than 45 days after the date such notice is given. The record date for determining holders of the Voting Preferred Shares entitled to notice of and to vote at such special meeting will be the close of business on the third Business Day preceding the day on which such notice is mailed. At any such special meeting, all of the holders of the Voting Preferred Shares, by plurality vote, voting together as a single class without regard to series will be entitled to elect two Trustees (the "Preferred Shares Trustees") on the basis of one ------------------------- vote per $25 of liquidation preference to which such Voting Preferred Shares are entitled by their terms (excluding amounts in respect of accumulated and unpaid dividends) and not cumulatively. The holder or holders of one-third of the Voting Preferred Shares then outstanding, present in person or by proxy, will constitute a quorum for the election of the Preferred Shares Trustees except as otherwise provided by law. Notice of all meetings at which holders of the Series F Preferred Shares shall be entitled to vote will be given to such holders at their addresses as they appear in the transfer records. At any such meeting or adjournment thereof in the absence of a quorum, subject to the provisions of any applicable law, a majority of the holders of the Voting Preferred Shares present in person or by proxy shall have the power to adjourn the meeting for the election of the Preferred Shares Trustees, without notice other than an announcement at the meeting, until a quorum is present. If a Preferred Distribution Default shall terminate after the notice of a special meeting has been given but before such special meeting has been held, the Trust shall, as soon as practicable after such termination, mail or cause to be mailed notice of such termination to holders of the Series F Preferred Shares that would have been entitled to vote at such special meeting. (iii) If and when all accumulated distributions and the distribution for the current distribution period on the Series F Preferred Shares shall have been paid in full or a sum sufficient for such payment is irrevocably deposited in trust for payment, the holders of the Series F Preferred Shares shall be divested of the voting rights set forth in subsection (h)(ii) of this Section 7 (subject to revesting in the event of each and every Preferred Distribution Default) and, if all distributions in arrears and the distributions for the current distribution period have been paid in full or set aside for payment in full on all other classes or series of Parity Shares upon which like voting rights have been conferred and are exercisable, the term and office of each Preferred Shares Trustee so elected shall terminate. Any Preferred Shares Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series F Preferred Shares when they have the voting rights set forth in subsection (h)(ii) of this Section 7 (voting separately as a single class with all other classes or series of Parity Shares upon which like voting rights have been conferred and are exercisable). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred F-8 Shares Trustee may be filled by written consent of the Preferred Shares Trustee remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding Series F Preferred Shares when they have the voting rights set forth in subsection (h)(ii) of this Section 7) (voting separately as a single class with all other classes or series of Parity Shares upon which like voting rights have been conferred and are exercisable). The Preferred Shares Trustee shall each be entitled to one vote per Trustee on any matter. (iv) So long as any Series F Preferred Shares remains outstanding, the Trust shall not, without the approval of the holders of at least two- thirds of the Series F Preferred Shares outstanding at the time (A) designate or create, or increase the authorized or issued amount of, any class or series of shares ranking senior to the Series F Preferred Shares with respect to payment of distributions or rights upon liquidation, dissolution or winding-up of the Trust or reclassify any authorized shares of the Trust into any such shares, or create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares, (B) designate or create, or increase the authorized or issued amount of, any Parity Shares or reclassify any authorized shares of the Trust into any such shares, or create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares, but only to the extent such Parity Shares are issued to an Affiliate of the Trust, or (C) either (x) consolidate, merge into or with, or convey, transfer or lease its assets substantially as an entirety, to any corporation, real estate investment trust or other entity, or (y) amend, alter or repeal the provisions of the Declaration of Trust or Bylaws, whether by merger, consolidation or otherwise, in each case that would materially and adversely affect the powers, special rights, preferences, privileges or voting power of the Series F Preferred Shares or the holders thereof; provided, however, that with respect to the occurrence of a merger, consolidation or a sale or lease of all of the Trust's assets as an entirety, so long as (1) the Trust is the surviving entity and the Series F Preferred Shares remain outstanding with the terms thereof unchanged, or (2) the resulting, surviving or transferee entity is a corporation or real estate investment trust organized under the laws of any state and substitutes the Series F Preferred Shares for other preferred shares having substantially the same terms and same rights as the Series F Preferred Shares, including with respect to distributions, voting rights and rights upon liquidation, dissolution or winding-up, then the occurrence of any such event shall not be deemed to materially and adversely affect such rights, privileges or voting powers of the holders of the Series F Preferred Shares and provided further that any increase in the amount of authorized preferred shares or the creation or issuance of any other class or series of preferred shares, or any increase in an amount of authorized shares of each class or series, in each case ranking either (m) junior to the Series F Preferred Shares with respect to payment of distributions and the distribution of assets upon liquidation, dissolution or winding-up, or (n) on a parity with the Series F Preferred Shares with respect to payment of distributions or the distribution of assets upon liquidation, dissolution or winding-up to the extent such preferred shares are not issued to an affiliate of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. F-9 (i) Transfer Restrictions. The Series F Preferred Shares shall be subject to the provisions of Section 18, Article II of the Declaration of Trust. (j) No Conversion Rights. The holders of the Series F Preferred Shares shall not have any rights to convert such shares into shares of any other class or series of shares or into any other securities of, or interest in, the Trust. (k) No Preemptive Rights. No holder of the Series F Preferred Shares shall, as such holder, have any preemptive rights to purchase or subscribe for additional shares of the Trust or any other security of the Trust which it may issue or sell. (l) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series F Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. (m) Sinking Fund. The Series F Preferred Shares shall not be entitled to the benefit of any retirement or sinking fund. F-10 ANNEX G SERIES G CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series G Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series G Preferred Shares") and the number of shares which ------------------------- shall constitute such series shall be 600,000 Shares, par value $0.01 per Share. (b) Definitions. For purposes of the Series G Preferred Shares, the following terms shall have the meanings indicated: "Board" shall mean the Board of Trustees or any committee authorized ----- by the Board of Trustees to perform any of its duties or exercise any of its powers with respect to the Series G Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date specified in the notice to holders --------- required under subsection (e) of this Section 8 as the Call Date. "Common Shares" shall mean the common shares of beneficial interest, ------------- par value $0.01 per share, of the Trust. "Dividend Payment Date" shall mean the 25th day of March, June, --------------------- September and December in each year, commencing with the first such date to occur following the issuance of Series G Preferred Shares; provided, however, that if any Dividend Payment Date falls on any day other than a Business Day, the dividend payment due on such Dividend Payment Date shall be paid on the next succeeding Business Day. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- the 26th day of March, June, September and December of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period. "Dividend Record Date" shall have the meaning set forth in subsection -------------------- (c) of this Section 8. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding to which the Series G Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. G-1 "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding to which the Series G Preferred Shares have preference or priority in either (i) the payment of dividends or (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust and, unless the context clearly indicates otherwise, shall include Fully Junior Shares. "Parity Shares" shall have the meaning set forth in subsection (g) of ------------- this Section 8. "Person" shall mean any individual, firm, partnership, corporation, ------ real estate investment trust, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to authorization or declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any class or series of Shares; provided, however, that if any funds for any Junior Shares or any Parity Shares are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series G Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., New -------------- York City, New York, or such other agent or agents of the Trust as may be designated by the Board or its designee as the transfer agent for the Series G Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (h) of this Section 8. (c) Dividends. (i) The holders of Series G Preferred Shares shall be entitled to receive, when, as and if authorized or declared by the Board, out of funds legally available for such purpose, cash dividends in an amount per share equal to 8.625% of the liquidation preference per annum (equivalent to $2.15625 per share). Such dividends shall begin to accrue and shall be fully cumulative from and including [INSERT MOST RECENT DIVIDEND PAYMENT DATE PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there are funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on each Dividend Payment Date. Each such dividend shall be payable in arrears to the holders of record of Series G Preferred Shares, as they appear in the Share records of the G-2 Trust at the close of business on such record date as is fixed by the Board, which shall be not less than 10 nor more than 50 days prior to the corresponding Dividend Payment Date (each, a "Dividend Record Date"). -------------------- Accrued and unpaid dividends for any past Dividend Periods may be authorized or declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such record date as may be fixed by the Board, which shall be not less than 10 nor more than 50 days prior to the corresponding payment date. (ii) The dividend for each full Dividend Period for the Series G Preferred Shares shall be computed by dividing the annual dividend rate by four. The dividend for any period shorter than a full Dividend Period on the Series G Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series G Preferred Shares shall not be entitled to any dividends, whether payable in cash, property or shares, in excess of full cumulative dividends, as provided herein, on the Series G Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series G Preferred Shares which may be in arrears. (iii) So long as any Series G Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any Parity Shares for any period unless (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series G Preferred Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period with respect to the Series G Preferred Shares. When dividends are not paid in full, or a sum sufficient for the payment thereof is not set apart for payment, on the Series G Preferred Shares and any Parity Shares as provided above, all dividends declared on the Series G Preferred Shares and any Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accrued and unpaid on the Series G Preferred Shares and on such Parity Shares. (iv) So long as any Series G Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in, or options, warrants or rights to subscribe for or purchase, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made on Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series G Preferred Shares and all past dividend periods with respect to any Parity Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period G-3 with respect to the Series G Preferred Shares and the current dividend period with respect to any Parity Shares. Any dividend payment on the Series G Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due which remains payable. (v) No distributions on Series G Preferred Shares shall be declared or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration, payment or setting apart for payment is restricted or prohibited by law. (d) Liquidation Preference. (i) Upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) is made to or set apart for the holders of the Common Shares or any other class or series of Shares now or hereafter issued and outstanding to which the Series G Preferred Shares have preference or priority in the distribution of assets on any liquidation, dissolution or winding up of the Trust, the holders of Series G Preferred Shares shall be entitled to receive out of assets of the Trust legally available for such purpose, liquidating distributions in the amount of $25.00 per Series G Preferred Share, plus an amount equal to all dividends (whether or not earned or authorized or declared) accrued and unpaid thereon to the date of final distribution to such holders, if any; but such holders shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or the proceeds thereof, distributable among the holders of Series G Preferred Shares are insufficient to pay in full such preferential amount with respect to the Series G Preferred Shares and the corresponding amounts with respect to all Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series G Preferred Shares and all such Parity Shares in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. (ii) Subject to the rights of the holders of shares of any class or series of Shares ranking on a parity with or senior to the Series G Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust, upon any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, after payment has been made in full to the holders of Series G Preferred Shares, as provided herein, the holders of any Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of Series G Preferred Shares shall not be entitled to share therein. (iii) For the purposes hereof, (A) a consolidation or merger of the Trust with or into one or more corporations, real estate investment trusts or other entities, (B) a sale, lease or transfer of all or substantially all of the Trust's assets or (C) a statutory share exchange shall G-4 not be deemed to be a liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary. (e) Redemption at the Option of the Trust. (i) Subject to subsection (i) of this Section 8, the Series G Preferred Shares are not redeemable by the Trust prior to March 3, 2005. On and after such date, the Trust, at its option, may redeem the Series G Preferred Shares, in whole at any time or in part from time to time, for cash at a redemption price of $25.00 per Series G Preferred Share, plus the amounts indicated in subsection (e)(ii) of this Section 8. (ii) Upon any redemption of Series G Preferred Shares pursuant to this subsection (e), the Trust shall pay all dividends accrued and unpaid thereon, if any, in arrears for any Dividend Period ending on or prior to the Call Date. If the Call Date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, then each holder of Series G Preferred Shares at the close of business on such Dividend Record Date shall be entitled to receive the dividend payable on such Series G Preferred Shares on the corresponding Dividend Payment Date notwithstanding the redemption of such Series G Preferred Shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series G Preferred Shares called for redemption. (iii) Unless (A) full cumulative dividends have been or contemporaneously are paid or declared and a sum sufficient for the payment thereof set apart for payment for all past Dividend Periods with respect to the Series G Preferred Shares and all past dividend periods with respect to any Parity Shares and (B) a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment of the dividend for the current Dividend Period with respect to the Series G Preferred Shares and the current dividend period with respect to any Parity Shares, the Series G Preferred Shares may not be redeemed under this subsection (e) in part and the Trust may not purchase or otherwise acquire Series G Preferred Shares, except pursuant to a purchase or exchange offer made on the same terms to all holders of Series G Preferred Shares or by conversion into or exchange for Fully Junior Shares or pursuant to subsection (i) of this Section 8. (iv) The redemption price to be paid upon any redemption of the Series G Preferred Shares (other than any amounts indicated in subsection (e)(ii) of this Section 8 and other than a redemption pursuant to subsection (i) of this Section 8) shall be payable solely out of the sale proceeds of other shares of the Trust and from no other source. (v) Notice of the redemption of any Series G Preferred Shares under this subsection (e) shall be mailed by registered mail, not less than 10 nor more than 60 days prior to the Call Date, to each holder of record of Series G Preferred Shares to be redeemed at the address of such holder as shown on the Trust's Share records. Neither the failure to mail any notice required by this subsection (e)(v), nor any defect therein or in the mailing thereof, to G-5 any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to any other holder. Any notice which was mailed in the manner provided herein shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (A) the Call Date; (B) the number of Series G Preferred Shares to be redeemed and, if fewer than all Series G Preferred Shares held by such holder are to be redeemed, the number of Series G Preferred Shares to be redeemed from such holder; (C) the redemption price; (D) the place or places at which certificates representing such Series G Preferred Shares are to be surrendered; and (E) that dividends on the Series G Preferred Shares to be redeemed shall cease to accrue on the Call Date except as otherwise provided herein. If notice of redemption of any Series G Preferred Shares has been mailed as provided above, then from and after the Call Date (unless the Trust fails to make available an amount of cash necessary to effect such redemption), (x) except as otherwise provided herein, dividends shall cease to accrue on the Series G Preferred Shares so called for redemption, (y) such Series G Preferred Shares shall no longer be deemed to be outstanding and (z) all rights of the holders thereof as holders of Series G Preferred Shares shall terminate (except the right to receive cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Call Date, the Trust deposits with a bank or trust company (which may be an affiliate of the Trust) which has an office in the Borough of Manhattan, City of New York, and which has, or is an affiliate of a bank or trust company which has, capital and surplus of at least $50,000,000, the funds necessary for such redemption, in trust, with irrevocable instructions that such cash be applied to the redemption of the Series G Preferred Shares so called for redemption. No interest shall accrue for the benefit of the holders of Series G Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years after the Call Date shall revert to the general funds of the Trust, after which reversion the holders of Series G Preferred Shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. As promptly as practicable after the surrender in accordance with such notice of the certificates representing any Series G Preferred Shares so redeemed (properly endorsed or assigned for transfer, if the Trust so requires and if the notice so states), such Series G Preferred Shares shall be exchanged for any cash (without interest thereon) for which such Series G Preferred Shares have been redeemed. If fewer than all the outstanding Series G Preferred Shares are to be redeemed, the Series G Preferred Shares to be redeemed shall be selected by the Trust from outstanding Series G Preferred Shares not previously called for redemption by lot or pro rata (as nearly as may be) or by any other method determined by the Board or the Chairman or any Co-Chairman of the Trust in its, his or her sole discretion to be equitable. If fewer than all the Series G Preferred Shares represented by any certificate are redeemed, then new certificates representing the unredeemed Series G Preferred Shares shall be issued without cost to the holder thereof. G-6 (f) Shares to Be Retired. All Series G Preferred Shares which are issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (g) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series G Preferred Shares, in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or amounts distributable on any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series G Preferred Shares; (ii) on a parity with the Series G Preferred Shares, in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series G Preferred Shares, if the holders of such class or series and the holders of Series G Preferred Shares are entitled to the receipt of dividends and amounts distributable on any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); ------------- (iii) junior to the Series G Preferred Shares, in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and (iv) junior to the Series G Preferred Shares, in the payment of dividends and in the distribution of assets on any liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (h) Voting. Holders of the Series G Preferred Shares will not have any voting rights, except as set forth below. (i) If at any time full distributions shall not have been timely made on any Series G Preferred Shares with respect to any six (6) prior quarterly distribution periods, whether or not consecutive (a "Preferred --------- Distribution Default"), the holders of such Series G Preferred Shares, -------------------- voting together as a single class with the holders of each class or series of Parity Shares upon which like voting rights have been conferred and are exercisable, will have the right to elect two additional Trustees to serve on the Board (the "Preferred Shares Trustees") at a special meeting called ------------------------- by the holders of record of at least 10% of the outstanding Series G Preferred Shares or any such class or series of Parity Shares or at the next annual meeting of shareholders, and at each subsequent annual meeting of shareholders or special meeting held in place thereof, until all such distributions in arrears and distributions for the current quarterly period on the Series G Preferred Shares and each such class or series of Parity Shares have been paid in full. G-7 (ii) At any time when such voting rights shall have vested, a proper officer of the Trust shall call or cause to be called, upon written request of holders of record of at least 10% of the outstanding Series G Preferred Shares, a special meeting of the holders of Series G Preferred Shares and all the series of Parity Shares upon which like voting rights have been conferred and are exercisable (collectively, the "Voting Preferred Shares") ----------------------- by mailing or causing to be mailed to such holders a notice of such special meeting to be held not less than ten and not more than 45 days after the date such notice is given. The record date for determining holders of the Voting Preferred Shares entitled to notice of and to vote at such special meeting will be the close of business on the third Business Day preceding the day on which such notice is mailed. At any such special meeting, all of the holders of the Voting Preferred Shares, by plurality vote, voting together as a single class without regard to series will be entitled to elect two Trustees (the "Preferred Shares Trustees") on the basis of one ------------------------- vote per $25 of liquidation preference to which such Voting Preferred Shares are entitled by their terms (excluding amounts in respect of accumulated and unpaid dividends) and not cumulatively. The holder or holders of one-third of the Voting Preferred Shares then outstanding, present in person or by proxy, will constitute a quorum for the election of the Preferred Shares Trustees except as otherwise provided by law. Notice of all meetings at which holders of the Series G Preferred Shares shall be entitled to vote will be given to such holders at their addresses as they appear in the transfer records. At any such meeting or adjournment thereof in the absence of a quorum, subject to the provisions of any applicable law, a majority of the holders of the Voting Preferred Shares present in person or by proxy shall have the power to adjourn the meeting for the election of the Preferred Shares Trustees, without notice other than an announcement at the meeting, until a quorum is present. If a Preferred Distribution Default shall terminate after the notice of a special meeting has been given but before such special meeting has been held, the Trust shall, as soon as practicable after such termination, mail or cause to be mailed notice of such termination to holders of the Series G Preferred Shares that would have been entitled to vote at such special meeting. (iii) If and when all accumulated distributions and the distribution for the current distribution period on the Series G Preferred Shares shall have been paid in full or a sum sufficient for such payment is irrevocably deposited in trust for payment, the holders of the Series G Preferred Shares shall be divested of the voting rights set forth in subsection (h)(ii) of this Section 8 (subject to revesting in the event of each and every Preferred Distribution Default) and, if all distributions in arrears and the distributions for the current distribution period have been paid in full or set aside for payment in full on all other classes or series of Parity Shares upon which like voting rights have been conferred and are exercisable, the term and office of each Preferred Shares Trustee so elected shall terminate. Any Preferred Shares Trustee may be removed at any time with or without cause by the vote of, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series G Preferred Shares when they have the voting rights set forth in subsection (h)(ii) of this Section 8 (voting separately as a single class with all other classes or series of Parity Shares upon which like voting rights have been conferred and are exercisable). So long as a Preferred Distribution Default shall continue, any vacancy in the office of a Preferred G-8 Shares Trustee may be filled by written consent of the Preferred Shares Trustee remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding Series G Preferred Shares when they have the voting rights set forth in subsection (h)(ii) of this Section 8 (voting separately as a single class with all other classes or series of Parity Shares upon which like voting rights have been conferred and are exercisable). The Preferred Shares Trustee shall each be entitled to one vote per Trustee on any matter. (iv) So long as any Series G Preferred Shares remains outstanding, the Trust shall not, without the approval of the holders of at least two- thirds of the Series G Preferred Shares outstanding at the time (A) designate or create, or increase the authorized or issued amount of, any class or series of shares ranking senior to the Series G Preferred Shares with respect to payment of distributions or rights upon liquidation, dissolution or winding-up of the Trust or reclassify any authorized shares of the Trust into any such shares, or create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares, (B) designate or create, or increase the authorized or issued amount of, any Parity Shares or reclassify any authorized shares of the Trust into any such shares, or create, authorize or issue any obligations or security convertible into or evidencing the right to purchase any such shares, but only to the extent such Parity Shares are issued to an Affiliate of the Trust, or (C) either (x) consolidate, merge into or with, or convey, transfer or lease its assets substantially as an entirety, to any corporation, real estate investment trust or other entity, or (y) amend, alter or repeal the provisions of the Declaration of Trust or Bylaws, whether by merger, consolidation or otherwise, in each case that would materially and adversely affect the powers, special rights, preferences, privileges or voting power of the Series G Preferred Shares or the holders thereof; provided, however, that with respect to the occurrence of a merger, consolidation or a sale or lease of all of the Trust's assets as an entirety, so long as (1) the Trust is the surviving entity and the Series G Preferred Shares remain outstanding with the terms thereof unchanged, or (2) the resulting, surviving or transferee entity is a corporation or real estate investment trust organized under the laws of any state and substitutes the Series G Preferred Shares for other preferred shares having substantially the same terms and same rights as the Series G Preferred Shares, including with respect to distributions, voting rights and rights upon liquidation, dissolution or winding-up, then the occurrence of any such event shall not be deemed to materially and adversely affect such rights, privileges or voting powers of the holders of the Series G Preferred Shares and provided further that any increase in the amount of authorized preferred shares or the creation or issuance of any other class or series of preferred shares, or any increase in an amount of authorized shares of each class or series, in each case ranking either (m) junior to the Series G Preferred Shares with respect to payment of distributions and the distribution of assets upon liquidation, dissolution or winding-up, or (n) on a parity with the Series G Preferred Shares with respect to payment of distributions or the distribution of assets upon liquidation, dissolution or winding-up to the extent such preferred shares are not issued to an affiliate of the Trust, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers. G-9 (i) Transfer Restrictions. The Series G Preferred Shares shall be subject to the provisions of Section 18, Article II of the Declaration of Trust. (j) No Conversion Rights. The holders of the Series G Preferred Shares shall not have any rights to convert such shares into shares of any other class or series of shares or into any other securities of, or interest in, the Trust. (k) No Preemptive Rights. No holder of the Series G Preferred Shares shall, as such holder, have any preemptive rights to purchase or subscribe for additional shares of the Trust or any other security of the Trust which it may issue or sell. (l) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series G Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. (m) Sinking Fund. The Series G Preferred Shares shall not be entitled to the benefit of any retirement or sinking fund. G-10 ANNEX H SERIES H CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series H Cumulative Convertible Redeemable Preferred Shares and the number of Shares which shall constitute such series shall not be more than 2,640,325 shares, par value $0.01 per share, which number may be decreased (but not below the number thereof then outstanding) from time to time by the Board. (b) Definitions. For purposes of the Series H Preferred Shares, the following terms shall have the meanings indicated: "Archstone-Smith Operating Trust" shall mean Archstone-Smith Operating ------------------------------- Trust, a Maryland real estate investment trust, and its successors. "Board" shall mean the Board of Trustees or any committee authorized ----- by the Board of Trustees to perform any of its responsibilities with respect to the Series H Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date specified in the notice to holders --------- required under subsection (e)(iv) of this Section 9 as the Call Date. "Common Shares" shall mean the common shares of beneficial interest, ------------- par value $0.01 per share, of the Trust. "Constituent Person" shall have the meaning set forth in subsection ------------------ (f)(v) of this Section 9. "Conversion Price" shall mean the conversion price per Common Share ---------------- for which the Series H Preferred Shares are convertible, as such Conversion Price may be adjusted pursuant to subsection (f) of this Section 9. The initial conversion price shall be $13.71 (equivalent to a conversion rate of 1.975 Common Shares for each Series H Preferred Share). "Current Market Price" of publicly traded common shares or any other -------------------- class of shares or capital stock or other security of the Trust or any other issuer for any day shall mean the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange ("NYSE") or, if such ---- security is not listed or admitted for trading on the NYSE, on the principal national securities exchange on which H-1 such security is listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the Nasdaq Stock Market ("NASDAQ") or, if such security is not quoted on such National ------ Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Board. "Dividend Payment Date" shall mean (i) for any Dividend Period with --------------------- respect to which the Trust pays a dividend on the Common Shares, the date on which such dividend is paid, or (ii) for any Dividend Period with respect to which the Trust does not pay a dividend on the Common Shares, a date to be set by the Board, which date shall not be later than the forty- fifth calendar day after the end of the applicable Dividend Period. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period (other than the Dividend Period during which any Series H Preferred Shares shall be redeemed pursuant to subsection (e) of this Section 9, which shall end on and include the Call Date with respect to the Series H Preferred Shares being redeemed). "Expiration Time" shall have the meaning set forth in subsection --------------- (f)(iv)(D) of this Section 9. "Fair Market Value" shall mean the average of the daily Current Market ----------------- Prices of a Common Share on the five (5) consecutive Trading Days selected by the Trust commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. The term "ex date," when used with respect to any issuance or distribution, means the first day on which the Common Shares trade regular way, without the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day's Current Market Price. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding over which the Series H Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Funds from Operations," for all dates and periods prior to the Issue --------------------- Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to other Smith Operating Partnership interests or minority interests (as reflected in the financial statements of Smith Realty) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition H-2 of Funds From Operations adopted by the National Association of Real Estate Investment Trusts ("NAREIT"), in its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trust in good faith. "Funds from Operations," for all dates and periods from and after the Issue Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to Archstone-Smith Operating Trust interests or minority interests (as reflected in the financial statements of the Trust) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by NAREIT, in its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trust in good faith. "Issue Date" shall mean the date on which the first Series H Preferred ---------- Shares are issued. "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding over which the Series H Preferred Shares have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Non-Electing Share" shall have the meaning set forth in subsection ------------------ (f)(v) of this Section 9. "Parity Shares" shall have the meaning set forth in subsection (h)(ii) ------------- of this Section 9. "Person" shall mean any individual, firm, partnership, corporation, ------ limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Purchased Shares" shall have the meaning set forth in subsection ---------------- (f)(iv)(D) of this Section 9. "REIT Termination Event" shall mean the earliest to occur of: ---------------------- (i) the filing of a federal income tax return by the Trust for any taxable year on which the Trust does not elect to be taxed as a real estate investment trust; (ii) the approval by the shareholders of the Trust of a proposal for the Trust to cease to qualify as a real estate investment trust; (iii) determination by the Board, based on the advice of counsel, that the Trust has ceased to qualify as a real estate investment trust; or H-3 (iv) a "determination" within the meaning of Section 1313(a) of the Internal Revenue Code of 1986, as amended, that the Trust has ceased to qualify as a real estate investment trust. "Securities" and "Security" shall have the meanings set forth in ---------- -------- subsection (f)(iv)(C) of this Section 9. "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "Series H Preferred Shares" shall mean the shares of Series H ------------------------- Cumulative Convertible Redeemable Preferred Shares. "Set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any series or class of Shares; provided, however, that if any funds for any class or series of Junior -------- ------- Shares or any class or series of Shares ranking on a parity with the Series H Preferred Shares as to the payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series H Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Smith Operating Partnership" shall mean Charles E. Smith Residential --------------------------- Realty, L.P., formerly a Delaware limited partnership. "Smith Preferred Shares" shall mean the Series H Preferred Shares, ---------------------- Series I Preferred Shares, Series J Preferred Shares, Series K Preferred Shares, Series L Preferred Shares and Series M Preferred Shares of the Trust or any of the foregoing. "Smith Realty" shall mean Charles E. Smith Residential Realty, Inc., ------------ formerly a Maryland corporation. "Trading Day" shall mean any day on which the securities in question ----------- are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the National Market System of NASDAQ, or if such securities are not quoted on such National Market System, in the securities market in which the securities are traded. "Transaction" shall have the meaning set forth in subsection (f)(5) of ----------- this Section 9. H-4 "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C., -------------- New York City, New York, or such other agent or agents of the Trust as may be designated by the Board or their designee as the transfer agent, registrar and dividend disbursing agent for the Series H Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (i) of this Section 9. "Weighted Average Trading Price" shall mean, for any Trading Day, the ------------------------------ number obtained by dividing (i) the sum of the products, for each sale of Common Shares on such Trading Day, of (a) the sale price per Common Share and (b) the number of Common Shares sold by (ii) the total number of Common Shares sold on such Trading Day. (c) Dividends. (i) The holders of Series H Preferred Shares shall be entitled to receive, when, as and if declared by the Board, out of funds legally available for the payment of dividends, cumulative preferential dividends payable in cash in an amount per share equal to the greater of (A) 7.459% of the Liquidation Preference per annum (equivalent to $2.02 per share) or (B) the ordinary cash dividends (determined on each Dividend Payment Date) on the Common Shares, or portion thereof, into which a Series H Preferred Share is convertible. The dividends referred to in clause (B) of the preceding sentence shall equal the number of Common Shares, or portion thereof, into which a Series H Preferred Share is convertible, multiplied by the most current quarterly dividend on a Common Share on or before the applicable Dividend Payment Date. If the Trust pays an ordinary cash dividend on the Common Shares with respect to a Dividend Period after the date on which the Dividend Payment Date is declared pursuant to clause (ii) of the definition of Dividend Payment Date and the dividend calculated pursuant to clause (B) of this subsection (c)(i) with respect to such Dividend Period is greater than the dividend previously declared on the Series H Preferred Shares with respect to such Dividend Period, the Trust shall pay an additional dividend to the holders of the Series H Preferred Shares on the date on which the dividend on the Common Shares is paid, in an amount equal to the difference between (y) the dividend calculated pursuant to clause (B) of this subsection (c)(i) and (z) the amount of dividends previously declared on the Series H Preferred Shares with respect to such Dividend Period. The dividends shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there shall be funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on Dividend Payment Dates. Each such dividend shall be payable in arrears to the holders of record of Series H Preferred Shares as they appear in the records of the Trust at the close of business on such record dates, not less than 10 nor more than 50 days preceding such Dividend Payment Dates thereof, as shall be fixed by the Board. Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at H-5 any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such date, not less than 10 nor more than 50 days preceding the payment date thereof, as may be fixed by the Board. Any dividend payment made on Series H Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to Series H Preferred Shares which remains payable. (ii) The amount of dividends referred to in clause (A) of subsection (c)(i) of this Section 9 payable for each full Dividend Period on the Series H Preferred Shares shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for any period shorter than a full Dividend Period on the Series H Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series H Preferred Shares shall not be entitled to any dividends, whether payable in cash, property or shares, in excess of cumulative dividends, as herein provided, on the Series H Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series H Preferred Shares which may be in arrears. (iii) So long as any Series H Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series H Preferred Shares for all Dividend Periods terminating on or prior to the dividend payment date on such class or series of Parity Shares. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon Series H Preferred Shares and all dividends declared upon any other class or series of Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series H Preferred Shares and accumulated and unpaid on such Parity Shares. (iv) So long as any Series H Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in shares of, or options, warrants or rights to subscribe for or purchase shares of, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) the full cumulative dividends on all outstanding Series H Preferred Shares and any other Parity Shares shall have been or contemporaneously are declared and paid or declared and set apart for payment for all past Dividend Periods with respect to the Series H Preferred Shares and all past dividend periods with respect to such Parity Shares and (B) sufficient funds shall have been or contemporaneously are declared and paid or declared and set apart for the payment of the H-6 dividend for the current Dividend Period with respect to the Series H Preferred Shares and the current dividend period with respect to such Parity Shares. (v) No distributions on Series H Preferred Shares shall be declared by the Board or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (d) Liquidation Preference. (i) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares, the holders of the Series H Preferred Shares shall be entitled to receive Twenty Seven Dollars and Eight Cents ($27.08) (the "Liquidation Preference") per Series H Preferred Share plus an amount equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment; provided, that the dividend payable with respect to the -------- Dividend Period containing the date of final distribution shall be equal to the greater of (A) the dividend provided in subsection (c)(i)(A) of this Section 9 or (B) the dividend determined pursuant to subsection (c)(i)(B) of this Section 9 for the preceding Dividend Period. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable among the holders of the Series H Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series H Preferred Shares and any such other Parity Shares ratably in accordance with the respective amounts that would be payable on such Series H Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full. For the purposes of this subsection (d), (x) a consolidation or merger of the Trust with one or more corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (ii) Subject to the rights of the holders of shares of any series or class or classes of Shares ranking on a parity with or senior to the Series H Preferred Shares upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the holders of the Series H Preferred Shares, as provided in this subsection (d), any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to H-7 receive any and all assets remaining to be paid or distributed, and the holders of the Series H Preferred Shares shall not be entitled to share therein. (e) Redemption at the Option of the Trust. (i) The Series H Preferred Shares shall not be redeemable by the Trust prior to May 15, 2003. On and after May 15, 2003, the Trust, at its option, may redeem the Series H Preferred Shares, in whole at any time or from time to time in part as set forth herein, subject to the provisions described below: (A) Series H Preferred Shares may be redeemed, in whole or in part, at the option of the Trust, at any time on or after May 15, 2003 by issuing and delivering to each holder for each Series H Preferred Share to be redeemed such number of authorized but previously unissued Common Shares as equals the Liquidation Preference (excluding any accumulated, accrued and unpaid dividends which are to be paid in cash as provided below) per Series H Preferred Share divided by the Conversion Price as in effect as of the opening of business on the Call Date; provided, however, that the Trust may redeem Series H Preferred Shares pursuant to this subsection (e)(i)(A) only if (i) the Weighted Average Trading Price, for twenty (20) Trading Days, within the last thirty (30) Trading Days immediately before the date of the notice given pursuant to subsection (e)(iv) of this Section 9, equals or exceeds 108% of the Conversion Price in effect on the date of the notice given pursuant to subsection (e)(iv) of this Section 9 and (ii) at least 1,000,000 Common Shares were traded during such 30 Trading Days. (B) Series H Preferred Shares may be redeemed, in whole or in part, at the option of the Trust at any time on or after May 15, 2003 out of funds legally available therefor at a redemption price payable in cash equal to the Liquidation Preference per Series H Preferred Share (plus all accumulated, accrued and unpaid dividends as provided below). (ii) Upon any redemption of Series H Preferred Shares pursuant to this subsection (e), the Trust shall pay all accrued and unpaid dividends, if any, thereon to the Call Date, without interest. If the Call Date falls after a dividend payment record date and prior to the corresponding Dividend Payment Date, then each holder of Series H Preferred Shares at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding any redemption of such shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series H Preferred Shares called for redemption. (iii) If full cumulative dividends on the Series H Preferred Shares and any other class or series of Parity Shares have not been declared and paid or declared and set apart for payment, the Series H Preferred Shares may not be redeemed under this subsection (e) in H-8 part and the Trust may not purchase or acquire Series H Preferred Shares, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Series H Preferred Shares. (iv) Notice of the redemption of any Series H Preferred Shares under this subsection (e) shall be mailed by first-class mail to each holder of record of Series H Preferred Shares to be redeemed at the address of each such holder as shown on the Trust's records, not less than 30 nor more than 90 days prior to the Call Date. Neither the failure to mail any notice required by this subsection (e)(iv), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (A) the Call Date; (B) the number of Series H Preferred Shares to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (C) the redemption price if the Series H Preferred Shares are redeemed for cash and the number of Common Shares to be issued if the Series H Preferred Shares are redeemed for Common Shares; (D) the place or places at which certificates for such shares are to be surrendered; (E) the then-current Conversion Price; and (F) that dividends on the shares to be redeemed shall cease to accrue on such Call Date except as otherwise provided herein. Notice having been mailed as aforesaid, from and after the Call Date (unless the Trust shall fail to make available an amount of cash necessary to effect such redemption), (x) except as otherwise provided herein, dividends on the Series H Preferred Shares so called for redemption shall cease to accrue, (y) such shares shall no longer be deemed to be outstanding, and (z) all rights of the holders thereof as holders of Series H Preferred Shares of the Trust shall cease (except the rights to convert and to receive the Common Shares and/or cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide Common Shares and/or cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Call Date, the Trust shall deposit with a bank or trust company (which may be an affiliate of the Trust) that has an office in the Borough of Manhattan, City of New York, and that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $50,000,000, necessary for such redemption, in trust, with irrevocable instructions that such Common Shares and/or cash be applied to the redemption of the Series H Preferred Shares so called for redemption. In the case of any redemption pursuant to subsection (e)(i)(A) of this Section 9, at the close of business on the Call Date, each holder of Series H Preferred Shares to be redeemed (unless the Trust defaults in the delivery of the Common Shares or cash payable on such Call Date) shall be deemed to be the record holder of the Common Shares into which such Series H Preferred Shares are to be converted at redemption, regardless of whether such holder has surrendered the certificates representing the Series H Preferred Shares to be so redeemed. No interest shall accrue for the benefit of the holders of Series H Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the H-9 end of two years from the Call Date shall revert to the general funds of the Trust, after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. As promptly as practicable after the surrender in accordance with such notice of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Trust shall so require and if the notice shall so state), such shares shall be exchanged for any cash (without interest thereon) for which such shares have been redeemed. If fewer than all the outstanding Series H Preferred Shares are to be redeemed, shares to be redeemed shall be selected by the Trust from outstanding Series H Preferred Shares not previously called for redemption pro rata (as nearly as may be), by lot or by any other method determined by the Trust in its sole discretion to be equitable. If fewer than all the Series H Preferred Shares represented by any certificate are redeemed, then new certificates representing the unredeemed shares shall be issued without cost to the holder thereof. (v) In the case of any redemption pursuant to subsection (e)(i)(A) of this Section 9, (A) no fractional Common Shares or scrip representing fractions of Common Shares shall be issued upon redemption of the Series H Preferred Common Shares. Instead of any fractional interest in Common Shares that would otherwise be deliverable upon redemption of Series H Preferred Shares, the Trust shall pay to the holder of such share an amount in cash (rounded to the nearest cent) based upon the Current Market Price of the Common Shares on the Trading Day immediately preceding the Call Date. If more than one Series H Preferred Share shall be surrendered for redemption at one time by the same holder, the number of full Common Shares issuable upon redemption thereof shall be computed on the basis of the aggregate number of Series H Preferred Shares so surrendered. (B) the Trust covenants that any Common Shares issued upon redemption of Series H Preferred Shares shall be validly issued, fully paid and non-assessable. The Trust shall endeavor to list the Common Shares required to be delivered upon any such redemption of Series H Preferred Shares, prior to such redemption, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery. (f) Conversion. Holders of Series H Preferred Shares shall have the right to convert all or a portion of such shares into Common Shares, as follows: (i) Subject to and upon compliance with the provisions of this subsection (f) and the provisions of Section 18A of Article II of the Declaration of Trust, a holder of Series H Preferred Shares shall have the right, at any time, at his or her option, to convert such shares into the number of fully paid and non-assessable Common Shares obtained by dividing the aggregate liquidation preference of such shares (exclusive of accrued but unpaid dividends) by the Conversion Price (as in effect at the time and on the date provided for in the last H-10 paragraph of subsection (f)(ii) of this Section 9) by surrendering such shares to be converted, such surrender to be made in the manner provided in subsection (f)(ii) of this Section 9, provided, however, that the right to -------- ------- convert shares called for redemption pursuant to subsection (e) of this Section 9 shall terminate at the close of business on the fifth Business Day prior to the Call Date fixed for such redemption, unless the Trust shall default in making payment of the cash payable upon such redemption under subsection (e) of this Section 9. (ii) In order to exercise the conversion right, the holder of each Series H Preferred Share to be converted shall surrender the certificate representing such share, duly endorsed or assigned to the Trust or in blank, at the office of the Transfer Agent, accompanied by written notice to the Trust that the holder thereof elects to convert such Series H Preferred Shares. Unless the shares issuable on conversion are to be issued in the same name as the name in which such Series H Preferred Share is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Trust, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Trust demonstrating that such taxes have been paid). Holders of Series H Preferred Shares at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the conversion thereof following such dividend payment record date and prior to such Dividend Payment Date. However, Series H Preferred Shares surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding Dividend Payment Date (except shares converted after the issuance of notice of redemption with respect to a Call Date during such period, such Series H Preferred Shares being entitled to such dividend on the Dividend Payment Date) must be accompanied by payment of an amount equal to the dividend payable on such shares on such Dividend Payment Date. A holder of Series H Preferred Shares on a dividend payment record date who (or whose transferee) tenders any such shares for conversion into Common Shares on the corresponding Dividend Payment Date will receive the dividend payable by the Trust on such Series H Preferred Shares on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of Series H Preferred Shares for conversion. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the Common Shares issued upon such conversion. As promptly as practicable after the surrender of certificates for Series H Preferred Shares as aforesaid, the Trust shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full Common Shares issuable upon the conversion of such shares in accordance with provisions of this subsection (f) of this Section 9, and any fractional interest in respect of a Common Share arising upon such conversion shall be settled as provided in subsection (f)(iii) of this Section 9. H-11 Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series H Preferred Shares shall have been surrendered and such notice shall have been received by the Trust as aforesaid (and if applicable, payment of an amount equal to the dividend payable on such shares shall have been received by the Trust as described above), and the person or persons in whose name or names any certificate or certificates for Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date unless the share transfer books of the Trust shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such share transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such shares shall have been surrendered and such notice received by the Trust. (iii) No fractional shares or scrip representing fractions of Common Shares shall be issued upon conversion of the Series H Preferred Shares. Instead of any fractional interest in a Common Share that would otherwise be deliverable upon the conversion of a Series H Preferred Share, the Trust shall pay to the holder of such share an amount in cash based upon the Current Market Price of the Common Shares on the Trading Day immediately preceding the date of conversion. If more than one Series H Preferred Share shall be surrendered for conversion at one time by the same holder, the number of full Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series H Preferred Shares so surrendered. (iv) The Conversion Price shall be adjusted from time to time as follows: (A) If the Trust shall after the Issue Date (i) pay a dividend or make a distribution on its capital shares in Common Shares, (ii) subdivide its outstanding Common Shares into a greater number of shares, (iii) combine its outstanding Common Shares into a smaller number of shares or (iv) issue any Shares by reclassification of its Common Shares, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or distribution or at the opening of business on the Business Day next following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series H Preferred Share thereafter surrendered for conversion shall be entitled to receive the number of Common Shares that such holder would have owned or have been entitled to receive after the happening of any of the events described above as if such Series H Preferred Shares had been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subparagraph (A) shall become effective immediately after the opening of business on the Business Day next following the H-12 record date (except as provided in subsection (f)(viii) of this Section 9) in the case of a dividend or distribution and shall become effective immediately after the opening of business on the Business Day next following the effective date in the case of a subdivision, combination or reclassification. (B) If the Trust shall issue after the Issue Date rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Shares at a price per share less than 94% (100% if a stand-by underwriter is used and charges the Trust a commission) of the Fair Market Value per Common Share on the record date for the determination of shareholders entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the Business Day next following such record date shall be adjusted to equal the price determined by multiplying (i) the Conversion Price in effect immediately prior to the opening of business on the Business Day next following the date fixed for such determination by (ii) a fraction, the numerator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of shares that the aggregate proceeds to the Trust from the exercise of such rights, options or warrants for Common Shares would purchase at 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), and the denominator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of additional Common Shares offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in subsection (f)(viii) of this Section 9 below). In determining whether any rights, options or warrants entitle the holders of Common Shares to subscribe for or purchase Common Shares at less than 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), there shall be taken into account any consideration received by the Trust upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined by the Board. (C) If the Trust shall distribute to all holders of its Common Shares any securities of the Trust (other than Common Shares) or evidence of its indebtedness or assets (excluding cumulative cash dividends or distributions paid with respect to the Common Shares or the common shares of Smith Realty after December 31, 1996 which are not in excess of the following: the sum of (i) the cumulative undistributed Funds from Operations at December 31, 1996, plus (ii) the cumulative amount of Funds from Operations, as determined by the Board, after December 31, 1996, minus (iii) the cumulative amount of dividends accrued or paid in respect of the Series H Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Smith Realty after May 15, 1997) or rights, options or warrants to subscribe for or purchase any of its securities (excluding those rights, options and H-13 warrants issued to all holders of Common Shares entitling them for a period expiring within 45 days after the record date referred to in subsection (f)(iv)(B) of this Section 9 to subscribe for or purchase Common Shares, which rights and warrants are referred to in and treated under subsection (f)(iv)(B) of this Section 9) (any of the foregoing being hereinafter in this subsection (f)(iv)(C) collectively called the "Securities" and ---------- individually a "Security"), then in each such case the Conversion -------- Price shall be adjusted so that it shall equal the price determined by multiplying (x) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by (y) a fraction, the numerator of which shall be the Fair Market Value per Common Share on the record date mentioned below less the then fair market value (as determined by the Board, whose determination shall be conclusive), of the portion of the Securities or assets or evidences of indebtedness so distributed or of such rights, options or warrants applicable to one Common Share, and the denominator of which shall be the Fair Market Value per Common Share on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the Business Day next following (except as provided in subsection (f)(viii) of this Section 9) the record date for the determination of shareholders entitled to receive such distribution. For the purposes of this subsection (f)(iv)(C), the distribution of a Security, which is distributed not only to the holders of the Common Shares on the date fixed for the determination of shareholders entitled to such distribution of such Security, but also is distributed with each Common Share delivered to a Person converting a Series H Preferred Share after such determination date, shall not require an adjustment of the Conversion Price pursuant to this subsection (f)(iv)(C); provided that on the date, if any, on which a -------- person converting a Series H Preferred Share would no longer be entitled to receive such Security with a Common Share (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred and the Conversion Price shall be adjusted as provided in this subsection (f)(iv)(C) (and such day shall be deemed to be "the date fixed for the determination of the shareholders entitled to receive such distribution" and "the record date" within the meaning of the two preceding sentences). (D) In case a tender or exchange offer (which term shall not include open market repurchases by the Trust) made by the Trust or any subsidiary of the Trust for all or any portion of the Common Shares shall expire and such tender or exchange offer shall involve the payment by the Trust or such subsidiary of consideration per Common Share having a fair market value (as determined in good faith by the Board, whose determination shall be conclusive and described in a resolution of the Board), at the last time (the "Expiration Time") --------------- tenders or exchanges may be made pursuant to such tender or exchange offer, that exceeds the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior H-14 to the effectiveness of the Conversion Price reduction contemplated by this subparagraph, by a fraction of which the numerator shall be the number of Common Shares outstanding (including any tendered or exchanged shares) at the Expiration Time, multiplied by the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based upon the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any maximum, being referred to as the "Purchased Shares") and (ii) the product of the number of ---------------- Common Shares outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (E) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments -------- ------- that by reason of this subsection (f)(iv)(E) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment -------- ------- shall be required and made in accordance with the provisions of this subsection (f) of this Section 9 (other than this subsection (f)(iv)(E)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Shares. Notwithstanding any other provisions of this subsection (f), the Trust shall not be required to make any adjustment of the Conversion Price for the issuance of any Common Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Trust and the investment of additional optional amounts in Common Shares under such plan. All calculations under this subsection (f) shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. Anything in this subsection (f)(iv)(E) to the contrary notwithstanding, the Trust shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this subsection (f)(iv)(E), as it in its discretion shall determine to be advisable in order that any share dividends, subdivision of shares, reclassification or combination of shares, distribution of rights or warrants to purchase shares or securities, or distribution of other assets (other than cash dividends) hereafter made by the Trust to its shareholders shall not be taxable. (v) If the Trust shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, self tender offer for all or substantially all of its Common Shares, sale of all or substantially all of the Trust's assets or recapitalization of the Common Shares and excluding any transaction as to which subsection H-15 (f)(iv)(A) of this Section 9 applies) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which all or ----------- substantially all of the Trust's Common Shares are converted into the right to receive shares, securities or other property (including cash or any combination thereof), each Series H Preferred Share which is not redeemed or converted into the right to receive shares, securities or other property prior to such Transaction shall thereafter be convertible into the kind and amount of shares, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Shares into which one Series H Preferred Share was convertible immediately prior to such Transaction, assuming such holder of Common Shares (A) is not a Person with which the Trust consolidated or into which the Trust merged or which merged into the Trust or to which such sale or transfer was made, as the case may be ("Constituent Person"), or an affiliate of a Constituent Person and (B) ------------------ failed to exercise his rights of election, if any, as to the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction is not the same for each Common Share held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non- --- Electing Share"), then for the purpose of this subsection (f)(v) the kind -------------- and amount of shares, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The Trust shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this subsection (f)(v), and it shall not consent or agree to the occurrence of any Transaction until the Trust has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series H Preferred Shares that will contain provisions enabling the holders of the Series H Preferred Shares that remain outstanding after such Transaction to convert into the consideration received by holders of Common Shares at the Conversion Price in effect immediately prior to such Transaction. The provisions of this subsection (f)(v) shall similarly apply to successive Transactions. (vi) If: (A) the Trust shall declare a dividend (or any other distribution) on its Common Shares (other than cash dividends or distributions paid with respect to the Common Shares or the common shares of Smith Realty after December 31, 1996 not in excess of the sum of the cumulative undistributed Funds from Operations at December 31, 1996, plus the cumulative amount of Funds from Operations, as determined by the Board, after December 31, 1996, minus the cumulative amount of dividends accrued or paid in respect of the Series H Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Smith Realty after May 15, 1997); or H-16 (B) the Trust shall authorize the granting to all holders of Common Shares of rights, options or warrants to subscribe for or purchase any shares of any class or any other rights, options or warrants; or (C) there shall be any reclassification of the Common Shares (other than an event to which subsection (f)(iv)(A) of this Section 9 applies) or any consolidation or merger to which the Trust is a party and for which approval of any shareholders of the Trust is required, or a statutory share exchange, or a self tender offer by the Trust for all or substantially all of its outstanding Common Shares or the sale or transfer of all or substantially all of the assets of the Trust as an entirety; or (D) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Trust; then the Trust shall cause to be filed with the Transfer Agent and shall cause to be mailed to the holders of Series H Preferred Shares at their addresses as shown on the records of the Trust, as promptly as possible, but at least 10 days prior to the applicable date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Shares of record to be entitled to such dividend, distribution or rights, options or warrants are to be determined or (ii) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Shares of record shall be entitled to exchange their Common Shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this subsection (f) of this Section 9. (vii) Whenever the Conversion Price is adjusted as herein provided, the Trust shall promptly file with the Transfer Agent an officer's certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date of such adjustment and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series H Preferred Share at such holder's last address as shown on the records of the Trust. (viii) In any case in which subsection (f)(iv) of this Section 9 provides that an adjustment shall become effective on the day next following the record date for an event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any Series H Preferred Share converted after such record date and before the occurrence of such event the H-17 additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of any fraction pursuant to subsection (f)(iii) of this Section 9. (ix) There shall be no adjustment of the Conversion Price in case of the issuance of any Shares in a reorganization, acquisition or other similar transaction except as specifically set forth in this subsection (f) of this Section 9. If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this subsection (f) of this Section 9, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (x) If the Trust shall take any action affecting the Common Shares, other than action described in this subsection (f) of this Section 9, that in the opinion of the Board would materially and adversely affect the conversion rights of the holders of the Series H Preferred Shares, the Conversion Price for the Series H Preferred Shares may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board, in its sole discretion, may determine to be equitable in the circumstances. (xi) The Trust covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Shares, for the purpose of effecting conversion of the Series H Preferred Shares, the full number of Common Shares deliverable upon the conversion of all outstanding Series H Preferred Shares not theretofore converted. For purposes of this subsection (f)(xi), the number of Common Shares that shall be deliverable upon the conversion of all outstanding Series H Preferred Shares shall be computed as if at the time of computation all such outstanding shares were held by a single holder. The Trust covenants that any Common Shares issued upon conversion of the Series H Preferred Shares shall be validly issued, fully paid and non- assessable. Before taking any action that would cause an adjustment reducing the Conversion Price below the then-par value of the Common Shares deliverable upon conversion of the Series H Preferred Shares, the Trust will take any action that, in the opinion of its counsel, may be necessary in order that the Trust may validly and legally issue fully paid and (subject to any customary qualification based upon the nature of a real estate investment trust) non-assessable Common Shares at such adjusted Conversion Price. The Trust shall endeavor to list the Common Shares required to be delivered upon conversion of the Series H Preferred Shares, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery. The Trust shall endeavor to comply with all federal and state securities laws and regulations thereunder in connection with the issuance of any securities that the Trust shall H-18 be obligated to deliver upon conversion of the Series H Preferred Shares. In addition to any legend required by Section 18A of Article II of the Declaration of Trust, the certificates evidencing such securities shall bear such legends restricting transfer thereof in the absence of registration under applicable securities laws or an exemption therefrom as the Trust may in good faith deem appropriate. (xii) The Trust will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Shares or other securities or property on conversion of the Series H Preferred Shares pursuant hereto; provided, however, that the Trust shall -------- ------- not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Shares or other securities or property in a name other than that of the holder of the Series H Preferred Shares to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid. (g) Shares To Be Retired. All Series H Preferred Shares which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (h) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series H Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series H Preferred Shares; (ii) on a parity with the Series H Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series H Preferred Shares, if the holders of such class or series and the holders of the Series H Preferred Shares are entitled to the receipt of dividends and amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); --------------- (iii) junior to the Series H Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and H-19 (iv) junior to the Series H Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (i) Voting. If and whenever four quarterly dividends (whether or not consecutive) payable on the Series H Preferred Shares or any series or class of Parity Shares shall be in arrears (which shall, with respect to any such quarterly dividend, mean that any such dividend has not been paid in full), whether or not earned or declared, the number of Trustees then constituting the Board shall be increased by two and the holders of Series H Preferred Shares, together with the holders of shares of every other series of Parity Shares (any such other series, the "Voting Preferred Shares"), voting as a single class ----------------------- regardless of series, shall be entitled to elect the two additional Trustees to serve on the Board at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series H Preferred Shares and the Voting Preferred Shares called as hereinafter provided. Whenever all arrears in dividends on the Series H Preferred Shares and the Voting Preferred Shares then outstanding shall have been paid and dividends thereon for the current quarterly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series H Preferred Shares and the Voting Preferred Shares to elect such additional two Trustees shall cease (but subject always to the same provision for the vesting of such voting rights in the case of any similar future arrearage in quarterly dividends), and the terms of office of all persons elected as Trustees by the holders of the Series H Preferred Shares and the Voting Preferred Shares shall forthwith terminate and the number of the Board shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of Series H Preferred Shares and the Voting Preferred Shares, the Secretary of the Trust may, and upon the written request of any holder of Series H Preferred Shares (addressed to the Secretary at the principal office of the Trust) shall, call a special meeting of the holders of the Series H Preferred Shares and of the Voting Preferred Shares for the election of the Trustees to be elected by them as herein provided, such call to be made by notice similar to that provided in the Bylaws of the Trust for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of Series H Preferred Shares may call such meeting, upon the notice above provided, and for that purpose shall have access to the records of the Trust. The Trustees elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. If any vacancy shall occur among the Trustees elected by the holders of the Series H Preferred Shares and the Voting Preferred Shares, a successor shall be elected by the Board, upon the nomination of the then- remaining Trustee elected by the holders of the Series H Preferred Shares and the Voting Preferred Shares or the successor of such remaining Trustee, to serve until the next annual meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as provided above. So long as any Series H Preferred Shares are outstanding, in addition to any other vote or consent of shareholders required by law or by the Declaration of Trust, the affirmative vote of at least 66 2/3% of the votes entitled to be cast by the holders of the Series H Preferred Shares given in H-20 person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) Any amendment, alteration or repeal of any of the provisions of the Declaration of Trust or the By-Laws that materially and adversely affects the voting powers, rights or preferences of the holders of the Series H Preferred Shares; provided, however, that the amendment of the -------- ------- provisions of the Declaration of Trust so as to authorize or create or to increase the authorized amount of, any Fully Junior Shares, Junior Shares that are not senior in any respect to the Series H Preferred Shares or any Parity Shares shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series H Preferred Shares; or (ii) A share exchange that affects the Series H Preferred Shares, a consolidation with or merger of the Trust into another entity, or a consolidation with or merger of another entity into the Trust, unless in each such case each Series H Preferred Share (A) shall remain outstanding without a material and adverse change to its terms and rights or (B) shall be converted into or exchanged for convertible preferred shares of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to that of a Series H Preferred Share (except for changes that do not materially and adversely affect the holders of the Series H Preferred Shares); or (iii) The authorization, reclassification or creation of, or the increase in the authorized amount of, any shares of any class or any security convertible into shares of any class ranking senior to the Series H Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust or in the payment of dividends; provided, however, that no such vote of the holders of Series H Preferred Shares - -------- ------- shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such prior shares or convertible security is to be made, as the case may be, provision is made for the redemption of all Series H Preferred Shares at the time outstanding. For purposes of the foregoing provisions, a "share exchange" means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and which does not affect the existence of either entity, and the term "surviving entity" shall include the entity acquiring equity securities in a share exchange. For purposes of the foregoing provisions of this subsection (i), each Series H Preferred Share shall have one (1) vote per share, except that when any other series of preferred Shares shall have the right to vote with the Series H Preferred Shares as a single class on any matter, then the Series H Preferred Shares and such other series shall have with respect to such matters one (1) vote per $25.00 of stated liquidation preference. Except as otherwise required by applicable law or as set forth herein, the Series H Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any Trust action. H-21 (j) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series H Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. H-22 ANNEX I SERIES I CUMULATIVE REDEEMABLE PREFERRED SHARES (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series I Cumulative Redeemable Preferred Shares and the number of Shares which shall constitute such series shall not be more than 500 Shares, par value $0.01 per share, which number may be decreased (but not below the number thereof then outstanding) from time to time by the Board. (b) Definitions. For purposes of the Series I Preferred Shares, the following terms shall have the meanings indicated: "Board" shall mean the Board of Trustees or any committee authorized ----- by the Board of Trustees to perform any of its responsibilities with respect to the Series I Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean February 1, 2028. --------- "Common Shares" shall mean the common shares of beneficial interest, ------------- par value $0.01 per share, of the Trust. "Dividend Payment Date" shall mean the 15th day (or if such day is not --------------------- a Business Day, the next Business Day thereafter) of February, May, August and November of each year; commencing on the first of such days to occur following the Issue Date. "Dividend Periods" shall mean the periods commencing on, and ---------------- including, February 15, May 15, August 15, and November 15 of each year and ending on the date prior to the next succeeding Dividend Payment Date (other than the Dividend Period during which any Series I Preferred Shares shall be redeemed pursuant to subsection (e) of this Section 10, which shall end on and include the Redemption Date with respect to the Series I Preferred Shares being redeemed). "Dividend Rate" means $7,660.00 per share per annum. ------------- I-1 "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding over which the Series I Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Issue Date" shall mean the date on which the first Series I Preferred ---------- Shares are issued. "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding over which the Series I Preferred Shares have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Liquidation Preference" means an amount per Series I Preferred Share ---------------------- equal to $100,000. "Parity Shares" shall have the meaning set forth in subsection (g)(ii) ------------- of this Section 10. "Person" shall mean any individual, firm, partnership, corporation, ------ association, limited liability company, trust or other entity or organization, (including a government or political subdivision or an agency or instrumentality thereof), and shall include any successor (by merger or otherwise) of such entity or organization. "Redemption Date" shall mean the date specified in the notice to --------------- holders required under subsection (e)(iv) of this Section 10 as the date for redemption of Series I Preferred Shares pursuant to subsection (e) of this Section 10. "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "Series I Preferred Shares" shall mean the shares of Series I ------------------------- Cumulative Redeemable Preferred Shares. "set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any series or class of Shares; provided, however, that if any funds for any class or series of Junior -------- ------- Shares or any class or series of Shares ranking on a parity with the Series I Preferred Shares as to the I-2 payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series I Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Smith Operating Partnership" shall mean Charles E. Smith Residential --------------------------- Realty, L.P., formerly a Delaware limited partnership. "Smith Preferred Shares" shall mean the Series H Preferred Shares, ---------------------- Series I Preferred Shares, Series J Preferred Shares, Series K Preferred Shares, Series L Preferred Shares and Series M Preferred Shares of the Trust or any of the foregoing. "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C., -------------- New York City, New York, or such other agent or agents of the Trust as may be designated by the Board or their designee as the transfer agent, registrar and dividend disbursing agent for the Series I Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (h) of this Section 10. (c) Dividends. (i) The holders of Series I Preferred Shares shall be entitled to receive, when, as and if declared by the Board, out of funds legally available for the payment of dividends, cumulative preferential dividends payable in cash in an amount per share equal to the Dividend Rate. The dividends shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there shall be funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on Dividend Payment Dates. Each such dividend shall be payable in arrears to the holders of record of Series I Preferred Shares as they appear in the records of the Trust at the close of business on such record dates, not less than 10 nor more than 50 days preceding such Dividend Payment Dates thereof, as shall be fixed by the Board. Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such date, not less than 10 nor more than 50 days preceding the payment date thereof, as may be fixed by the Board. Any dividend payment made on Series I-3 I Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to Series I Preferred Shares which remains payable. (ii) Except as provided below, the amount of dividends referred to in subsection (c)(i) of this Section 10 payable for each full Dividend Period on the Series I Preferred Shares shall be computed by dividing the applicable Dividend Rate by four. The amount of dividends payable for any other period shorter than a full Dividend Period on the Series I Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series I Preferred Shares which may be in arrears. (iii) So long as any Series I Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series I Preferred Shares for all Dividend Periods terminating on or prior to the dividend payment date on such class or series of Parity Shares. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon Series I Preferred Shares and all dividends declared upon any other class or series of Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series I Preferred Shares and accumulated and unpaid on such Parity Shares. (iv) So long as any Series I Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in shares of, or options, warrants or rights to subscribe for or purchase shares of, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) the full cumulative dividends on all outstanding Series I Preferred Shares and any other Parity Shares shall have been or contemporaneously are declared and paid or declared and set apart for payment for all past Dividend Periods with respect to the Series I Preferred Shares and all past dividend periods with respect to such Parity Shares and (B) sufficient funds shall have been or contemporaneously are declared and paid or declared and set apart for the payment of the dividend for the current Dividend Period with respect to the Series I Preferred Shares and the current dividend period with respect to such Parity Shares. I-4 (v) No distributions on Series I Preferred Shares shall be declared by the Board or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (d) Liquidation Preference. (i) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares, the holders of the Series I Preferred Shares shall be entitled to receive an amount per Series I Preferred Share equal to the sum of (A) the Liquidation Preference plus (B) an amount equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable among the holders of the Series I Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series I Preferred Shares and any such other Parity Shares ratably in accordance with the respective amounts that would be payable on such Series I Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full. For the purposes of this subsection (d), (x) a consolidation or merger of the Trust with one or more corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (ii) Subject to the rights of the holders of shares of any series or class or classes of Shares ranking on a parity with or senior to the Series I Preferred Shares upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the holders of the Series I Preferred Shares, as provided in this subsection (d), any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series I Preferred Shares shall not be entitled to share therein. (e) Redemption at the Option of the Trust. I-5 (i) The Series I Preferred Shares shall not be redeemable by the Trust except that on and after the Call Date and on any Dividend Payment Date thereafter, the Trust, at its option, may redeem the Series I Preferred Shares, in whole at any time, or from time to time in part, out of funds legally available therefor at a redemption price per Series I Preferred Share payable in cash equal to sum of (1) the Liquidation Preference plus (2) all dividends (whether or not earned or declared) accrued and unpaid thereon to the Redemption Date. (ii) Upon any redemption of Series I Preferred Shares pursuant to this subsection (e), the Trust shall pay all accrued and unpaid dividends, if any, thereon to the Redemption Date, without interest. If the Redemption Date falls after a dividend payment record date and prior to the corresponding Dividend Payment Date, then each holder of Series I Preferred Shares at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding any redemption of such shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series I Preferred Shares called for redemption. (iii) If full cumulative dividends on the Series I Preferred Shares and any other class or series of Parity Shares have not been declared and paid or declared and set apart for payment for all dividend periods ended on or before the Redemption Date, the Series I Preferred Shares may not be redeemed under this subsection (e) in part and the Trust may not purchase or acquire Series I Preferred Shares, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Series I Preferred Shares. (iv) Notice of the redemption of any Series I Preferred Shares under this subsection (e) shall be mailed by first-class mail to each holder of record of Series I Preferred Shares to be redeemed at the address of each such holder as shown on the Trust's records, not less than 30 nor more than 90 days prior to the Redemption Date. Neither the failure to mail any notice required by this subsection (e)(iv), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (A) the Redemption Date; (B) the number of Series I Preferred Shares to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (C) the Redemption Price; (D) the place or places at which certificates for such shares are to be surrendered; and (E) that dividends on the shares to be redeemed shall cease to accrue on such Redemption Date except as otherwise provided herein. Notice having been mailed as aforesaid, from and after the Redemption Date (unless the Trust shall fail to make available an amount of cash necessary to effect such redemption), except as otherwise provided I-6 herein, (x) dividends on the Series I Preferred Shares so called for redemption shall cease to accrue, (y) such shares shall no longer be deemed to be outstanding, and (z) all rights of the holders thereof as holders of Series I Preferred Shares of the Trust shall cease (except the rights to receive the cash payable upon redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Redemption Date, the Trust shall deposit with a bank or trust company (which may be an affiliate of the Trust) that has an office in the Borough of Manhattan, City of New York, and that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $50,000,000, necessary for such redemption, in trust, with irrevocable instructions that such cash be applied to the redemption of the Series I Preferred Shares so called for redemption. No interest shall accrue for the benefit of the holders of Series I Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years from the Redemption Date shall revert to the general funds of the Trust, after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. As promptly as practicable after the surrender in accordance with such notice of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Trust shall so require and if the notice shall so state), such shares shall be exchanged for any cash (without interest thereon) for which such shares have been redeemed. If fewer than all the outstanding Series I Preferred Shares are to be redeemed, shares to be redeemed shall be selected by the Trust from outstanding Series I Preferred Shares not previously called for redemption pro rata (as nearly as may be), by lot or by any other method determined by the Trust in its sole discretion to be equitable. If fewer than all the Series I Preferred Shares represented by any certificate are redeemed, then new certificates representing the unredeemed shares shall be issued without cost to the holder thereof. (f) Shares To Be Retired. All Series I Preferred Shares which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (g) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series I Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series I Preferred Shares; I-7 (ii) on a parity with the Series I Preferred Shares, in the payment of dividends and in the distribution of assets upon liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series I Preferred Shares, if the holders of such class or series and the holders of the Series I Preferred Shares are entitled to the receipt of dividends and amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); the Series H Cumulative Convertible Redeemable ------------- Preferred Shares and Series I Cumulative Convertible Redeemable Preferred Shares of the Trust are Parity Shares; (iii) junior to the Series I Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and (iv) junior to the Series I Preferred Shares, in the payment of dividends and in the distribution of assets upon liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (h) Voting. If and whenever six quarterly dividends (whether or not consecutive) payable on the Series I Preferred Shares or any series or class of Parity Shares shall be in arrears (which shall, with respect to any such quarterly dividend, mean that any such dividend has not been paid in full), whether or not earned or declared, the number of Trustees then constituting the Board shall be increased by two and the holders of Series I Preferred Shares, together with the holders of shares of every other series of Parity Shares (any such other series, the "Voting Preferred Shares"), voting as a single class ----------------------- regardless of series, shall be entitled to elect the two additional Trustees to serve on the Board at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series I Preferred Shares and the Voting Preferred Shares called as hereinafter provided. Whenever all arrears in dividends on the Series I Preferred Shares and the Voting Preferred Shares then outstanding shall have been paid and dividends thereon for the current quarterly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series I Preferred Shares and the Voting Preferred Shares to elect such additional two Trustees shall cease (but subject always to the same provision for the vesting of such voting rights in the case of any similar future arrearage in quarterly dividends), and the terms of office of all persons elected as Trustees by the holders of the Series I Preferred Shares and the Voting Preferred Shares shall forthwith terminate and the number of the Board shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of Series I Preferred Shares and the Voting Preferred Shares, the Secretary of the Trust may, and upon the written request of any holder of Series I Preferred Shares (addressed to the Secretary at the principal office of the Trust) shall, call a special meeting of the holders of the Series I Preferred Shares and of the Voting Preferred Shares for the election of the Trustees to be elected by them as herein I-8 provided, such call to be made by notice similar to that provided in the Bylaws of the Trust for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of Series I Preferred Shares may call such meeting, upon the notice above provided, and for that purpose shall have access to the records of the Trust. The Trustees elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. If any vacancy shall occur among the Trustees elected by the holders of the Series I Preferred Shares and the Voting Preferred Shares, a successor shall be elected by the Board, upon the nomination of the then-remaining Trustee elected by the holders of the Series I Preferred Shares and the Voting Preferred Shares or the successor of such remaining Trustee, to serve until the next annual meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as provided above. So long as any Series I Preferred Shares are outstanding, in addition to any other vote or consent of shareholders required by law or by the Declaration of Trust, the affirmative vote of at least 66 2/3% of the votes entitled to be cast by the holders of the Series I Preferred Shares given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) Any amendment, alteration or repeal of any of the provisions of the Declaration of Trust or the By-Laws that materially and adversely affects the voting powers, rights or preferences of the holders of the Series I Preferred Shares; provided, however, that the amendment of the -------- ------- provisions of the Declaration of Trust so as to authorize or create or to increase the authorized amount of, any Fully Junior Shares, Junior Shares that are not senior in any respect to the Series I Preferred Shares or any Parity Shares shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series I Preferred Shares; or (ii) A share exchange that affects the Series I Preferred Shares, a consolidation with or merger of the Trust into another entity, or a consolidation with or merger of another entity into the Trust, unless in each such case each Series I Preferred Share (A) shall remain outstanding without a material and adverse change to its terms and rights or (B) shall be converted into or exchanged for convertible preferred shares of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to that of a Series I Preferred Share (except for changes that do not materially and adversely affect the holders of the Series I Preferred Shares); or (iii) The authorization, reclassification or creation of, or the increase in the authorized amount of, any shares of any class or any security convertible into shares of any I-9 class ranking senior to the Series I Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust or in the payment of dividends; provided, however, that no such vote of the holders of Series I Preferred Shares - -------- ------- shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such prior shares or convertible security is to be made, as the case may be, provision is made for the redemption of all Series I Preferred Shares at the time outstanding. For purposes of the foregoing provisions, a "share exchange" means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and which does not affect the existence of either entity, and the term "surviving entity" shall include the entity acquiring equity securities in a share exchange. For purposes of the foregoing provisions of this subsection (h), each Series I Preferred Share shall have one (1) vote per share, except that when any other series of preferred Shares shall have the right to vote with the Series I Preferred Shares as a single class on any matter, then the Series I Preferred Shares and such other series shall have with respect to such matters one (1) vote per $25.00 of stated liquidation preference. Except as otherwise required by applicable law or as set forth herein, the Series I Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any Trust action. (i) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series I Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. I-10 ANNEX J SERIES J CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series J Cumulative Convertible Redeemable Preferred Shares and the number of shares which shall constitute such series shall not be more than 684,931 shares, par value $0.01 per share, which number may be decreased (but not below the number thereof then outstanding) from time to time by the Board. (b) Definitions. For purposes of the Series J Preferred Shares, the following terms shall have the meanings indicated: "Archstone-Smith Operating Trust" shall mean Archstone-Smith Operating ------------------------------- Trust, a Maryland real estate investment trust, and its successors. "Board" shall mean the Board of Trustees or any committee authorized ----- by the Board of Trustees to perform any of its responsibilities with respect to the Series J Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date specified in the notice to holders --------- required under subsection (e)(iv) of this Section 11 as the Call Date. "Common Shares" shall mean the common shares of beneficial interest, ------------- par value $0.01 per share, of the Trust. "Constituent Person" shall have the meaning set forth in subsection ------------------ (f)(v) of this Section 11. "Conversion Price" shall mean the conversion price per Common Share ---------------- for which the Series J Preferred Shares are convertible, as such Conversion Price may be adjusted pursuant to subsection (f) of this Section 11. The initial conversion price shall be $18.48 (equivalent to a conversion rate of 1.975 Common Shares for each Series J Preferred Share). J-1 "Current Market Price" of publicly traded common shares or any other -------------------- class of shares or capital stock or other security of the Trust or any other issuer for any day shall mean the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange ("NYSE") or, if such ---- security is not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the Nasdaq Stock Market ("NASDAQ") or, if ------ such security is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Board. "Dividend Payment Date" shall mean (i) for any Dividend Period with --------------------- respect to which the Trust pays a dividend on the Common Shares, the date on which such dividend is paid, or (ii) for any Dividend Period with respect to which the Trust does not pay a dividend on the Common Shares, a date to be set by the Board, which date shall not be later than the forty- fifth calendar day after the end of the applicable Dividend Period. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period (other than the Dividend Period during which any Series J Preferred Shares shall be redeemed pursuant to subsection (e) of this Section 11, which shall end on and include the Call Date with respect to the Series J Preferred Shares being redeemed). "Expiration Time" shall have the meaning set forth in subsection --------------- (f)(iv)(D) of this Section 11. "Fair Market Value" shall mean the average of the daily Current Market ----------------- Prices of a Common Share on the five (5) consecutive Trading Days selected by the Trust commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. The term "ex date," when used with respect to any issuance or distribution, means the first day on which the Common Shares trade regular way, without the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day's Current Market Price. J-2 "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding over which the Series J Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Funds from Operations," for all dates and periods prior to the Issue --------------------- Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to other Smith Operating Partnership interests or minority interests (as reflected in the financial statements of Smith Realty) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by the National Association of Real Estate Investment Trusts ("NAREIT"), in ------ its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trust in good faith. "Funds from Operations," for all dates and periods from and after the Issue Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to Archstone-Smith Operating Trust interests or minority interests (as reflected in the financial statements of the Trust) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by NAREIT, in its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trust in good faith. "Issue Date" shall mean the date on which the first Series J Preferred ---------- Shares are issued. "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding over which the Series J Preferred Shares have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Non-Electing Share" shall have the meaning set forth in subsection ------------------ (f)(v) of this Section 11. "Parity Shares" shall have the meaning set forth in subsection (h)(ii) ------------- of this Section 11. J-3 "Person" shall mean any individual, firm, partnership, corporation, ------ limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Purchased Shares" shall have the meaning set forth in subsection ---------------- (f)(iv)(D) of this Section 11. "Securities" and "Security" shall have the meanings set forth in ---------- -------- subsection (f)(iv)(C) of this Section 11. "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "Series J Preferred Shares" shall mean the shares of Series J ------------------------- Cumulative Convertible Redeemable Preferred Shares. "Set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any series or class of Shares; provided, however, that if any funds for any class or series of Junior -------- ------- Shares or any class or series of Shares ranking on a parity with the Series J Preferred Shares as to the payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series J Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Smith Operating Partnership" shall mean Charles E. Smith Residential --------------------------- Realty, L.P., formerly a Delaware limited partnership. "Smith Preferred Shares"shall mean the Series H Preferred Shares, ---------------------- Series I Preferred Shares, Series J Preferred Shares, Series K Preferred Shares, Series L Preferred Shares and Series M Preferred Shares of the Trust or any of the foregoing. "Smith Realty" shall mean Charles E. Smith Residential Realty, Inc., ------------ formerly a Maryland corporation. J-4 "Trading Day" shall mean any day on which the securities in question ----------- are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the National Market System of NASDAQ, or if such securities are not quoted on such National Market System, in the securities market in which the securities are traded. "Transaction" shall have the meaning set forth in subsection (f)(v) of ----------- this Section 11. "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C., -------------- New York City, New York, or such other agent or agents of the Trust as may be designated by the Board or their designee as the transfer agent, registrar and dividend disbursing agent for the Series J Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (i) of this Section 11. "Weighted Average Trading Price" shall mean, for any Trading Day, the ------------------------------ number obtained by dividing (i) the sum of the products, for each sale of Common Shares on such Trading Day, of (a) the sale price per Common Share and (b) the number of Common Shares sold by (ii) the total number of Common Shares sold on such Trading Day. (c) Dividends. (i) The holders of Series J Preferred Shares shall be entitled to receive, when, as and if declared by the Board, out of funds legally available for the payment of dividends, cumulative preferential dividends payable in cash in an amount per share equal to the greater of (A) 8.50% of the Liquidation Preference per annum (equivalent to $3.1025 per Series J Preferred Share) or (B) the ordinary cash dividends (determined on each Dividend Payment Date) on the Common Shares, or portion thereof, into which a Series J Preferred Share is convertible. The dividends referred to in clause (B) of the preceding sentence shall equal the number of Common Shares, or portion thereof, into which a Series J Preferred Share is convertible, multiplied by the most current quarterly dividend on a Common Share on or before the applicable Dividend Payment Date. If the Trust pays an ordinary cash dividend on the Common Shares with respect to a Dividend Period after the date on which the Dividend Payment Date is declared pursuant to clause (ii) of the definition of Dividend Payment Date and the dividend calculated pursuant to clause (B) of this subsection (c)(i) with respect to such Dividend Period is greater than the dividend previously declared on the J-5 Series J Preferred Shares with respect to such Dividend Period, the Trust shall pay an additional dividend to the holders of the Series J Preferred Shares on the date on which the dividend on the Common Shares is paid, in an amount equal to the difference between (y) the dividend calculated pursuant to clause (B) of this subsection (c)(i) and (z) the amount of dividends previously declared on the Series J Preferred Shares with respect to such Dividend Period. The dividends shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there shall be funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on Dividend Payment Dates. Each such dividend shall be payable in arrears to the holders of record of Series J Preferred Shares as they appear in the records of the Trust at the close of business on such record dates, not less than 10 nor more than 50 days preceding such Dividend Payment Dates thereof, as shall be fixed by the Board. Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such date, not less than 10 nor more than 50 days preceding the payment date thereof, as may be fixed by the Board. Any dividend payment made on Series J Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to Series J Preferred Shares which remains payable. (ii) The amount of dividends referred to in clause (A) of subsection (c)(i) of this Section 11 payable for each full Dividend Period on the Series J Preferred Shares shall be equal to $0.775625. The amount of dividends payable for any period shorter than a full Dividend Period on the Series J Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series J Preferred Shares shall not be entitled to any dividends, whether payable in cash, property or shares, in excess of cumulative dividends, as herein provided, on the Series J Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series J Preferred Shares which may be in arrears. (iii) So long as any Series J Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series J Preferred Shares for all Dividend Periods terminating on or prior to the dividend payment date on such class or series of Parity Shares. When dividends are not paid in full or a sum sufficient for such J-6 payment is not set apart, as aforesaid, all dividends declared upon Series J Preferred Shares and all dividends declared upon any other class or series of Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series J Preferred Shares and accumulated and unpaid on such Parity Shares. (iv) So long as any Series J Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in shares of, or options, warrants or rights to subscribe for or purchase shares of, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) the full cumulative dividends on all outstanding Series J Preferred Shares and any other Parity Shares shall have been or contemporaneously are declared and paid or declared and set apart for payment for all past Dividend Periods with respect to the Series J Preferred Shares and all past dividend periods with respect to such Parity Shares and (B) sufficient funds shall have been or contemporaneously are declared and paid or declared and set apart for the payment of the dividend for the current Dividend Period with respect to the Series J Preferred Shares and the current dividend period with respect to such Parity Shares. (v) No distributions on Series J Preferred Shares shall be declared by the Board or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (d) Liquidation Preference. (i) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares, the holders of the Series J Preferred Shares shall be entitled to receive Thirty Six Dollars and Fifty Cents ($36.50) (the "Liquidation Preference") per Series J Preferred Share plus an amount equal to all dividends (whether or not earned or declared) accrued and J-7 unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment; provided, that the -------- dividend payable with respect to the Dividend Period containing the date of final distribution shall be equal to the greater of (A) the dividend provided in subsection (c)(i)(A) of this Section 11 or (B) the dividend determined pursuant to subsection (c)(i)(B) of this Section 11 for the preceding Dividend Period. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable among the holders of the Series J Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series J Preferred Shares and any such other Parity Shares ratably in accordance with the respective amounts that would be payable on such Series J Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full. For the purposes of this subsection (d), (x) a consolidation or merger of the Trust with one or more corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (ii) Subject to the rights of the holders of shares of any series or class or classes of Shares ranking on a parity with or senior to the Series J Preferred Shares upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the holders of the Series J Preferred Shares, as provided in this subsection (d), any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series J Preferred Shares shall not be entitled to share therein. (e) Redemption at the Option of the Trust. (i) The Series J Preferred Shares shall not be redeemable by the Trust prior to July 13, 2002. On and after July 13, 2002, the Trust, at its option, may redeem the Series J Preferred Shares, in whole at any time or from time to time in part as set forth herein, subject to the provisions described below: (A) Series J Preferred Shares may be redeemed, in whole or in part, at the option of the Trust, at any time on or after July 13, 2002 by issuing and delivering to each holder for each Series J Preferred Share to be redeemed such number of authorized but previously unissued Common Shares as equals the Liquidation J-8 Preference (excluding any accumulated, accrued and unpaid dividends which are to be paid in cash as provided below) per Series J Preferred Share divided by the Conversion Price as in effect as of the opening of business on the Call Date; provided, however, that the Trust may redeem Series J Preferred Shares pursuant to this subsection (e)(i)(A) only if (1) the Weighted Average Trading Price, for twenty (20) Trading Days, within the last thirty (30) Trading Days immediately before the date of the notice given pursuant to subsection (e)(iv) of this Section 11, equals or exceeds 108% of the Conversion Price in effect on the date of the notice given pursuant to subsection (e)(iv) of this Section 11 and (2) at least 1,000,000 Common Shares were traded during such 30 Trading Days. (B) Series J Preferred Shares may be redeemed, in whole or in part, at the option of the Trust at any time on or after July 13, 2002 out of funds legally available therefor at a redemption price payable in cash equal to the Liquidation Preference per Series J Preferred Share (plus all accumulated, accrued and unpaid dividends as provided below). (ii) Upon any redemption of Series J Preferred Shares pursuant to this subsection (e), the Trust shall pay all accrued and unpaid dividends, if any, thereon to the Call Date, without interest. If the Call Date falls after a dividend payment record date and prior to the corresponding Dividend Payment Date, then each holder of Series J Preferred Shares at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding any redemption of such shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series J Preferred Shares called for redemption. (iii) If full cumulative dividends on the Series J Preferred Shares and any other class or series of Parity Shares have not been declared and paid or declared and set apart for payment, the Series J Preferred Shares may not be redeemed under this subsection (e) in part and the Trust may not purchase or acquire Series J Preferred Shares, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Series J Preferred Shares. (iv) Notice of the redemption of any Series J Preferred Shares under this subsection (e) shall be mailed by first-class mail to each holder of record of Series J Preferred Shares to be redeemed at the address of each such holder as shown on the Trust's records, not less than 30 nor more than 90 days prior to the Call Date. Neither the failure J-9 to mail any notice required by this subsection (e)(iv), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (A) the Call Date; (B) the number of Series J Preferred Shares to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (C) the redemption price if the Series J Preferred Shares are redeemed for cash and the number of Common Shares to be issued if the Series J Preferred Shares are redeemed for Common Shares; (D) the place or places at which certificates for such shares are to be surrendered; (E) the then-current Conversion Price; and (F) that dividends on the shares to be redeemed shall cease to accrue on such Call Date except as otherwise provided herein. Notice having been mailed as aforesaid, from and after the Call Date (unless the Trust shall fail to make available an amount of cash necessary to effect such redemption), (x) except as otherwise provided herein, dividends on the Series J Preferred Shares so called for redemption shall cease to accrue, (y) such shares shall no longer be deemed to be outstanding, and (z) all rights of the holders thereof as holders of Series J Preferred Shares of the Trust shall cease (except the rights to convert and to receive the Common Shares and/or cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide Common Shares and/or cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Call Date, the Trust shall deposit with a bank or trust company (which may be an affiliate of the Trust) that has an office in the Borough of Manhattan, City of New York, and that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $50,000,000, necessary for such redemption, in trust, with irrevocable instructions that such Common Shares and/or cash be applied to the redemption of the Series J Preferred Shares so called for redemption. In the case of any redemption pursuant to subsection (e)(i)(A) of this Section 11, at the close of business on the Call Date, each holder of Series J Preferred Shares to be redeemed (unless the Trust defaults in the delivery of the Common Shares or cash payable on such Call Date) shall be deemed to be the record holder of the Common Shares into which such Series J Preferred Shares are to be converted at redemption, regardless of whether such holder has surrendered the certificates representing the Series J Preferred Shares to be so redeemed. No interest shall accrue for the benefit of the holders of Series J Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years from the Call Date shall revert to the general funds of the Trust, after which J-10 reversion the holders of such shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. As promptly as practicable after the surrender in accordance with such notice of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Trust shall so require and if the notice shall so state), such shares shall be exchanged for any cash (without interest thereon) for which such shares have been redeemed. If fewer than all the outstanding Series J Preferred Shares are to be redeemed, shares to be redeemed shall be selected by the Trust from outstanding Series J Preferred Shares not previously called for redemption pro rata (as nearly as may be), by lot or by any other method determined by the Trust in its sole discretion to be equitable. If fewer than all the Series J Preferred Shares represented by any certificate are redeemed, then new certificates representing the unredeemed shares shall be issued without cost to the holder thereof. (v) In the case of any redemption pursuant to subsection (e)(i)(A) of this Section 11, (A) no fractional Common Shares or scrip representing fractions of Common Shares shall be issued upon redemption of the Series J Preferred Common Shares. Instead of any fractional interest in Common Shares that would otherwise be deliverable upon redemption of Series J Preferred Shares, the Trust shall pay to the holder of such share an amount in cash (rounded to the nearest cent) based upon the Current Market Price of the Common Shares on the Trading Day immediately preceding the Call Date. If more than one Series J Preferred Share shall be surrendered for redemption at one time by the same holder, the number of full Common Shares issuable upon redemption thereof shall be computed on the basis of the aggregate number of Series J Preferred Shares so surrendered. (B) the Trust covenants that any Common Shares issued upon redemption of Series J Preferred Shares shall be validly issued, fully paid and non-assessable. The Trust shall endeavor to list the Common Shares required to be delivered upon any such redemption of Series J Preferred Shares, prior to such redemption, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery. (f) Conversion. Holders of Series J Preferred Shares shall have the right to convert all or a portion of such shares into Common Shares, as follows: J-11 (i) Subject to and upon compliance with the provisions of this subsection (f) and the provisions of Section 18A of Article II of the Declaration of Trust, a holder of Series J Preferred Shares shall have the right, at any time, at his or her option, to convert such shares into the number of fully paid and non-assessable Common Shares obtained by dividing the aggregate Liquidation Preference of such shares (exclusive of accrued but unpaid dividends) by the Conversion Price (as in effect at the time and on the date provided for in the last paragraph of subsection (f)(ii) of this Section 11) by surrendering such shares to be converted, such surrender to be made in the manner provided in subsection (f)(ii) of this Section 11; provided, however, that the right to convert shares called for -------- ------- redemption pursuant to subsection (e) shall terminate at the close of business on the fifth Business Day prior to the Call Date fixed for such redemption, unless the Trust shall default in making payment of the cash payable upon such redemption under subsection (e). (ii) In order to exercise the conversion right, the holder of each Series J Preferred Share to be converted shall surrender the certificate representing such share, duly endorsed or assigned to the Trust or in blank, at the office of the Transfer Agent, accompanied by written notice to the Trust that the holder thereof elects to convert such Series J Preferred Shares. Unless the shares issuable on conversion are to be issued in the same name as the name in which such Series J Preferred Share is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Trust, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Trust demonstrating that such taxes have been paid). Holders of Series J Preferred Shares at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the conversion thereof following such dividend payment record date and prior to such Dividend Payment Date. However, Series J Preferred Shares surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding Dividend Payment Date (except shares converted after the issuance of notice of redemption with respect to a Call Date during such period, such Series J Preferred Shares being entitled to such dividend on the Dividend Payment Date) must be accompanied by payment of an amount equal to the dividend payable on such shares on such Dividend Payment Date. A holder of Series J Preferred Shares on a dividend payment record date who (or whose transferee) tenders any such shares for conversion into Common Shares on the corresponding Dividend Payment Date will receive the dividend payable by the Trust on such Series J Preferred Shares on such date, and the converting holder need not include J-12 payment of the amount of such dividend upon surrender of Series J Preferred Shares for conversion. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the Common Shares issued upon such conversion. As promptly as practicable after the surrender of certificates for Series J Preferred Shares as aforesaid, the Trust shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full Common Shares issuable upon the conversion of such shares in accordance with provisions of this subsection (f), and any fractional interest in respect of a Common Share arising upon such conversion shall be settled as provided in subsection (f)(iii) of this Section 11. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series J Preferred Shares shall have been surrendered and such notice shall have been received by the Trust as aforesaid (and if applicable, payment of an amount equal to the dividend payable on such shares shall have been received by the Trust as described above), and the person or persons in whose name or names any certificate or certificates for Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date unless the share transfer books of the Trust shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such share transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such shares shall have been surrendered and such notice received by the Trust. (iii) No fractional shares or scrip representing fractions of Common Shares shall be issued upon conversion of the Series J Preferred Shares. Instead of any fractional interest in a Common Share that would otherwise be deliverable upon the conversion of a Series J Preferred Share, the Trust shall pay to the holder of such share an amount in cash based upon the Current Market Price of the Common Shares on the Trading Day immediately preceding the date of conversion. If more than one Series J Preferred Share shall be surrendered for conversion at one time by the same holder, the number of full Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series J Preferred Shares so surrendered. (iv) The Conversion Price shall be adjusted from time to time as follows: J-13 (A) If the Trust shall after the Issue Date (1) pay a dividend or make a distribution on its capital shares in Common Shares, (2) subdivide its outstanding Common Shares into a greater number of shares, (3) combine its outstanding Common Shares into a smaller number of shares or (4) issue any Shares by reclassification of its Common Shares, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or distribution or at the opening of business on the Business Day next following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series J Preferred Share thereafter surrendered for conversion shall be entitled to receive the number of Common Shares that such holder would have owned or have been entitled to receive after the happening of any of the events described above as if such Series J Preferred Shares had been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subsection (f)(iv)(A) shall become effective immediately after the opening of business on the Business Day next following the record date (except as provided in subsection (f)(viii) of this Section 11) in the case of a dividend or distribution and shall become effective immediately after the opening of business on the Business Day next following the effective date in the case of a subdivision, combination or reclassification. (B) If the Trust shall issue after the Issue Date rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Shares at a price per share less than 94% (100% if a stand-by underwriter is used and charges the Trust a commission) of the Fair Market Value per Common Share on the record date for the determination of shareholders entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the Business Day next following such record date shall be adjusted to equal the price determined by multiplying (1) the Conversion Price in effect immediately prior to the opening of business on the Business Day next following the date fixed for such determination by (2) a fraction, the numerator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of shares that the aggregate proceeds to the Trust from the exercise of such rights, options or warrants for Common Shares would purchase at 94% of such Fair Market Value (or 100% in the case of a stand-by J-14 underwriting), and the denominator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of additional Common Shares offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in subsection (f)(viii) of this Section 11). In determining whether any rights, options or warrants entitle the holders of Common Shares to subscribe for or purchase Common Shares at less than 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), there shall be taken into account any consideration received by the Trust upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined by the Board. (C) If the Trust shall distribute to all holders of its Common Shares any securities of the Trust (other than Common Shares) or evidence of its indebtedness or assets (excluding cumulative cash dividends or distributions paid with respect to the Common Shares or the common shares of Smith Realty after December 31, 1998 which are not in excess of the following: the sum of (1) the cumulative undistributed at December 31, 1998, plus (2) the cumulative amount of Funds from Operations, as determined by the Board, after December 31, 1998, minus (3) the cumulative amount of dividends accrued or paid in respect of the Series J Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Smith Realty after July 2, 1999) or rights, options or warrants to subscribe for or purchase any of its securities (excluding those rights, options and warrants issued to all holders of Common Shares entitling them for a period expiring within 45 days after the record date referred to in subsection (f)(iv)(B) of this Section 11 to subscribe for or purchase Common Shares, which rights and warrants are referred to in and treated under subsection (f)(iv)(B) of this Section 11) (any of the foregoing being hereinafter in this subsection (f)(iv)(C) collectively called the "Securities" and individually a "Security"), then in each ---------- -------- such case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (x) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by (y) a fraction, the numerator of which shall be the Fair Market Value per Common Share on the record date mentioned below less the then fair market value (as determined by the Board, whose determination shall be conclusive), of the portion of the Securities or assets or evidences of indebtedness so distributed or of such rights, options or warrants applicable to one Common Share, and the denominator of which shall be the Fair J-15 Market Value per Common Share on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the Business Day next following (except as provided in subsection (f)(viii) of this Section 11) the record date for the determination of shareholders entitled to receive such distribution. For the purposes of this subsection (f)(iv)(C), the distribution of a Security, which is distributed not only to the holders of the Common Shares on the date fixed for the determination of shareholders entitled to such distribution of such Security, but also is distributed with each Common Share delivered to a Person converting a Series J Preferred Share after such determination date, shall not require an adjustment of the Conversion Price pursuant to this subsection (f)(iv)(C) of this Section 11; provided that on the date, -------- if any, on which a person converting a Series J Preferred Share would no longer be entitled to receive such Security with a Common Share (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred and the Conversion Price shall be adjusted as provided in this subsection (f)(iv)(C) of this Section 11 (and such day shall be deemed to be "the date fixed for the determination of the shareholders entitled to receive such distribution" and "the record date" within the meaning of the two preceding sentences). (D) In case a tender or exchange offer (which term shall not include open market repurchases by the Trust) made by the Trust or any subsidiary of the Trust for all or any portion of the Common Shares shall expire and such tender or exchange offer shall involve the payment by the Trust or such subsidiary of consideration per Common Share having a fair market value (as determined in good faith by the Board, whose determination shall be conclusive and described in a resolution of the Board), at the last time (the "Expiration Time") --------------- tenders or exchanges may be made pursuant to such tender or exchange offer, that exceeds the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph, by a fraction of which the numerator shall be the number of Common Shares outstanding (including any tendered or exchanged shares) at the Expiration Time, multiplied by the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based upon the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or J-16 exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any maximum, being referred to as the "Purchased Shares") and (ii) the product of the number of Common ---------------- Shares outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (E) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments -------- ------- that by reason of this subsection (f)(iv)(E) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment -------- ------- shall be required and made in accordance with the provisions of this subsection (f) (other than this subsection (f)(iv)(E)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Shares. Notwithstanding any other provisions of this subsection (f), the Trust shall not be required to make any adjustment of the Conversion Price for the issuance of any Common Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Trust and the investment of additional optional amounts in Common Shares under such plan. All calculations under this subsection (f) shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. Anything in this subsection (f)(iv) to the contrary notwithstanding, the Trust shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this subsection (f)(iv), as it in its discretion shall determine to be advisable in order that any share dividends, subdivision of shares, reclassification or combination of shares, distribution of rights or warrants to purchase shares or securities, or distribution of other assets (other than cash dividends) hereafter made by the Trust to its shareholders shall not be taxable. (v) If the Trust shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, self tender offer for all or substantially all of its Common Shares, sale of all or substantially all of the Trust's assets or recapitalization of the Common Shares and excluding any transaction as to which subsection (f)(iv)(A) of this Section 11 applies) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which ----------- all or substantially all of the Trust's J-17 Common Shares are converted into the right to receive shares, securities or other property (including cash or any combination thereof), each Series J Preferred Share which is not redeemed or converted into the right to receive shares, securities or other property prior to such Transaction shall thereafter be convertible into the kind and amount of shares, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Shares into which one Series J Preferred Share was convertible immediately prior to such Transaction, assuming such holder of Common Shares (A) is not a Person with which the Trust consolidated or into which the Trust merged or which merged into the Trust or to which such sale or transfer was made, as the case may be ("Constituent Person"), or an ------------------ affiliate of a Constituent Person and (B) failed to exercise his rights of election, if any, as to the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction is not the same for each Common Share held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non - Electing Share"), -------------------- then for the purpose of this subsection (f)(v) the kind and amount of shares, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The Trust shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this subsection (f)(v), and it shall not consent or agree to the occurrence of any Transaction until the Trust has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series J Preferred Shares that will contain provisions enabling the holders of the Series J Preferred Shares that remain outstanding after such Transaction to convert into the consideration received by holders of Common Shares at the Conversion Price in effect immediately prior to such Transaction. The provisions of this subsection (f)(v) shall similarly apply to successive Transactions. (vi) If: (A) the Trust shall declare a dividend (or any other distribution) on its Common Shares (other than cash dividends or distributions paid with respect to the Common Shares or the common shares of Smith Realty after December 31, 1998 not in excess of the sum of the cumulative undistributed Funds from Operations at December 31, 1998, plus the cumulative amount of Funds from Operations, as determined by the Board, after December 31, 1998, minus the cumulative amount of dividends accrued or paid in respect of the Series J Preferred Shares or any other J-18 class or series of preferred Shares of the Trust or preferred shares of Smith Realty after July 2, 1999); or (B) the Trust shall authorize the granting to all holders of Common Shares of rights, options or warrants to subscribe for or purchase any shares of any class or any other rights, options or warrants; or (C) there shall be any reclassification of the Common Shares (other than an event to which subsection (f)(iv)(A) of this Section 11 applies) or any consolidation or merger to which the Trust is a party and for which approval of any shareholders of the Trust is required, or a statutory share exchange, or a self tender offer by the Trust for all or substantially all of its outstanding Common Shares or the sale or transfer of all or substantially all of the assets of the Trust as an entirety; or (D) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Trust; then the Trust shall cause to be filed with the Transfer Agent and shall cause to be mailed to the holders of Series J Preferred Shares at their addresses as shown on the records of the Trust, as promptly as possible, but at least 10 days prior to the applicable date hereinafter specified, a notice stating (1) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Shares of record to be entitled to such dividend, distribution or rights, options or warrants are to be determined or (2) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Shares of record shall be entitled to exchange their Common Shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this subsection (f). (vii) Whenever the Conversion Price is adjusted as herein provided, the Trust shall promptly file with the Transfer Agent an officer's certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted J-19 Conversion Price and the effective date of such adjustment and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series J Preferred Share at such holder's last address as shown on the records of the Trust. (viii) In any case in which subsection (f)(iv) of this Section 11 provides that an adjustment shall become effective on the day next following the record date for an event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any Series J Preferred Share converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of any fraction pursuant to subsection (f)(iii) of this Section 11. (ix) There shall be no adjustment of the Conversion Price in case of the issuance of any Shares in a reorganization, acquisition or other similar transaction except as specifically set forth in this subsection (f). If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this subsection (f), only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (x) If the Trust shall take any action affecting the Common Shares, other than action described in this subsection (f), that in the opinion of the Board would materially and adversely affect the conversion rights of the holders of the Series J Preferred Shares, the Conversion Price for the Series J Preferred Shares may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board, in its sole discretion, may determine to be equitable in the circumstances. (xi) The Trust covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Shares, for the purpose of effecting conversion of the Series J Preferred Shares, the full number of Common Shares deliverable upon the conversion of all outstanding Series J Preferred Shares not theretofore converted. For purposes of this subsection (f)(xi), the number of Common Shares that shall be deliverable upon the conversion of all outstanding Series J Preferred Shares shall be computed as if at the time of computation all such outstanding shares were held by a single holder. The Trust covenants that any Common Shares issued upon conversion of the Series J Preferred Shares shall be validly issued, fully paid and non- assessable. Before taking any J-20 action that would cause an adjustment reducing the Conversion Price below the then-par value of the Common Shares deliverable upon conversion of the Series J Preferred Shares, the Trust will take any action that, in the opinion of its counsel, may be necessary in order that the Trust may validly and legally issue fully paid and (subject to any customary qualification based upon the nature of a real estate investment trust) non- assessable Common Shares at such adjusted Conversion Price. The Trust shall endeavor to list the Common Shares required to be delivered upon conversion of the Series J Preferred Shares, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery. The Trust shall endeavor to comply with all federal and state securities laws and regulations thereunder in connection with the issuance of any securities that the Trust shall be obligated to deliver upon conversion of the Series J Preferred Shares. In addition to any legend required by Section 18A of Article II of the Declaration of Trust, the certificates evidencing such securities shall bear such legends restricting transfer thereof in the absence of registration under applicable securities laws or an exemption therefrom as the Trust may in good faith deem appropriate. (xii) The Trust will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Shares or other securities or property on conversion of the Series J Preferred Shares pursuant hereto; provided, however, that the Trust shall -------- ------- not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Shares or other securities or property in a name other than that of the holder of the Series J Preferred Shares to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid. (g) Shares To Be Retired. All Series J Preferred Shares which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (h) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series J Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the J-21 holders of such class or series are entitled to the receipt of dividends or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series J Preferred Shares; (ii) on a parity with the Series J Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series J Preferred Shares, if the holders of such class or series and the holders of Series J Preferred Shares are entitled to the receipt of dividends and amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); ------------- (iii) junior to the Series J Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and (iv) junior to the Series J Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (i) Voting. If and whenever four quarterly dividends (whether or not consecutive) payable on the Series J Preferred Shares or any series or class of Parity Shares shall be in arrears (which shall, with respect to any such quarterly dividend, mean that any such dividend has not been paid in full), whether or not earned or declared, the number of Trustees then constituting the Board shall be increased by two and the holders of Series J Preferred Shares, together with the holders of shares of every other series of Parity Shares (any such other series, the "Voting Preferred Shares"), voting as a single class ----------------------- regardless of series, shall be entitled to elect the two additional Trustees to serve on the Board at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series J Preferred Shares and the Voting Preferred Shares called as hereinafter provided. Whenever all arrears in dividends on the Series J Preferred Shares and the Voting Preferred Shares then outstanding shall have been paid and dividends thereon for the current quarterly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series J Preferred Shares and the Voting Preferred Shares to elect such additional two Trustees shall cease (but subject always to the same provision for the vesting of such voting rights in the case of any similar future arrearage in quarterly dividends), and the terms of office of all persons elected as Trustees by the holders of the Series J Preferred Shares and the J-22 Voting Preferred Shares shall forthwith terminate and the number of the Board shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of Series J Preferred Shares and the Voting Preferred Shares, the Secretary of the Trust may, and upon the written request of any holder of Series J Preferred Shares (addressed to the Secretary at the principal office of the Trust) shall, call a special meeting of the holders of the Series J Preferred Shares and of the Voting Preferred Shares for the election of the Trustees to be elected by them as herein provided, such call to be made by notice similar to that provided in the Bylaws of the Trust for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of Series J Preferred Shares may call such meeting, upon the notice above provided, and for that purpose shall have access to the records of the Trust. The Trustees elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. If any vacancy shall occur among the Trustees elected by the holders of the Series J Preferred Shares and the Voting Preferred Shares, a successor shall be elected by the Board, upon the nomination of the then-remaining Trustee elected by the holders of the Series J Preferred Shares and the Voting Preferred Shares or the successor of such remaining Trustee, to serve until the next annual meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as provided above. So long as any Series J Preferred Shares are outstanding, in addition to any other vote or consent of shareholders required by law or by the Declaration of Trust, the affirmative vote of at least 66 2/3% of the votes entitled to be cast by the holders of the Series J Preferred Shares given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) Any amendment, alteration or repeal of any of the provisions of the Declaration of Trust or the By-Laws that materially and adversely affects the voting powers, rights or preferences of the holders of the Series J Preferred Shares; provided, however, that the amendment of the -------- ------- provisions of the Declaration of Trust so as to authorize or create or to increase the authorized amount of, any Fully Junior Shares, Junior Shares that are not senior in any respect to the Series J Preferred Shares or any Parity Shares shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series J Preferred Shares; or (ii) A share exchange that affects the Series J Preferred Shares, a consolidation with or merger of the Trust into another entity, or a consolidation with or merger of another entity into the Trust, unless in each such case each Series J Preferred Share (A) shall remain J-23 outstanding without a material and adverse change to its terms and rights or (B) shall be converted into or exchanged for convertible preferred shares of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to that of a Series J Preferred Share (except for changes that do not materially and adversely affect the holders of the Series J Preferred Shares); or (iii) The authorization, reclassification or creation of, or the increase in the authorized amount of, any shares of any class or any security convertible into shares of any class ranking senior to the Series J Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust or in the payment of dividends; provided, however, that no such vote of the holders of Series J Preferred Shares - -------- ------- shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such prior shares or convertible security is to be made, as the case may be, provision is made for the redemption of all Series J Preferred Shares at the time outstanding to the extent such redemption is authorized by subsection (e) of this Section 11. For purposes of the foregoing provisions, a "share exchange" means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and which does not affect the existence of either entity, and the term "surviving entity" shall include the entity acquiring equity securities in a share exchange. For purposes of the foregoing provisions of this subsection (i), each Series J Preferred Share shall have one (1) vote per share, except that when any other series of preferred Shares shall have the right to vote with the Series J Preferred Shares as a single class on any matter, then the Series J Preferred Shares and such other series shall have with respect to such matters one (1) vote per $25.00 of stated liquidation preference. Except as otherwise required by applicable law or as set forth herein, the Series J Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any Trust action. (j) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series J Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. J-24 ANNEX K SERIES K CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series K Cumulative Convertible Redeemable Preferred Shares and the number of shares which shall constitute such series shall not be more than 666,667 shares, par value $0.01 per share, which number may be decreased (but not below the number thereof then outstanding) from time to time by the Board. (b) Definitions. For purposes of the Series K Preferred Shares, the following terms shall have the meanings indicated: "Archstone-Smith Operating Trust" shall mean Archstone-Smith Operating ------------------------------- Trust, a Maryland real estate investment trust, and its successors. "Board" shall mean the Board of Trustees or any committee authorized ----- by the Board of Trustees to perform any of its responsibilities with respect to the Series K Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date specified in the notice to holders --------- required under subsection (e)(iv) of this Section 12 as the Call Date. "Common Shares" shall mean the common shares of beneficial interest, ------------- par value $0.01 per share, of the Trust. "Constituent Person" shall have the meaning set forth in subsection ------------------ (f)(v) of this Section 12. "Conversion Price" shall mean the conversion price per Common Share ---------------- for which the Series K Preferred Shares are convertible, as such Conversion Price may be adjusted pursuant to subsection (f) of this Section 12. The initial conversion price shall be $18.99 (equivalent to a conversion rate of 1.975 Common Shares for each Series K Preferred Share). K-1 "Current Market Price" of publicly traded common shares or any other -------------------- class of shares or capital stock or other security of the Trust or any other issuer for any day shall mean the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange ("NYSE") or, if such ---- security is not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the Nasdaq Stock Market ("NASDAQ") or, if ------ such security is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Board. "Dividend Payment Date" shall mean (i) for any Dividend Period with --------------------- respect to which the Trust pays a dividend on the Common Shares, the date on which such dividend is paid, or (ii) for any Dividend Period with respect to which the Trust does not pay a dividend on the Common Shares, a date to be set by the Board, which date shall not be later than the forty- fifth calendar day after the end of the applicable Dividend Period. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period (other than the Dividend Period during which any Series K Preferred Shares shall be redeemed pursuant to subsection (e) of this Section 12, which shall end on and include the Call Date with respect to the Series K Preferred Shares being redeemed). "Expiration Time" shall have the meaning set forth in subsection --------------- (f)(iv)(D) of this Section 12. "Fair Market Value" shall mean the average of the daily Current Market ----------------- Prices of a Common Share on the five (5) consecutive Trading Days selected by the Trust commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. The term "ex date," when used with respect to any issuance or distribution, means the first day on which the Common Shares trade regular way, without K-2 the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day's Current Market Price. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding over which the Series K Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Funds from Operations," for all dates and periods prior to the Issue --------------------- Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to other Smith Operating Partnership interests or minority interests (as reflected in the financial statements of Smith Realty) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by the National Association of Real Estate Investment Trusts ("NAREIT"), in ------ its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trust in good faith. "Funds from Operations," for all dates and periods from and after the Issue Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to Archstone-Smith Operating Trust interests or minority interests (as reflected in the financial statements of the Trust) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by NAREIT, in its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trust in good faith. "Issue Date" shall mean the date on which the first Series K Preferred ---------- Shares are issued. "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding over which the Series K Preferred Shares have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Non-Electing Share" shall have the meaning set forth in subsection ------------------ (f)(v) of this Section 12. K-3 "Parity Shares" shall have the meaning set forth in subsection (h)(ii) ------------- of this Section 12. "Person" shall mean any individual, firm, partnership, corporation, ------ limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Purchased Shares" shall have the meaning set forth in subsection ---------------- (f)(iv)(D) of this Section 12. "Securities" and "Security" shall have the meanings set forth in ---------- -------- subsection (f)(iv)(C) of this Section 12. "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "Series K Preferred Shares" shall mean the shares of Series K ------------------------- Cumulative Convertible Redeemable Preferred Shares. "Set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any series or class of Shares; provided, however, that if any funds for any class or series of Junior -------- ------- Shares or any class or series of Shares ranking on a parity with the Series K Preferred Shares as to the payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series K Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Smith Operating Partnership" shall mean Charles E. Smith Residential --------------------------- Realty, L.P., formerly a Delaware limited partnership. K-4 "Smith Preferred Shares" shall mean the Series H Preferred Shares, ---------------------- Series I Preferred Shares, Series J Preferred Shares, Series K Preferred Shares, Series L Preferred Shares and Series M Preferred Shares of the Trust or any of the foregoing. "Smith Realty" shall mean Charles E. Smith Residential Realty, Inc., ------------ formerly a Maryland corporation. "Trading Day" shall mean any day on which the securities in question ----------- are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the National Market System of NASDAQ, or if such securities are not quoted on such National Market System, in the securities market in which the securities are traded. "Transaction" shall have the meaning set forth in subsection (f)(v) of ----------- this Section 12. "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C., -------------- New York City, New York, or such other agent or agents of the Trust as may be designated by the Board or their designee as the transfer agent, registrar and dividend disbursing agent for the Series K Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (i) of this Section 12. "Weighted Average Trading Price" shall mean, for any Trading Day, the ------------------------------ number obtained by dividing (i) the sum of the products, for each sale of Common Shares on such Trading Day, of (a) the sale price per Common Share and (b) the number of Common Shares sold by (ii) the total number of Common Shares sold on such Trading Day. (c) Dividends. (i) The holders of Series K Preferred Shares shall be entitled to receive, when, as and if declared by the Board, out of funds legally available for the payment of dividends, cumulative preferential dividends payable in cash in an amount per share equal to the greater of (A) (i) 8.25% of the Liquidation Preference per annum (equivalent to $3.09375 per Series K Preferred Share) from the date for commencement of accrual specified below up to and including October 1, 2001 and (ii) 8.50% of the Liquidation Preference per annum K-5 (equivalent to $3.1875 per Series K Preferred Share) thereafter or (B) the ordinary cash dividends (determined on each Dividend Payment Date) on the Common Shares, or portion thereof, into which a Series K Preferred Share is convertible. The dividends referred to in clause (B) of the preceding sentence shall equal the number of Common Shares, or portion thereof, into which a Series K Preferred Share is convertible, multiplied by the most current quarterly dividend on a Common Share on or before the applicable Dividend Payment Date. If the Trust pays an ordinary cash dividend on the Common Shares with respect to a Dividend Period after the date on which the Dividend Payment Date is declared pursuant to clause (ii) of the definition of Dividend Payment Date and the dividend calculated pursuant to clause (B) of this subsection (c)(i) with respect to such Dividend Period is greater than the dividend previously declared on the Series K Preferred Shares with respect to such Dividend Period, the Trust shall pay an additional dividend to the holders of the Series K Preferred Shares on the date on which the dividend on the Common Shares is paid, in an amount equal to the difference between (y) the dividend calculated pursuant to clause (B) of this subsection (c)(i) and (z) the amount of dividends previously declared on the Series K Preferred Shares with respect to such Dividend Period. The dividends shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there shall be funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on Dividend Payment Dates. Each such dividend shall be payable in arrears to the holders of record of Series K Preferred Shares as they appear in the records of the Trust at the close of business on such record dates, not less than 10 nor more than 50 days preceding such Dividend Payment Dates thereof, as shall be fixed by the Board. Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such date, not less than 10 nor more than 50 days preceding the payment date thereof, as may be fixed by the Board. Any dividend payment made on Series K Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to Series K Preferred Shares which remains payable. (ii) The amount of dividends referred to in subsection (c)(i)(A) payable for each full Dividend Period on the Series K Preferred Shares shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for any period shorter than a full Dividend Period on the Series K Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series K Preferred Shares shall not be K-6 entitled to any dividends, whether payable in cash, property or shares, in excess of cumulative dividends, as herein provided, on the Series K Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series K Preferred Shares which may be in arrears. (iii) So long as any Series K Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series K Preferred Shares for all Dividend Periods terminating on or prior to the dividend payment date on such class or series of Parity Shares. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon Series K Preferred Shares and all dividends declared upon any other class or series of Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series K Preferred Shares and accumulated and unpaid on such Parity Shares. (iv) So long as any Series K Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in shares of, or options, warrants or rights to subscribe for or purchase shares of, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) the full cumulative dividends on all outstanding Series K Preferred Shares and any other Parity Shares shall have been or contemporaneously are declared and paid or declared and set apart for payment for all past Dividend Periods with respect to the Series K Preferred Shares and all past dividend periods with respect to such Parity Shares and (B) sufficient funds shall have been or contemporaneously are declared and paid or declared and set apart for the payment of the dividend for the current Dividend Period with respect to the Series K Preferred Shares and the current dividend period with respect to such Parity Shares. (v) No distributions on Series K Preferred Shares shall be declared by the Board or paid or set apart for payment by the Trust at such time as the terms and provisions of any K-7 agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (d) Liquidation Preference. (i) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares, the holders of the Series K Preferred Shares shall be entitled to receive Thirty Seven Dollars and Fifty Cents ($37.50) (the "Liquidation Preference") per Series K Preferred Share plus an amount equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment; provided, that the dividend payable with respect to the Dividend -------- Period containing the date of final distribution shall be equal to the greater of (A) the dividend provided in subsection (c)(i)(A) of this Section 12 or (ii) the dividend determined pursuant to subsection (c)(i)(B) of this Section 12 for the preceding Dividend Period. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable among the holders of the Series K Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series K Preferred Shares and any such other Parity Shares ratably in accordance with the respective amounts that would be payable on such Series K Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full. For the purposes of this subsection (d), (x) a consolidation or merger of the Trust with one or more corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (ii) Subject to the rights of the holders of shares of any series or class or classes of Shares ranking on a parity with or senior to the Series K Preferred Shares upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the holders of the Series K Preferred Shares, as provided in this subsection (d), any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to K-8 receive any and all assets remaining to be paid or distributed, and the holders of the Series K Preferred Shares shall not be entitled to share therein. (e) Redemption at the Option of the Trust. (i) The Series K Preferred Shares shall not be redeemable by the Trust prior to October 1, 2004. On and after October 1, 2004, the Trust, at its option, may redeem the Series K Preferred Shares, in whole at any time or from time to time in part as set forth herein, subject to the provisions described below: (A) Series K Preferred Shares may be redeemed, in whole or in part, at the option of the Trust, at any time on or after October 1, 2004 by issuing and delivering to each holder for each Series K Preferred Share to be redeemed such number of authorized but previously unissued Common Shares as equals the Liquidation Preference (excluding any accumulated, accrued and unpaid dividends which are to be paid in cash as provided below) per Series K Preferred Share divided by the Conversion Price as in effect as of the opening of business on the Call Date; provided, however, that the Trust may redeem Series K Preferred Shares pursuant to this subsection (e)(i)(A) only if (1) the Weighted Average Trading Price, for twenty (20) Trading Days, within the last thirty (30) Trading Days immediately before the date of the notice given pursuant to subsection (e)(iv), equals or exceeds 108% of the Conversion Price in effect on the date of the notice given pursuant to subsection (e)(iv) and (2) at least 1,000,000 Common Shares were traded during such 30 Trading Days. (B) Series K Preferred Shares may be redeemed, in whole or in part, at the option of the Trust at any time on or after October 1, 2004 out of funds legally available therefor at a redemption price payable in cash equal to the Liquidation Preference per Series K Preferred Share (plus all accumulated, accrued and unpaid dividends as provided below). (ii) Upon any redemption of Series K Preferred Shares pursuant to this subsection (e), the Trust shall pay all accrued and unpaid dividends, if any, thereon to the Call Date, without interest. If the Call Date falls after a dividend payment record date and prior to the corresponding Dividend Payment Date, then each holder of Series K Preferred Shares at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date K-9 notwithstanding any redemption of such shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series K Preferred Shares called for redemption. (iii) If full cumulative dividends on the Series K Preferred Shares and any other class or series of Parity Shares have not been declared and paid or declared and set apart for payment, the Series K Preferred Shares may not be redeemed under this subsection (e) in part and the Trust may not purchase or acquire Series K Preferred Shares, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Series K Preferred Shares. (iv) Notice of the redemption of any Series K Preferred Shares under this subsection (e) shall be mailed by first-class mail to each holder of record of Series K Preferred Shares to be redeemed at the address of each such holder as shown on the Trust's records, not less than 30 nor more than 90 days prior to the Call Date. Neither the failure to mail any notice required by this subsection (e)(iv), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (1) the Call Date; (2) the number of Series K Preferred Shares to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price if the Series K Preferred Shares are redeemed for cash and the number of Common Shares to be issued if the Series K Preferred Shares are redeemed for Common Shares; (4) the place or places at which certificates for such shares are to be surrendered; (5) the then-current Conversion Price; and (6) that dividends on the shares to be redeemed shall cease to accrue on such Call Date except as otherwise provided herein. Notice having been mailed as aforesaid, from and after the Call Date (unless the Trust shall fail to make available an amount of cash necessary to effect such redemption), (A) except as otherwise provided herein, dividends on the Series K Preferred Shares so called for redemption shall cease to accrue, (B) such shares shall no longer be deemed to be outstanding, and (C) all rights of the holders thereof as holders of Series K Preferred Shares of the Trust shall cease (except the rights to convert and to receive the Common Shares and/or cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide Common Shares and/or cash in accordance with the preceding sentence shall be K-10 deemed fulfilled if, on or before the Call Date, the Trust shall deposit with a bank or trust company (which may be an affiliate of the Trust) that has an office in the Borough of Manhattan, City of New York, and that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $50,000,000, necessary for such redemption, in trust, with irrevocable instructions that such Common Shares and/or cash be applied to the redemption of the Series K Preferred Shares so called for redemption. In the case of any redemption pursuant to subsection (e)(i)(A) of this Section 12, at the close of business on the Call Date, each holder of Series K Preferred Shares to be redeemed (unless the Trust defaults in the delivery of the Common Shares or cash payable on such Call Date) shall be deemed to be the record holder of the Common Shares into which such Series K Preferred Shares are to be converted at redemption, regardless of whether such holder has surrendered the certificates representing the Series K Preferred Shares to be so redeemed. No interest shall accrue for the benefit of the holders of Series K Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years from the Call Date shall revert to the general funds of the Trust, after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. As promptly as practicable after the surrender in accordance with such notice of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Trust shall so require and if the notice shall so state), such shares shall be exchanged for any cash (without interest thereon) for which such shares have been redeemed. If fewer than all the outstanding Series K Preferred Shares are to be redeemed, shares to be redeemed shall be selected by the Trust from outstanding Series K Preferred Shares not previously called for redemption pro rata (as nearly as may be), by lot or by any other method determined by the Trust in its sole discretion to be equitable. If fewer than all the Series K Preferred Shares represented by any certificate are redeemed, then new certificates representing the unredeemed shares shall be issued without cost to the holder thereof. (v) In the case of any redemption pursuant to subsection (e)(i)(A) of this Section 12, (A) no fractional Common Shares or scrip representing fractions of Common Shares shall be issued upon redemption of the Series K Preferred Common Shares. Instead of any fractional interest in Common Shares that would otherwise be deliverable upon redemption of Series K Preferred Shares, the Trust shall pay to the holder of such share an amount in cash (rounded to the nearest cent) based upon K-11 the Current Market Price of the Common Shares on the Trading Day immediately preceding the Call Date. If more than one Series K Preferred Share shall be surrendered for redemption at one time by the same holder, the number of full Common Shares issuable upon redemption thereof shall be computed on the basis of the aggregate number of Series K Preferred Shares so surrendered. (B) the Trust covenants that any Common Shares issued upon redemption of Series K Preferred Shares shall be validly issued, fully paid and non-assessable. The Trust shall endeavor to list the Common Shares required to be delivered upon any such redemption of Series K Preferred Shares, prior to such redemption, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery. (f) Conversion. Holders of Series K Preferred Shares shall have the right to convert all or a portion of such shares into Common Shares, as follows: (i) Subject to and upon compliance with the provisions of this subsection (f) and the provisions of Section 18A of Article II of the Declaration of Trust, a holder of Series K Preferred Shares shall have the right, at any time, at his or her option, to convert such shares into the number of fully paid and non-assessable Common Shares obtained by dividing the aggregate Liquidation Preference of such shares (exclusive of accrued but unpaid dividends) by the Conversion Price (as in effect at the time and on the date provided for in the last paragraph of subsection (f)(ii) of this Section 12) by surrendering such shares to be converted, such surrender to be made in the manner provided in subsection (f)(ii) of this Section 12; provided, however, that the right to convert shares called for -------- ------- redemption pursuant to subsection (e) of this Section 12 shall terminate at the close of business on the fifth Business Day prior to the Call Date fixed for such redemption, unless the Trust shall default in making payment of the cash payable upon such redemption under subsection (e) of this Section 12. (ii) In order to exercise the conversion right, the holder of each Series K Preferred Share to be converted shall surrender the certificate representing such share, duly endorsed or assigned to the Trust or in blank, at the office of the Transfer Agent, accompanied by written notice to the Trust that the holder thereof elects to convert such Series K Preferred Shares. Unless the shares issuable on conversion are to be issued in the same name as the name in which such Series K Preferred Share is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Trust, K-12 duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Trust demonstrating that such taxes have been paid). Holders of Series K Preferred Shares at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the conversion thereof following such dividend payment record date and prior to such Dividend Payment Date. However, Series K Preferred Shares surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding Dividend Payment Date (except shares converted after the issuance of notice of redemption with respect to a Call Date during such period, such Series K Preferred Shares being entitled to such dividend on the Dividend Payment Date) must be accompanied by payment of an amount equal to the dividend payable on such shares on such Dividend Payment Date. A holder of Series K Preferred Shares on a dividend payment record date who (or whose transferee) tenders any such shares for conversion into Common Shares on the corresponding Dividend Payment Date will receive the dividend payable by the Trust on such Series K Preferred Shares on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of Series K Preferred Shares for conversion. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the Common Shares issued upon such conversion. As promptly as practicable after the surrender of certificates for Series K Preferred Shares as aforesaid, the Trust shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full Common Shares issuable upon the conversion of such shares in accordance with provisions of this subsection (f), and any fractional interest in respect of a Common Share arising upon such conversion shall be settled as provided in subsection (f)(iii) of this Section 12. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series K Preferred Shares shall have been surrendered and such notice shall have been received by the Trust as aforesaid (and if applicable, payment of an amount equal to the dividend payable on such shares shall have been received by the Trust as described above), and the person or persons in whose name or names any certificate or certificates for Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares K-13 represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date unless the share transfer books of the Trust shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such share transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such shares shall have been surrendered and such notice received by the Trust. (iii) No fractional shares or scrip representing fractions of Common Shares shall be issued upon conversion of the Series K Preferred Shares. Instead of any fractional interest in a Common Share that would otherwise be deliverable upon the conversion of a Series K Preferred Share, the Trust shall pay to the holder of such share an amount in cash based upon the Current Market Price of the Common Shares on the Trading Day immediately preceding the date of conversion. If more than one Series K Preferred Share shall be surrendered for conversion at one time by the same holder, the number of full Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series K Preferred Shares so surrendered. (iv) The Conversion Price shall be adjusted from time to time as follows: (A) If the Trust shall after the Issue Date (1) pay a dividend or make a distribution on its capital shares in Common Shares, (2) subdivide its outstanding Common Shares into a greater number of shares, (3) combine its outstanding Common Shares into a smaller number of shares or (4) issue any Shares by reclassification of its Common Shares, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or distribution or at the opening of business on the Business Day next following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series K Preferred Share thereafter surrendered for conversion shall be entitled to receive the number of Common Shares that such holder would have owned or have been entitled to receive after the happening of any of the events described above as if such Series K Preferred Shares had been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subsection (f)(iv)(A) shall become effective immediately after the opening of business on the Business Day next following the K-14 record date (except as provided in subsection (f)(viii) of this Section 12) in the case of a dividend or distribution and shall become effective immediately after the opening of business on the Business Day next following the effective date in the case of a subdivision, combination or reclassification. (B) If the Trust shall issue after the Issue Date rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Shares at a price per share less than 94% (100% if a stand-by underwriter is used and charges the Trust a commission) of the Fair Market Value per Common Share on the record date for the determination of shareholders entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the Business Day next following such record date shall be adjusted to equal the price determined by multiplying (i) the Conversion Price in effect immediately prior to the opening of business on the Business Day next following the date fixed for such determination by (ii) a fraction, the numerator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of shares that the aggregate proceeds to the Trust from the exercise of such rights, options or warrants for Common Shares would purchase at 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), and the denominator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of additional Common Shares offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in subsection (f)(viii) of this Section 12). In determining whether any rights, options or warrants entitle the holders of Common Shares to subscribe for or purchase Common Shares at less than 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), there shall be taken into account any consideration received by the Trust upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined by the Board. (C) If the Trust shall distribute to all holders of its Common Shares any securities of the Trust (other than Common Shares) or evidence of its indebtedness or assets (excluding cumulative cash dividends or distributions paid with respect to the Common Shares or common shares of Smith Realty after December 31, 1998 K-15 which are not in excess of the following: the sum of (i) the cumulative undistributed Funds from Operations at December 31, 1998, plus (ii) the cumulative amount of Funds from Operations, as determined by the Board, after December 31, 1998, minus (iii) the cumulative amount of dividends accrued or paid in respect of the Series K Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Smith Realty after July 2, 1999) or rights, options or warrants to subscribe for or purchase any of its securities (excluding those rights, options and warrants issued to all holders of Common Shares entitling them for a period expiring within 45 days after the record date referred to in subsection (f)(iv)(B) of this Section 12 to subscribe for or purchase Common Shares, which rights and warrants are referred to in and treated under subsection (f)(iv)(B) of this Section 12) (any of the foregoing being hereinafter in this subsection (f)(iv)(C) collectively called the "Securities" and individually a "Security"), then in each ---------- -------- such case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (x) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by (y) a fraction, the numerator of which shall be the Fair Market Value per Common Share on the record date mentioned below less the then fair market value (as determined by the Board, whose determination shall be conclusive), of the portion of the Securities or assets or evidences of indebtedness so distributed or of such rights, options or warrants applicable to one Common Share, and the denominator of which shall be the Fair Market Value per Common Share on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the Business Day next following (except as provided in subsection (f)(viii) of this Section 12) the record date for the determination of shareholders entitled to receive such distribution. For the purposes of this subsection (f)(iv)(C), the distribution of a Security, which is distributed not only to the holders of the Common Shares on the date fixed for the determination of shareholders entitled to such distribution of such Security, but also is distributed with each Common Share delivered to a Person converting a Series K Preferred Share after such determination date, shall not require an adjustment of the Conversion Price pursuant to this subsection (f)(iv)(C); provided that on the date, if any, on which a person converting a -------- Series K Preferred Share would no longer be entitled to receive such Security with a Common Share (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred and the Conversion Price shall be adjusted as provided in this subsection (f)(iv)(C) (and such day shall be deemed to be "the date fixed for the determination of the K-16 shareholders entitled to receive such distribution" and "the record date" within the meaning of the two preceding sentences). (D) In case a tender or exchange offer (which term shall not include open market repurchases by the Trust) made by the Trust or any subsidiary of the Trust for all or any portion of the Common Shares shall expire and such tender or exchange offer shall involve the payment by the Trust or such subsidiary of consideration per Common Share having a fair market value (as determined in good faith by the Board, whose determination shall be conclusive and described in a resolution of the Board), at the last time (the "Expiration Time") --------------- tenders or exchanges may be made pursuant to such tender or exchange offer, that exceeds the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph, by a fraction of which the numerator shall be the number of Common Shares outstanding (including any tendered or exchanged shares) at the Expiration Time, multiplied by the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based upon the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any maximum, being referred to as the "Purchased Shares") and (ii) the product of the number of Common ---------------- Shares outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (E) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments -------- ------- that by reason of this subsection (f)(iv)(E) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment -------- ------- shall be required and made in accordance with the provisions of this subsection (f) (other than this subsection (f)(iv)(E)) not later than such time as may be required in K-17 order to preserve the tax-free nature of a distribution to the holders of Common Shares. Notwithstanding any other provisions of this subsection (f), the Trust shall not be required to make any adjustment of the Conversion Price for the issuance of any Common Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Trust and the investment of additional optional amounts in Common Shares under such plan. All calculations under this subsection (f) shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. Anything in this subsection (f)(iv) to the contrary notwithstanding, the Trust shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this subsection (f)(iv), as it in its discretion shall determine to be advisable in order that any share dividends, subdivision of shares, reclassification or combination of shares, distribution of rights or warrants to purchase shares or securities, or distribution of other assets (other than cash dividends) hereafter made by the Trust to its shareholders shall not be taxable. (v) If the Trust shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, self tender offer for all or substantially all of its Common Shares, sale of all or substantially all of the Trust's assets or recapitalization of the Common Shares and excluding any transaction as to which subsection (f)(iv)(A) of this Section 12 applies) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which ----------- all or substantially all of the Trust's Common Shares are converted into the right to receive shares, securities or other property (including cash or any combination thereof), each Series K Preferred Share which is not redeemed or converted into the right to receive shares, securities or other property prior to such Transaction shall thereafter be convertible into the kind and amount of shares, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Shares into which one Series K Preferred Share was convertible immediately prior to such Transaction, assuming such holder of Common Shares (i) is not a Person with which the Trust consolidated or into which the Trust merged or which merged into the Trust or to which such sale or transfer was made, as the case may be ("Constituent Person"), or an affiliate of a Constituent Person and (ii) ------------------ failed to exercise his rights of election, if any, as to the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction is not the same for each Common Share K-18 held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-Electing Share"), then for the ----------------- purpose of this subsection (f)(v) the kind and amount of shares, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The Trust shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this subsection (f)(v), and it shall not consent or agree to the occurrence of any Transaction until the Trust has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series K Preferred Shares that will contain provisions enabling the holders of the Series K Preferred Shares that remain outstanding after such Transaction to convert into the consideration received by holders of Common Shares at the Conversion Price in effect immediately prior to such Transaction. The provisions of this subsection (f)(v) shall similarly apply to successive Transactions. (vi) If: (A) the Trust shall declare a dividend (or any other distribution) on its Common Shares (other than cash dividends or distributions paid with respect to the Common Shares or the common shares of Smith Realty after December 31, 1998 not in excess of the sum of the cumulative undistributed Funds from Operations at December 31, 1998, plus the cumulative amount of Funds from Operations, as determined by the Board, after December 31, 1998, minus the cumulative amount of dividends accrued or paid in respect of the Series K Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Smith Realty after July 2, 1999); or (B) the Trust shall authorize the granting to all holders of Common Shares of rights, options or warrants to subscribe for or purchase any shares of any class or any other rights, options or warrants; or (C) there shall be any reclassification of the Common Shares (other than an event to which subsection (f)(iv)(A) of this Section 12 applies) or any consolidation or merger to which the Trust is a party and for which approval of any shareholders of the Trust is required, or a statutory share exchange, or a self tender offer by the Trust for all or substantially all of its outstanding Common Shares or the sale or transfer of all or substantially all of the assets of the Trust as an entirety; or K-19 (D) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Trust; then the Trust shall cause to be filed with the Transfer Agent and shall cause to be mailed to the holders of Series K Preferred Shares at their addresses as shown on the records of the Trust, as promptly as possible, but at least 10 days prior to the applicable date hereinafter specified, a notice stating (1) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Shares of record to be entitled to such dividend, distribution or rights, options or warrants are to be determined or (2) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Shares of record shall be entitled to exchange their Common Shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this subsection (f). (vii) Whenever the Conversion Price is adjusted as herein provided, the Trust shall promptly file with the Transfer Agent an officer's certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date of such adjustment and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series K Preferred Share at such holder's last address as shown on the records of the Trust. (viii) In any case in which subsection (f)(iv) of this Section 12 provides that an adjustment shall become effective on the day next following the record date for an event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any Series K Preferred Share converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of any fraction pursuant to subsection (f)(iii) of this Section 12. K-20 (ix) There shall be no adjustment of the Conversion Price in case of the issuance of any Shares in a reorganization, acquisition or other similar transaction except as specifically set forth in this subsection (f). If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this subsection (f), only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (x) If the Trust shall take any action affecting the Common Shares, other than action described in this subsection (f), that in the opinion of the Board would materially and adversely affect the conversion rights of the holders of the Series K Preferred Shares, the Conversion Price for the Series K Preferred Shares may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board, in its sole discretion, may determine to be equitable in the circumstances. (xi) The Trust covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Shares, for the purpose of effecting conversion of the Series K Preferred Shares, the full number of Common Shares deliverable upon the conversion of all outstanding Series K Preferred Shares not theretofore converted. For purposes of this subsection (f)(xi), the number of Common Shares that shall be deliverable upon the conversion of all outstanding Series K Preferred Shares shall be computed as if at the time of computation all such outstanding shares were held by a single holder. The Trust covenants that any Common Shares issued upon conversion of the Series K Preferred Shares shall be validly issued, fully paid and non- assessable. Before taking any action that would cause an adjustment reducing the Conversion Price below the then-par value of the Common Shares deliverable upon conversion of the Series K Preferred Shares, the Trust will take any action that, in the opinion of its counsel, may be necessary in order that the Trust may validly and legally issue fully paid and (subject to any customary qualification based upon the nature of a real estate investment trust) non-assessable Common Shares at such adjusted Conversion Price. The Trust shall endeavor to list the Common Shares required to be delivered upon conversion of the Series K Preferred Shares, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery. K-21 The Trust shall endeavor to comply with all federal and state securities laws and regulations thereunder in connection with the issuance of any securities that the Trust shall be obligated to deliver upon conversion of the Series K Preferred Shares. In addition to any legend required by Section 18A of Article II of the Declaration of Trust, the certificates evidencing such securities shall bear such legends restricting transfer thereof in the absence of registration under applicable securities laws or an exemption therefrom as the Trust may in good faith deem appropriate. (xii) The Trust will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Shares or other securities or property on conversion of the Series K Preferred Shares pursuant hereto; provided, however, that the Trust shall ----------------- not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Shares or other securities or property in a name other than that of the holder of the Series K Preferred Shares to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid. (g) Shares To Be Retired. All Series K Preferred Shares which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (h) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series K Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series K Preferred Shares; (ii) on a parity with the Series K Preferred Shares, in the payment of dividends and in distribution of assets upon any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series K Preferred Shares, if the holders of such class or series and the holders of the Series K Preferred Shares are entitled to the receipt of dividends and amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and K-22 unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); ------------- (iii) junior to the Series K Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and (iv) junior to the Series K Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (i) Voting. If and whenever four quarterly dividends (whether or not consecutive) payable on the Series K Preferred Shares or any series or class of Parity Shares shall be in arrears (which shall, with respect to any such quarterly dividend, mean that any such dividend has not been paid in full), whether or not earned or declared, the number of Trustees then constituting the Board shall be increased by two and the holders of Series K Preferred Shares, together with the holders of shares of every other series of Parity Shares (any such other series, the "Voting Preferred Shares"), voting as a single class ----------------------- regardless of series, shall be entitled to elect the two additional Trustees to serve on the Board at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series K Preferred Shares and the Voting Preferred Shares called as hereinafter provided. Whenever all arrears in dividends on the Series K Preferred Shares and the Voting Preferred Shares then outstanding shall have been paid and dividends thereon for the current quarterly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series K Preferred Shares and the Voting Preferred Shares to elect such additional two Trustees shall cease (but subject always to the same provision for the vesting of such voting rights in the case of any similar future arrearage in quarterly dividends), and the terms of office of all persons elected as Trustees by the holders of the Series K Preferred Shares and the Voting Preferred Shares shall forthwith terminate and the number of the Board shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of Series K Preferred Shares and the Voting Preferred Shares, the Secretary of the Trust may, and upon the written request of any holder of Series K Preferred Shares (addressed to the Secretary at the principal office of the Trust) shall, call a special meeting of the holders of the Series K Preferred Shares and of the Voting Preferred Shares for the election of the Trustees to be elected by them as herein provided, such call to be made by notice similar to that provided in the Bylaws of the Trust for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of Series K Preferred Shares may call such meeting, upon the notice K-23 above provided, and for that purpose shall have access to the records of the Trust. The Trustees elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. If any vacancy shall occur among the Trustees elected by the holders of the Series K Preferred Shares and the Voting Preferred Shares, a successor shall be elected by the Board, upon the nomination of the then-remaining Trustee elected by the holders of the Series K Preferred Shares and the Voting Preferred Shares or the successor of such remaining Trustee, to serve until the next annual meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as provided above. So long as any Series K Preferred Shares are outstanding, in addition to any other vote or consent of shareholders required by law or by the Declaration of Trust, the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the holders of the Series K Preferred Shares given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) Any amendment, alteration or repeal of any of the provisions of the Declaration of Trust or By-Laws that materially and adversely affects the voting powers, rights or preferences of the holders of the Series K Preferred Shares; provided, however, that the amendment of the ----------------- provisions of the Declaration of Trust so as to authorize or create or to increase the authorized amount of, any Fully Junior Shares, Junior Shares that are not senior in any respect to the Series K Preferred Shares or any Parity Shares shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series K Preferred Shares; or (ii) A share exchange that affects the Series K Preferred Shares, a consolidation with or merger of the Trust into another entity, or a consolidation with or merger of another entity into the Trust, unless in each such case each Series K Preferred Share (A) shall remain outstanding without a material and adverse change to its terms and rights or (B) shall be converted into or exchanged for convertible preferred shares of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to that of a Series K Preferred Share (except for changes that do not materially and adversely affect the holders of the Series K Preferred Shares); or (iii) The authorization, reclassification or creation of, or the increase in the authorized amount of, any shares of any class or any security convertible into shares of any K-24 class ranking senior to the Series K Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust or in the payment of dividends; provided, however, that no such vote of the holders of Series K Preferred Shares - -------- ------- shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such prior shares or convertible security is to be made, as the case may be, provision is made for the redemption of all Series K Preferred Shares at the time outstanding to the extent such redemption is authorized by subsection (e) of this Section 12. For purposes of the foregoing provisions, a "share exchange" means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and which does not affect the existence of either entity, and the term "surviving entity" shall include the entity acquiring equity securities in a share exchange. For purposes of the foregoing provisions of this subsection (i), each Series K Preferred Share shall have one (1) vote per share, except that when any other series of preferred Shares shall have the right to vote with the Series K Preferred Shares as a single class on any matter, then the Series K Preferred Shares and such other series shall have with respect to such matters one (1) vote per $25.00 of stated liquidation preference. Except as otherwise required by applicable law or as set forth herein, the Series K Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any Trust action. (j) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series K Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. K-25 ANNEX L SERIES L CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series L Cumulative Convertible Redeemable Preferred Shares and the number of shares which shall constitute such series shall not be more than 641,026 shares, par value $0.01 per share, which number may be decreased (but not below the number thereof then outstanding) from time to time by the Board. (b) Definitions. For purposes of the Series L Preferred Shares, the following terms shall have the meanings indicated: "Archstone-Smith Operating Trust" shall mean Archstone-Smith Operating ------------------------------- Trust, a Maryland real estate investment trust, and its successors. "Board" shall mean the Board of Trustees or any committee authorized ----- by the Board of Trustees to perform any of its responsibilities with respect to the Series L Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date specified in the notice to holders --------- required under subsection (e)(iv) of this Section 13 as the Call Date. "Common Shares" shall mean the common shares of beneficial interest, ------------- par value $0.01 per share, of the Trust. "Constituent Person" shall have the meaning set forth in subsection ------------------ (f)(v) of this Section 13. "Conversion Price" shall mean the conversion price per Common Share ---------------- for which the Series L Preferred Shares are convertible, as such Conversion Price may be adjusted pursuant to subsection (f) of this Section 13. The initial conversion price shall be $19.75 (equivalent to a conversion rate of 1.975 Common Shares for each Series L Preferred Share). L-1 "Current Market Price" of publicly traded common shares or any other -------------------- class of shares or capital stock or other security of the Trust or any other issuer for any day shall mean the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange ("NYSE") or, if such ---- security is not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the Nasdaq Stock Market ("NASDAQ") or, if ------ such security is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Board. "Dividend Payment Date" shall mean (i) for any Dividend Period with --------------------- respect to which the Trust pays a dividend on the Common Shares, the date on which such dividend is paid, or (ii) for any Dividend Period with respect to which the Trust does not pay a dividend on the Common Shares, a date to be set by the Board, which date shall not be later than the forty- fifth calendar day after the end of the applicable Dividend Period. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period (other than the Dividend Period during which any Series L Preferred Shares shall be redeemed pursuant to subsection (e) of this Section 13, which shall end on and include the Call Date with respect to the Series L Preferred Shares being redeemed). "Expiration Time" shall have the meaning set forth in subsection --------------- (f)(iv)(D) of this Section 13. "Fair Market Value" shall mean the average of the daily Current Market ----------------- Prices of a Common Share on the five (5) consecutive Trading Days selected by the Trust commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. The term "ex date," when used with respect to any issuance or distribution, means the first day on which the Common Shares trade regular way, without L-2 the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day's Current Market Price. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding over which the Series L Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Funds from Operations," for all dates and periods prior to the Issue --------------------- Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to other Smith Operating Partnership interests or minority interests (as reflected in the financial statements of Smith Realty) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by the National Association of Real Estate Investment Trusts ("NAREIT"), in ------ its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trust in good faith. "Funds from Operations," for all dates and periods from and after the Issue Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to Archstone-Smith Operating Trust interests or minority interests (as reflected in the financial statements of the Trust) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by NAREIT, in its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trust in good faith. "Issue Date" shall mean the date on which the first Series L Preferred ---------- Shares are issued. "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding over which the Series L Preferred Shares have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Non-Electing Share" shall have the meaning set forth in subsection ------------------ (f)(v) of this Section 13. L-3 "Parity Shares" shall have the meaning set forth in subsection (h)(ii) ------------- of this Section 13. "Person" shall mean any individual, firm, partnership, corporation, ------ limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Purchased Shares" shall have the meaning set forth in subsection ---------------- (f)(iv)(D) of this Section 13. "Securities" and "Security" shall have the meanings set forth in ---------- -------- subsection (f)(iv)(C) of this Section 13. "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "Series L Preferred Shares" shall mean the shares of Series L ------------------------- Cumulative Convertible Redeemable Preferred Shares. "Set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any series or class of Shares; provided, however, that if any funds for any class or series of Junior -------- ------- Shares or any class or series of Shares ranking on a parity with the Series L Preferred Shares as to the payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series L Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Smith Operating Partnership" shall mean Charles E. Smith Residential --------------------------- Realty, L.P., formerly a Delaware limited partnership. L-4 "Smith Preferred Shares"shall mean the Series H Preferred Shares, ---------------------- Series I Preferred Shares, Series J Preferred Shares, Series K Preferred Shares, Series L Preferred Shares and Series M Preferred Shares of the Trust or any of the foregoing. "Smith Realty" shall mean Charles E. Smith Residential Realty, Inc., ------------ formerly a Maryland corporation. "Trading Day" shall mean any day on which the securities in question ----------- are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the National Market System of NASDAQ, or if such securities are not quoted on such National Market System, in the securities market in which the securities are traded. "Transaction" shall have the meaning set forth in subsection (f)(v) of ----------- this Section 13. "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C., -------------- New York City, New York, or such other agent or agents of the Trust as may be designated by the Board or their designee as the transfer agent, registrar and dividend disbursing agent for the Series L Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (i) of this Section 13. "Weighted Average Trading Price" shall mean, for any Trading Day, the ------------------------------ number obtained by dividing (i) the sum of the products, for each sale of Common Shares on such Trading Day, of (a) the sale price per Common Share and (b) the number of Common Shares sold by (ii) the total number of Common Shares sold on such Trading Day. (c) Dividends. (i) The holders of Series L Preferred Shares shall be entitled to receive, when, as and if declared by the Board, out of funds legally available for the payment of dividends, cumulative preferential dividends payable in cash in an amount per share equal to the greater of (A) (i) 8.25% of the Liquidation Preference per annum (equivalent to $3.2175 per Series L Preferred Share) from the date for commencement of accrual specified below up to and including November 5, 2001 and (ii) 8.50% of the Liquidation Preference per annum L-5 (equivalent to $3.315 per Series L Preferred Share) thereafter or (B) the ordinary cash dividends (determined on each Dividend Payment Date) on the Common Shares, or portion thereof, into which a Series L Preferred Share is convertible. The dividends referred to in clause (B) of the preceding sentence shall equal the number of Common Shares, or portion thereof, into which a Series L Preferred Share is convertible, multiplied by the most current quarterly dividend on a Common Share on or before the applicable Dividend Payment Date. If the Trust pays an ordinary cash dividend on the Common Shares with respect to a Dividend Period after the date on which the Dividend Payment Date is declared pursuant to clause (ii) of the definition of Dividend Payment Date and the dividend calculated pursuant to clause (B) of this subsection (c)(i) with respect to such Dividend Period is greater than the dividend previously declared on the Series L Preferred Shares with respect to such Dividend Period, the Trust shall pay an additional dividend to the holders of the Series L Preferred Shares on the date on which the dividend on the Common Shares is paid, in an amount equal to the difference between (y) the dividend calculated pursuant to clause (B) of this subsection (c)(i) and (z) the amount of dividends previously declared on the Series L Preferred Shares with respect to such Dividend Period. The dividends shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there shall be funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on Dividend Payment Dates. Each such dividend shall be payable in arrears to the holders of record of Series L Preferred Shares as they appear in the records of the Trust at the close of business on such record dates, not less than 10 nor more than 50 days preceding such Dividend Payment Dates thereof, as shall be fixed by the Board. Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such date, not less than 10 nor more than 50 days preceding the payment date thereof, as may be fixed by the Board. Any dividend payment made on Series L Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to Series L Preferred Shares which remains payable. (ii) The amount of dividends referred to in subsection (c)(i)(A) payable for each full Dividend Period on the Series L Preferred Shares shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for any period shorter than a full Dividend Period on the Series L Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series L Preferred Shares shall not be L-6 entitled to any dividends, whether payable in cash, property or shares, in excess of cumulative dividends, as herein provided, on the Series L Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series L Preferred Shares which may be in arrears. (iii) So long as any Series L Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series L Preferred Shares for all Dividend Periods terminating on or prior to the dividend payment date on such class or series of Parity Shares. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon Series L Preferred Shares and all dividends declared upon any other class or series of Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series L Preferred Shares and accumulated and unpaid on such Parity Shares. (iv) So long as any Series L Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in shares of, or options, warrants or rights to subscribe for or purchase shares of, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) the full cumulative dividends on all outstanding Series L Preferred Shares and any other Parity Shares shall have been or contemporaneously are declared and paid or declared and set apart for payment for all past Dividend Periods with respect to the Series L Preferred Shares and all past dividend periods with respect to such Parity Shares and (B) sufficient funds shall have been or contemporaneously are declared and paid or declared and set apart for the payment of the dividend for the current Dividend Period with respect to the Series L Preferred Shares and the current dividend period with respect to such Parity Shares. (v) No distributions on Series L Preferred Shares shall be declared by the Board or paid or set apart for payment by the Trust at such time as the terms and provisions of any L-7 agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (d) Liquidation Preference. (i) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior Shares, the holders of the Series L Preferred Shares shall be entitled to receive Thirty Nine Dollars ($39.00) (the "Liquidation Preference") per Series L Preferred Share plus an amount equal to all dividends (whether or not earned or declared) accrued and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment; provided, that the dividend payable with respect to the Dividend -------- Period containing the date of final distribution shall be equal to the greater of (A) the dividend provided in subsection (c)(i)(A) of this Section 13 or (B) the dividend determined pursuant to subsection (c)(i)(B) of this Section 13 for the preceding Dividend Period. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable among the holders of the Series L Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series L Preferred Shares and any such other Parity Shares ratably in accordance with the respective amounts that would be payable on such Series L Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full. For the purposes of this subsection (d), (x) a consolidation or merger of the Trust with one or more corporations, real estate investment trusts or other entities, (y) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (z) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (ii) Subject to the rights of the holders of shares of any series or class or classes of Shares ranking on a parity with or senior to the Series L Preferred Shares upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the holders of the Series L Preferred Shares, as provided in this subsection (d), any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to L-8 receive any and all assets remaining to be paid or distributed, and the holders of the Series L Preferred Shares shall not be entitled to share therein. (e) Redemption at the Option of the Trust. (i) The Series L Preferred Shares shall not be redeemable by the Trust prior to November 5, 2005. On and after November 5, 2005, the Trust, at its option, may redeem the Series L Preferred Shares, in whole at any time or from time to time in part as set forth herein, subject to the provisions described below: (A) Series L Preferred Shares may be redeemed, in whole or in part, at the option of the Trust, at any time on or after November 5, 2005 by issuing and delivering to each holder for each Series L Preferred Share to be redeemed such number of authorized but previously unissued Common Shares as equals the Liquidation Preference (excluding any accumulated, accrued and unpaid dividends which are to be paid in cash as provided below) per Series L Preferred Share divided by the Conversion Price as in effect as of the opening of business on the Call Date; provided, however, that the Trust may redeem Series L Preferred Shares pursuant to this subsection (e)(i)(A) only if (1) the Weighted Average Trading Price, for twenty (20) Trading Days, within the last thirty (30) Trading Days immediately before the date of the notice given pursuant to subsection (e)(iv), equals or exceeds 108% of the Conversion Price in effect on the date of the notice given pursuant to subsection (e)(iv) and (2) at least 1,000,000 Common Shares were traded during such 30 Trading Days. (B) Series L Preferred Shares may be redeemed, in whole or in part, at the option of the Trust at any time on or after November 5, 2005 out of funds legally available therefor at a redemption price payable in cash equal to the Liquidation Preference per Series L Preferred Share (plus all accumulated, accrued and unpaid dividends as provided below). (ii) Upon any redemption of Series L Preferred Shares pursuant to this subsection (e), the Trust shall pay all accrued and unpaid dividends, if any, thereon to the Call Date, without interest. If the Call Date falls after a dividend payment record date and prior to the corresponding Dividend Payment Date, then each holder of Series L Preferred Shares at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding any L-9 redemption of such shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series L Preferred Shares called for redemption. (iii) If full cumulative dividends on the Series L Preferred Shares and any other class or series of Parity Shares have not been declared and paid or declared and set apart for payment, the Series L Preferred Shares may not be redeemed under this subsection (e) in part and the Trust may not purchase or acquire Series L Preferred Shares, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Series L Preferred Shares. (iv) Notice of the redemption of any Series L Preferred Shares under this subsection (e) shall be mailed by first-class mail to each holder of record of Series L Preferred Shares to be redeemed at the address of each such holder as shown on the Trust's records, not less than 30 nor more than 90 days prior to the Call Date. Neither the failure to mail any notice required by this subsection (e)(iv), nor any defect therein or in the mailing thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given on the date mailed whether or not the holder receives the notice. Each such mailed notice shall state, as appropriate: (1) the Call Date; (2) the number of Series L Preferred Shares to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price if the Series L Preferred Shares are redeemed for cash and the number of Common Shares to be issued if the Series L Preferred Shares are redeemed for Common Shares; (4) the place or places at which certificates for such shares are to be surrendered; (5) the then-current Conversion Price; and (6) that dividends on the shares to be redeemed shall cease to accrue on such Call Date except as otherwise provided herein. Notice having been mailed as aforesaid, from and after the Call Date (unless the Trust shall fail to make available an amount of cash necessary to effect such redemption), (A) except as otherwise provided herein, dividends on the Series L Preferred Shares so called for redemption shall cease to accrue, (B) such shares shall no longer be deemed to be outstanding, and (C) all rights of the holders thereof as holders of Series L Preferred Shares of the Trust shall cease (except the rights to convert and to receive the Common Shares and/or cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide Common Shares and/or cash in accordance with the preceding sentence shall be L-10 deemed fulfilled if, on or before the Call Date, the Trust shall deposit with a bank or trust company (which may be an affiliate of the Trust) that has an office in the Borough of Manhattan, City of New York, and that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $50,000,000, necessary for such redemption, in trust, with irrevocable instructions that such Common Shares and/or cash be applied to the redemption of the Series L Preferred Shares so called for redemption. In the case of any redemption pursuant to subsection (e)(i)(A) of this Section 13, at the close of business on the Call Date, each holder of Series L Preferred Shares to be redeemed (unless the Trust defaults in the delivery of the Common Shares or cash payable on such Call Date) shall be deemed to be the record holder of the Common Shares into which such Series L Preferred Shares are to be converted at redemption, regardless of whether such holder has surrendered the certificates representing the Series L Preferred Shares to be so redeemed. No interest shall accrue for the benefit of the holders of Series L Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years from the Call Date shall revert to the general funds of the Trust, after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. As promptly as practicable after the surrender in accordance with such notice of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Trust shall so require and if the notice shall so state), such shares shall be exchanged for any cash (without interest thereon) for which such shares have been redeemed. If fewer than all the outstanding Series L Preferred Shares are to be redeemed, shares to be redeemed shall be selected by the Trust from outstanding Series L Preferred Shares not previously called for redemption pro rata (as nearly as may be), by lot or by any other method determined by the Trust in its sole discretion to be equitable. If fewer than all the Series L Preferred Shares represented by any certificate are redeemed, then new certificates representing the unredeemed shares shall be issued without cost to the holder thereof. (v) In the case of any redemption pursuant to subsection (e)(i)(A) of this Section 13. (A) no fractional Common Shares or scrip representing fractions of Common Shares shall be issued upon redemption of the Series L Preferred Common Shares. Instead of any fractional interest in Common Shares that would otherwise be deliverable upon redemption of Series L Preferred Shares, the Trust shall pay to the holder of such share an amount in cash (rounded to the nearest cent) based upon L-11 the Current Market Price of the Common Shares on the Trading Day immediately preceding the Call Date. If more than one Series L Preferred Share shall be surrendered for redemption at one time by the same holder, the number of full Common Shares issuable upon redemption thereof shall be computed on the basis of the aggregate number of Series L Preferred Shares so surrendered. (B) the Trust covenants that any Common Shares issued upon redemption of Series L Preferred Shares shall be validly issued, fully paid and non-assessable. The Trust shall endeavor to list the Common Shares required to be delivered upon any such redemption of Series L Preferred Shares, prior to such redemption, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery. (f) Conversion. Holders of Series L Preferred Shares shall have the right to convert all or a portion of such shares into Common Shares, as follows: (i) Subject to and upon compliance with the provisions of this subsection (f) and the provisions of Section 18A of Article II of the Declaration of Trust, a holder of Series L Preferred Shares shall have the right, at any time, at his or her option, to convert such shares into the number of fully paid and non-assessable Common Shares obtained by dividing the aggregate Liquidation Preference of such shares (exclusive of accrued but unpaid dividends) by the Conversion Price (as in effect at the time and on the date provided for in the last paragraph of subsection (f)(ii) of this Section 13) by surrendering such shares to be converted, such surrender to be made in the manner provided in subsection (f)(ii) of this Section 13; provided, however, that the right to convert shares called for -------- ------- redemption pursuant to subsection (e) of this Section 13 shall terminate at the close of business on the fifth Business Day prior to the Call Date fixed for such redemption, unless the Trust shall default in making payment of the cash payable upon such redemption under subsection (e) of this Section 13. (ii) In order to exercise the conversion right, the holder of each Series L Preferred Share to be converted shall surrender the certificate representing such share, duly endorsed or assigned to the Trust or in blank, at the office of the Transfer Agent, accompanied by written notice to the Trust that the holder thereof elects to convert such Series L Preferred Shares. Unless the shares issuable on conversion are to be issued in the same name as the name in which such Series L Preferred Share is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Trust, L-12 duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Trust demonstrating that such taxes have been paid). Holders of Series L Preferred Shares at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the conversion thereof following such dividend payment record date and prior to such Dividend Payment Date. However, Series L Preferred Shares surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding Dividend Payment Date (except shares converted after the issuance of notice of redemption with respect to a Call Date during such period, such Series L Preferred Shares being entitled to such dividend on the Dividend Payment Date) must be accompanied by payment of an amount equal to the dividend payable on such shares on such Dividend Payment Date. A holder of Series L Preferred Shares on a dividend payment record date who (or whose transferee) tenders any such shares for conversion into Common Shares on the corresponding Dividend Payment Date will receive the dividend payable by the Trust on such Series L Preferred Shares on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of Series L Preferred Shares for conversion. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the Common Shares issued upon such conversion. As promptly as practicable after the surrender of certificates for Series L Preferred Shares as aforesaid, the Trust shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full Common Shares issuable upon the conversion of such shares in accordance with provisions of this subsection (f), and any fractional interest in respect of a Common Share arising upon such conversion shall be settled as provided in subsection (f)(iii) of this Section 13. Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series L Preferred Shares shall have been surrendered and such notice shall have been received by the Trust as aforesaid (and if applicable, payment of an amount equal to the dividend payable on such shares shall have been received by the Trust as described above), and the person or persons in whose name or names any certificate or certificates for Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares L-13 represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date unless the share transfer books of the Trust shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such share transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such shares shall have been surrendered and such notice received by the Trust. (iii) No fractional shares or scrip representing fractions of Common Shares shall be issued upon conversion of the Series L Preferred Shares. Instead of any fractional interest in a Common Share that would otherwise be deliverable upon the conversion of a Series L Preferred Share, the Trust shall pay to the holder of such share an amount in cash based upon the Current Market Price of the Common Shares on the Trading Day immediately preceding the date of conversion. If more than one Series L Preferred Share shall be surrendered for conversion at one time by the same holder, the number of full Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series L Preferred Shares so surrendered. (iv) The Conversion Price shall be adjusted from time to time as follows: (A) If the Trust shall after Issue Date (1) pay a dividend or make a distribution on its capital shares in Common Shares, (2) subdivide its outstanding Common Shares into a greater number of shares, (3) combine its outstanding Common Shares into a smaller number of shares or (4) issue any Shares by reclassification of its Common Shares, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or distribution or at the opening of business on the Business Day next following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series L Preferred Share thereafter surrendered for conversion shall be entitled to receive the number of Common Shares that such holder would have owned or have been entitled to receive after the happening of any of the events described above as if such Series L Preferred Shares had been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subsection (f)(iv)(A) shall become effective immediately after the opening of business on the Business Day next following the record date (except as L-14 provided in subsection (f)(viii) of this Section 13) in the case of a dividend or distribution and shall become effective immediately after the opening of business on the Business Day next following the effective date in the case of a subdivision, combination or reclassification. (B) If the Trust shall issue after the Issue Date rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Shares at a price per share less than 94% (100% if a stand-by underwriter is used and charges the Trust a commission) of the Fair Market Value per Common Share on the record date for the determination of shareholders entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the Business Day next following such record date shall be adjusted to equal the price determined by multiplying (i) the Conversion Price in effect immediately prior to the opening of business on the Business Day next following the date fixed for such determination by (ii) a fraction, the numerator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of shares that the aggregate proceeds to the Trust from the exercise of such rights, options or warrants for Common Shares would purchase at 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), and the denominator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of additional Common Shares offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in subsection (f)(viii) of this Section 13). In determining whether any rights, options or warrants entitle the holders of Common Shares to subscribe for or purchase Common Shares at less than 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), there shall be taken into account any consideration received by the Trust upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined by the Board. (C) If the Trust shall distribute to all holders of its Common Shares any securities of the Trust (other than Common Shares) or evidence of its indebtedness or assets (excluding cumulative cash dividends or distributions paid with respect to the Common Shares or common shares of Smith Realty after December 31, 1998 L-15 which are not in excess of the following: the sum of (1) the cumulative undistributed Funds from Operations at December 31, 1998, plus (2) the cumulative amount of Funds from Operations, as determined by the Board, after December 31, 1998, minus (3) the cumulative amount of dividends accrued or paid in respect of the Series L Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Smith Realty after July 2, 1999) or rights, options or warrants to subscribe for or purchase any of its securities (excluding those rights, options and warrants issued to all holders of Common Shares entitling them for a period expiring within 45 days after the record date referred to in subsection (f)(iv)(B) to subscribe for or purchase Common Shares, which rights and warrants are referred to in and treated under subsection (f)(iv)(B)) (any of the foregoing being hereinafter in this subsection (f)(iv)(B)) collectively called the "Securities" and individually a "Security"), ---------- -------- then in each such case the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (x) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by (y) a fraction, the numerator of which shall be the Fair Market Value per Common Share on the record date mentioned below less the then fair market value (as determined by the Board, whose determination shall be conclusive), of the portion of the Securities or assets or evidences of indebtedness so distributed or of such rights, options or warrants applicable to one Common Share, and the denominator of which shall be the Fair Market Value per Common Share on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the Business Day next following (except as provided in subsection (f)(viii) of this Section 13) the record date for the determination of shareholders entitled to receive such distribution. For the purposes of this subsection (f)(iv)(C) of this Section 13, the distribution of a Security, which is distributed not only to the holders of the Common Shares on the date fixed for the determination of shareholders entitled to such distribution of such Security, but also is distributed with each Common Share delivered to a Person converting a Series L Preferred Share after such determination date, shall not require an adjustment of the Conversion Price pursuant to this subsection (f)(iv)(C) of this Section 13; provided that on the date, -------- if any, on which a person converting a Series L Preferred Share would no longer be entitled to receive such Security with a Common Share (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred and the Conversion Price shall be adjusted as provided in this subsection (f)(iv)(C) of this Section 13 (and such day shall be deemed to be "the date fixed for the L-16 determination of the shareholders entitled to receive such distribution" and "the record date" within the meaning of the two preceding sentences). (D) In case a tender or exchange offer (which term shall not include open market repurchases by the Trust) made by the Trust or any subsidiary of the Trust for all or any portion of the Common Shares shall expire and such tender or exchange offer shall involve the payment by the Trust or such subsidiary of consideration per Common Share having a fair market value (as determined in good faith by the Board, whose determination shall be conclusive and described in a resolution of the Board), at the last time (the "Expiration Time") --------------- tenders or exchanges may be made pursuant to such tender or exchange offer, that exceeds the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph, by a fraction of which the numerator shall be the number of Common Shares outstanding (including any tendered or exchanged shares) at the Expiration Time, multiplied by the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, and the denominator shall be the sum of (1) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based upon the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any maximum, being referred to as the "Purchased Shares") and (2) the product of the number of Common Shares ---------------- outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (E) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments -------- ------- that by reason of this subsection (f)(iv)(E) are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, further, that any adjustment -------- ------- shall be required and made in accordance with the provisions of this subsection (f) (other than this subsection (f)(iv)(E)) not later than such time as may be required in L-17 order to preserve the tax-free nature of a distribution to the holders of Common Shares. Notwithstanding any other provisions of this subsection (f), the Trust shall not be required to make any adjustment of the Conversion Price for the issuance of any Common Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Trust and the investment of additional optional amounts in Common Shares under such plan. All calculations under this subsection (f) shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. Anything in this subsection (f)(iv) to the contrary notwithstanding, the Trust shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this subsection (f)(iv), as it in its discretion shall determine to be advisable in order that any share dividends, subdivision of shares, reclassification or combination of shares, distribution of rights or warrants to purchase shares or securities, or distribution of other assets (other than cash dividends) hereafter made by the Trust to its shareholders shall not be taxable. (v) If the Trust shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, self tender offer for all or substantially all of its Common Shares, sale of all or substantially all of the Trust's assets or recapitalization of the Common Shares and excluding any transaction as to which subsection (f)(iv)(A) of this Section 13 applies) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which ----------- all or substantially all of the Trust's Common Shares are converted into the right to receive shares, securities or other property (including cash or any combination thereof), each Series L Preferred Share which is not redeemed or converted into the right to receive shares, securities or other property prior to such Transaction shall thereafter be convertible into the kind and amount of shares, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Shares into which one Series L Preferred Share was convertible immediately prior to such Transaction, assuming such holder of Common Shares (A) is not a Person with which the Trust consolidated or into which the Trust merged or which merged into the Trust or to which such sale or transfer was made, as the case may be ("Constituent Person"), or an affiliate of a Constituent Person and (B) ------------------ failed to exercise his rights of election, if any, as to the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction is not the same for each Common Share L-18 held immediately prior to such Transaction by other than a Constituent Person or an affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-Electing Share"), then for the ------------------ purpose of this subsection (f)(v) the kind and amount of shares, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The Trust shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this subsection (f)(v), and it shall not consent or agree to the occurrence of any Transaction until the Trust has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series L Preferred Shares that will contain provisions enabling the holders of the Series L Preferred Shares that remain outstanding after such Transaction to convert into the consideration received by holders of Common Shares at the Conversion Price in effect immediately prior to such Transaction. The provisions of this subsection (f)(v) shall similarly apply to successive Transactions. (vi) If: (A) the Trust shall declare a dividend (or any other distribution) on its Common Shares (other than cash dividends or distributions paid with respect to the Common Shares or the common shares of Smith Realty after December 31, 1998 not in excess of the sum of the cumulative undistributed Funds from Operations at December 31, 1998, plus the cumulative amount of Funds from Operations, as determined by the Board, after December 31, 1998, minus the cumulative amount of dividends accrued or paid in respect of the Series L Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Smith Realty after July 2, 1999); or (B) the Trust shall authorize the granting to all holders of Common Shares of rights, options or warrants to subscribe for or purchase any shares of any class or any other rights, options or warrants; or (C) there shall be any reclassification of the Common Shares (other than an event to which subsection (f)(iv)(A) of Section 13 applies) or any consolidation or merger to which the Trust is a party and for which approval of any shareholders of the Trust is required, or a statutory share exchange, or a self tender offer by the Trust for all or substantially all of its outstanding Common Shares or the sale or transfer of all or substantially all of the assets of the Trust as an entirety; or L-19 (D) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Trust; then the Trust shall cause to be filed with the Transfer Agent and shall cause to be mailed to the holders of Series L Preferred Shares at their addresses as shown on the records of the Trust, as promptly as possible, but at least 10 days prior to the applicable date hereinafter specified, a notice stating (1) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Shares of record to be entitled to such dividend, distribution or rights, options or warrants are to be determined or (2) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Shares of record shall be entitled to exchange their Common Shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this subsection (f). (vii) Whenever the Conversion Price is adjusted as herein provided, the Trust shall promptly file with the Transfer Agent an officer's certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date of such adjustment and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series L Preferred Share at such holder's last address as shown on the records of the Trust. (viii) In any case in which subsection (f)(iv) of this Section 13 provides that an adjustment shall become effective on the day next following the record date for an event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any Series L Preferred Share converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of any fraction pursuant to subsection (f)(iii). L-20 (ix) There shall be no adjustment of the Conversion Price in case of the issuance of any Shares in a reorganization, acquisition or other similar transaction except as specifically set forth in this subsection (f). If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this subsection (f), only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (x) If the Trust shall take any action affecting the Common Shares, other than action described in this subsection (f), that in the opinion of the Board would materially and adversely affect the conversion rights of the holders of the Series L Preferred Shares, the Conversion Price for the Series L Preferred Shares may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board, in its sole discretion, may determine to be equitable in the circumstances. (xi) The Trust covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Shares, for the purpose of effecting conversion of the Series L Preferred Shares, the full number of Common Shares deliverable upon the conversion of all outstanding Series L Preferred Shares not theretofore converted. For purposes of this subsection (f)(xi), the number of Common Shares that shall be deliverable upon the conversion of all outstanding Series L Preferred Shares shall be computed as if at the time of computation all such outstanding shares were held by a single holder. The Trust covenants that any Common Shares issued upon conversion of the Series L Preferred Shares shall be validly issued, fully paid and non- assessable. Before taking any action that would cause an adjustment reducing the Conversion Price below the then-par value of the Common Shares deliverable upon conversion of the Series L Preferred Shares, the Trust will take any action that, in the opinion of its counsel, may be necessary in order that the Trust may validly and legally issue fully paid and (subject to any customary qualification based upon the nature of a real estate investment trust) non-assessable Common Shares at such adjusted Conversion Price. The Trust shall endeavor to list the Common Shares required to be delivered upon conversion of the Series L Preferred Shares, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery. L-21 The Trust shall endeavor to comply with all federal and state securities laws and regulations thereunder in connection with the issuance of any securities that the Trust shall be obligated to deliver upon conversion of the Series L Preferred Shares. In addition to any legend required by Section 18A of Article II of the Declaration of Trust, the certificates evidencing such securities shall bear such legends restricting transfer thereof in the absence of registration under applicable securities laws or an exemption therefrom as the Trust may in good faith deem appropriate. (xii) The Trust will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Shares or other securities or property on conversion of the Series L Preferred Shares pursuant hereto; provided, however, that the Trust shall ----------------- not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Shares or other securities or property in a name other than that of the holder of the Series L Preferred Shares to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid. (g) Shares To Be Retired. All Series L Preferred Shares which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (h) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series L Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series L Preferred Shares; (ii) on a parity with the Series L Preferred Shares, in the payment of dividends and in distribution of assets upon any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series L Preferred Shares, if the holders of such class or series and the holders of the Series L Preferred Shares shall be entitled to the receipt of dividends and amounts distributable upon any liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends L-22 accrued and unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); --------------- (iii) junior to the Series L Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and (iv) junior to the Series L Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (i) Voting. If and whenever four quarterly dividends (whether or not consecutive) payable on the Series L Preferred Shares or any series or class of Parity Shares shall be in arrears (which shall, with respect to any such quarterly dividend, mean that any such dividend has not been paid in full), whether or not earned or declared, the number of Trustees then constituting the Board shall be increased by two and the holders of Series L Preferred Shares, together with the holders of shares of every other series of Parity Shares (any such other series, the "Voting Preferred Shares"), voting as a single class ----------------------- regardless of series, shall be entitled to elect the two additional Trustees to serve on the Board at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series L Preferred Shares and the Voting Preferred Shares called as hereinafter provided. Whenever all arrears in dividends on the Series L Preferred Shares and the Voting Preferred Shares then outstanding shall have been paid and dividends thereon for the current quarterly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series L Preferred Shares and the Voting Preferred Shares to elect such additional two Trustees shall cease (but subject always to the same provision for the vesting of such voting rights in the case of any similar future arrearage in quarterly dividends), and the terms of office of all persons elected as Trustees by the holders of the Series L Preferred Shares and the Voting Preferred Shares shall forthwith terminate and the number of the Board shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of Series L Preferred Shares and the Voting Preferred Shares, the Secretary of the Trust may, and upon the written request of any holder of Series L Preferred Shares (addressed to the Secretary at the principal office of the Trust) shall, call a special meeting of the holders of the Series L Preferred Shares and of the Voting Preferred Shares for the election of the Trustees to be elected by them as herein provided, such call to be made by notice similar to that provided in the Bylaws of the Trust for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of Series L Preferred Shares may call such meeting, upon the notice L-23 above provided, and for that purpose shall have access to the records of the Trust. The Trustees elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. If any vacancy shall occur among the Trustees elected by the holders of the Series L Preferred Shares and the Voting Preferred Shares, a successor shall be elected by the Board, upon the nomination of the then-remaining Trustee elected by the holders of the Series L Preferred Shares and the Voting Preferred Shares or the successor of such remaining Trustee, to serve until the next annual meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as provided above. So long as any Series L Preferred Shares are outstanding, in addition to any other vote or consent of shareholders required by law or by the Declaration of Trust, the affirmative vote of at least 66-2/3% of the votes entitled to be cast by the holders of the Series L Preferred Shares given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) Any amendment, alteration or repeal of any of the provisions of the Declaration of Trust or the By-Laws that materially and adversely affects the voting powers, rights or preferences of the holders of the Series L Preferred Shares; provided, however, that the amendment of the -------- ------- provisions of the Declaration of Trust so as to authorize or create or to increase the authorized amount of, any Fully Junior Shares, Junior Shares that are not senior in any respect to the Series L Preferred Shares or any Parity Shares shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series L Preferred Shares; or (ii) A share exchange that affects the Series L Preferred Shares, a consolidation with or merger of the Trust into another entity, or a consolidation with or merger of another entity into the Trust, unless in each such case each Series L Preferred Share (A) shall remain outstanding without a material and adverse change to its terms and rights or (B) shall be converted into or exchanged for convertible preferred shares of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to that of a Series L Preferred Share (except for changes that do not materially and adversely affect the holders of the Series L Preferred Shares); or (iii) The authorization, reclassification or creation of, or the increase in the authorized amount of, any shares of any L-24 class or any security convertible into shares of any class ranking senior to the Series L Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust or in the payment of dividends; provided, however, that no such vote of the holders of Series L Preferred Shares - -------- ------- shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such prior shares or convertible security is to be made, as the case may be, provision is made for the redemption of all Series L Preferred Shares at the time outstanding to the extent such redemption is authorized by subsection (e) of this Section 13. For purposes of the foregoing provisions, a "share exchange" means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and which does not affect the existence of either entity, and the term "surviving entity" shall include the entity acquiring equity securities in a share exchange. For purposes of the foregoing provisions of this subsection (i), each Series L Preferred Share shall have one (1) vote per share, except that when any other series of preferred Shares shall have the right to vote with the Series L Preferred Shares as a single class on any matter, then the Series L Preferred Shares and such other series shall have with respect to such matters one (1) vote per $25.00 of stated liquidation preference. Except as otherwise required by applicable law or as set forth herein, the Series L Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any Trust action. (j) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series L Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. L-25 ANNEX M SERIES M CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES (a) Number of Shares and Designation. This class of preferred Shares shall be designated as Series M Cumulative Convertible Redeemable Preferred Shares and the number of shares which shall constitute such series shall not be more than 2,200,000 shares, par value $0.01 per share, which number may be decreased (but not below the number thereof then outstanding) from time to time by the Board. (b) Definitions. For purposes of the Series M Preferred Shares, the following terms shall have the meanings indicated: "Archstone-Smith Operating Trust" shall mean Archstone-Smith Operating ------------------------------- Trust, a Maryland real estate investment trust, and its successors. "Board" shall mean the Board of Trustees or any committee authorized ----- by the Board of Trustees to perform any of its responsibilities with respect to the Series M Preferred Shares. "Business Day" shall mean any day other than a Saturday, Sunday or a ------------ day on which state or federally chartered banking institutions in New York City, New York are not required to be open. "Call Date" shall mean the date specified in the notice to holders --------- required under subsection (e)(iv) of this Section 14 as the Call Date. "Common Shares" shall mean the common shares of beneficial interest, ------------- par value $0.01 per share, of the Trust. "Constituent Person" shall have the meaning set forth in subsection ------------------ (f)(v) of this Section 14. "Conversion Price" shall mean the conversion price per Common Share ---------------- for which the Series M Preferred Shares are convertible, as such Conversion Price may be adjusted pursuant to subsection (f) of this Section 14. The initial conversion price shall be $19.49 (equivalent to a conversion rate of approximately 1.2827 Common Shares for each Series M Preferred Share). M-1 "Current Market Price" of publicly traded common shares or any other -------------------- class of shares or capital stock or other security of the Trust or any other issuer for any day shall mean the last reported sales price, regular way on such day, or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange ("NYSE") or, if such ---- security is not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such security is listed or admitted for trading or, if not listed or admitted for trading on any national securities exchange, on the Nasdaq Stock Market ("NASDAQ") or, if ------ such security is not quoted on such National Market System, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices on such day as furnished by any NYSE member firm regularly making a market in such security selected for such purpose by the Board. "Dividend Payment Date" shall mean (i) for any Dividend Period with --------------------- respect to which the Trust pays a dividend on the Common Shares, the date on which such dividend is paid, or (ii) for any Dividend Period with respect to which the Trust does not pay a dividend on the Common Shares, a date to be set by the Board, which date shall not be later than the forty- fifth calendar day after the end of the applicable Dividend Period. "Dividend Periods" shall mean quarterly dividend periods commencing on ---------------- January 1, April 1, July 1 and October 1 of each year and ending on and including the day preceding the first day of the next succeeding Dividend Period (other than the Dividend Period during which any Series M Preferred Shares shall be redeemed pursuant to subsection (e), which shall end on and include the Call Date with respect to the Series M Preferred Shares being redeemed). "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended. "Expiration Time" shall have the meaning set forth in subsection --------------- (f)(iv)(D) of this Section 14. "Fair Market Value" shall mean the average of the daily Current Market ----------------- Prices of a Common Share on the five (5) consecutive Trading Days selected by the Trust commencing not more than 20 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. The term "ex date," when used with respect to any issuance or distribution, means the first day on which the Common Shares trade regular way, without M-2 the right to receive such issuance or distribution, on the exchange or in the market, as the case may be, used to determine that day's Current Market Price. "Fully Junior Shares" shall mean the Common Shares and any other class ------------------- or series of Shares now or hereafter issued and outstanding over which the Series M Preferred Shares have preference or priority in both (i) the payment of dividends and (ii) the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Funds from Operations," for all dates and periods prior to the Issue --------------------- Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to other Smith Operating Partnership interests or minority interests (as reflected in the financial statements of Smith Realty) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by the National Association of Real Estate Investment Trusts ("NAREIT"), in ------- its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trust in good faith. "Funds from Operations," for all dates and periods from and after the Issue Date, shall mean net income (loss) (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring, and distributions in excess of earnings allocated to Archstone-Smith Operating Trust interests or minority interests (as reflected in the financial statements of the Trust) plus depreciation/amortization of assets unique to the real estate industry, all computed in a manner consistent with the revised definition of Funds From Operations adopted by NAREIT, in its White Paper dated March 1995, as such definitions may be modified from time to time, as determined by the Trust in good faith. "Issue Date" shall mean the date on which the first Series M Preferred ---------- Shares are issued. "Junior Shares" shall mean the Common Shares and any other class or ------------- series of Shares now or hereafter issued and outstanding over which the Series M Preferred Shares have preference or priority in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Trust. "Non-Electing Share" shall have the meaning set forth in subsection ------------------ (f)(v) of this Section 14. "Parity Shares" shall have the meaning set forth in subsection (h)(ii) ------------- of this Section 14. M-3 "Person" shall mean any individual, firm, partnership, corporation, ------ limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity. "Purchased Shares" shall have the meaning set forth in subsection ---------------- (f)(iv)(D) of this Section 14. "Securities" and "Security" shall have the meanings set forth in ---------- -------- subsection (f)(iv)(C) of this Section 14. "Securities Act" shall mean the Securities Act of 1933, as amended. -------------- "Series M Preferred Shares" shall mean the shares of Series M ------------------------- Cumulative Convertible Redeemable Preferred Shares. "Set apart for payment" shall be deemed to include, without any action --------------------- other than the following, the recording by the Trust in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Board, the allocation of funds to be so paid on any series or class of Shares; provided, however, that if any funds for any class or series of Junior -------- ------- Shares or any class or series of Shares ranking on a parity with the Series M Preferred Shares as to the payment of dividends are placed in a separate account of the Trust or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series M Preferred Shares shall mean placing such funds in a separate account or delivering such funds to a disbursing, paying or other similar agent. "Shares" shall mean the shares of beneficial interest of the Trust as ------ may be authorized and issued from time to time pursuant to Article II of the Declaration of Trust. "Smith Operating Partnership" shall mean Charles E. Smith Residential --------------------------- Realty, L.P., formerly a Delaware limited partnership. "Smith Preferred Shares" shall mean the Series H Preferred Shares, ---------------------- Series I Preferred Shares, Series J Preferred Shares, Series K Preferred Shares, Series L Preferred Shares and Series M Preferred Shares of the Trust or any of the foregoing. M-4 "Smith Realty" shall mean Charles E. Smith Residential Realty, Inc., ------------ formerly a Maryland corporation. "Trading Day" shall mean any day on which the securities in question ----------- are traded on the NYSE, or if such securities are not listed or admitted for trading on the NYSE, on the principal national securities exchange on which such securities are listed or admitted, or if not listed or admitted for trading on any national securities exchange, on the National Market System of NASDAQ, or if such securities are not quoted on such National Market System, in the securities market in which the securities are traded. "Transaction" shall have the meaning set forth in subsection (f)(v) of ----------- this Section 14. "Transfer Agent" shall mean ChaseMellon Shareholder Services, L.L.C., -------------- New York City, New York, or such other agent or agents of the Trust as may be designated by the Board or their designee as the transfer agent, registrar and dividend disbursing agent for the Series M Preferred Shares. "Voting Preferred Shares" shall have the meaning set forth in ----------------------- subsection (i) of this Section 14. "Weighted Average Trading Price" shall mean, for any Trading Day, the ------------------------------ number obtained by dividing (i) the sum of the products, for each sale of Common Shares on such Trading Day, of (a) the sale price per Common Share and (b) the number of Common Shares sold by (ii) the total number of Common Shares sold on such Trading Day. (c) Dividends. (i) The holders of Series M Preferred Shares shall be entitled to receive, when, as and if declared by the Board, out of funds legally available for the payment of dividends, cumulative preferential dividends payable in cash in an amount per share equal to the greater of (A) 8.125% of the Liquidation Preference per annum (equivalent to $2.03125 per Series M Preferred Share) or (B) the ordinary cash dividends (determined on each Dividend Payment Date) on the Common Shares, or portion thereof, into which a Series M Preferred Share is convertible. The dividends referred to in clause (B) of the preceding sentence shall equal the number of Common Shares, or portion thereof, into which a Series M Preferred Share is convertible, multiplied by the most current quarterly dividend on a Common Share on or before the applicable Dividend Payment Date. If the Trust pays an ordinary cash dividend on the Common Shares with respect to a Dividend Period after the date on which the Dividend Payment Date is declared pursuant to clause (ii) of the definition of Dividend M-5 Payment Date and the dividend calculated pursuant to clause (B) of this subsection (c)(i) with respect to such Dividend Period is greater than the dividend previously declared on the Series M Preferred Shares with respect to such Dividend Period, the Trust shall pay an additional dividend to the holders of the Series M Preferred Shares on the date on which the dividend on the Common Shares is paid, in an amount equal to the difference between (y) the dividend calculated pursuant to clause (B) of this subsection (c)(i) and (z) the amount of dividends previously declared on the Series M Preferred Shares with respect to such Dividend Period. The dividends shall begin to accrue and shall be fully cumulative from [INSERT DAY AFTER LAST DAY OF ACCRUAL FOR MOST RECENT DIVIDEND DECLARED PRIOR TO THE CONSUMMATION OF THE MERGER], whether or not in any Dividend Period or Periods there shall be funds of the Trust legally available for the payment of such dividends, and shall be payable quarterly, when, as and if declared by the Board, in arrears on Dividend Payment Dates. Each such dividend shall be payable in arrears to the holders of record of Series M Preferred Shares as they appear in the records of the Trust at the close of business on such record dates, not less than 10 nor more than 50 days preceding such Dividend Payment Dates thereof, as shall be fixed by the Board. Accrued and unpaid dividends for any past Dividend Periods may be declared and paid at any time and for such interim periods, without reference to any regular Dividend Payment Date, to holders of record on such date, not less than 10 nor more than 50 days preceding the payment date thereof, as may be fixed by the Board. Any dividend payment made on Series M Preferred Shares shall first be credited against the earliest accrued but unpaid dividend due with respect to Series M Preferred Shares which remains payable. (ii) The amount of dividends referred to in subsection (c)(i)(A) of this Section 14 payable for each full Dividend Period on the Series M Preferred Shares shall be computed by dividing the annual dividend rate by four. The amount of dividends payable for any period shorter than a full Dividend Period on the Series M Preferred Shares shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of Series M Preferred Shares shall not be entitled to any dividends, whether payable in cash, property or shares, in excess of cumulative dividends, as herein provided, on the Series M Preferred Shares. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series M Preferred Shares which may be in arrears. (iii) So long as any Series M Preferred Shares are outstanding, no dividends, except as described in the immediately following sentence, shall be declared or paid or set apart for payment on any class or series of Parity Shares for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series M Preferred Shares for all Dividend Periods terminating on or prior to the dividend payment M-6 date on such class or series of Parity Shares. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon Series M Preferred Shares and all dividends declared upon any other class or series of Parity Shares shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series M Preferred Shares and accumulated and unpaid on such Parity Shares. (iv) So long as any Series M Preferred Shares are outstanding, no dividends (other than dividends or distributions paid solely in shares of, or options, warrants or rights to subscribe for or purchase shares of, Fully Junior Shares) shall be declared or paid or set apart for payment or other distribution shall be declared or made or set apart for payment upon Junior Shares, nor shall any Junior Shares be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Shares made for purposes of an employee incentive or benefit plan of the Trust or any subsidiary) for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any Junior Shares) by the Trust, directly or indirectly (except by conversion into or exchange for Fully Junior Shares), unless in each case (A) the full cumulative dividends on all outstanding Series M Preferred Shares and any other Parity Shares shall have been or contemporaneously are declared and paid or declared and set apart for payment for all past Dividend Periods with respect to the Series M Preferred Shares and all past dividend periods with respect to such Parity Shares, (B) sufficient funds shall have been or contemporaneously are declared and paid or declared and set apart for the payment of the dividend for the current Dividend Period with respect to the Series M Preferred Shares and the current dividend period with respect to such Parity Shares and (C) any obligations of the Trust in respect of the Series M Preferred Shares called for redemption by the Trust pursuant to subsection (e) of this Section 14 have been satisfied in full. (v) No distributions on Series M Preferred Shares shall be declared by the Board or paid or set apart for payment by the Trust at such time as the terms and provisions of any agreement of the Trust, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (d) Liquidation Preference. (i) In the event of any liquidation, dissolution or winding up of the Trust, whether voluntary or involuntary, before any payment or distribution of the assets of the Trust (whether capital or surplus) shall be made to or set apart for the holders of Junior M-7 Shares, the holders of the Series M Preferred Shares shall be entitled to receive Twenty Five Dollars ($25.00) (the "Liquidation Preference") per ---------------------- Series M Preferred Share plus an amount equal to all dividends (whether or not earned or declared) accumulated, accrued and unpaid thereon to the date of final distribution to such holders; but such holders shall not be entitled to any further payment; provided, that the dividend payable with -------- respect to the Dividend Period containing the date of final distribution shall be equal to the greater of (A) the dividend provided in subsection (c)(i)(A) of this Section 14 or (B) the dividend determined pursuant to subsection (c)(i)(B) of this Section 14 for the preceding Dividend Period. If, upon any liquidation, dissolution or winding up of the Trust, the assets of the Trust, or proceeds thereof, distributable among the holders of the Series M Preferred Shares shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other shares of any class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series M Preferred Shares and any such other Parity Shares ratably in accordance with the respective amounts that would be payable on such Series M Preferred Shares and any such other Parity Shares if all amounts payable thereon were paid in full. For the purposes of this subsection (d), (A) a consolidation or merger of the Trust with one or more corporations, real estate investment trusts or other entities, (B) a sale, lease or conveyance of all or substantially all of the Trust's property or business or (C) a statutory share exchange shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Trust. (ii) Subject to the rights of the holders of shares of any series or class or classes of Shares ranking on a parity with or senior to the Series M Preferred Shares upon liquidation, dissolution or winding up, upon any liquidation, dissolution or winding up of the Trust, after payment shall have been made in full to the holders of the Series M Preferred Shares, as provided in this subsection (d), any other series or class or classes of Junior Shares shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series M Preferred Shares shall not be entitled to share therein. (e) Redemption at the Option of the Trust. (i) The Series M Preferred Shares shall not be redeemable by the Trust prior to September 13, 2004. The Series M Preferred Shares may be redeemed, in whole or in part, at the option of the Trust at any time on or after September 13, 2004 out of funds legally available therefor at a redemption price payable in cash equal to the Liquidation Preference per Series M Preferred Share (plus all accumulated, accrued and unpaid dividends as provided below). M-8 (ii) Upon any redemption of Series M Preferred Shares pursuant to this subsection (e), the Trust shall pay all accrued and unpaid dividends, if any, thereon to the Call Date, without interest. If the Call Date falls after a dividend payment record date and prior to the corresponding Dividend Payment Date, then each holder of Series M Preferred Shares at the close of business on such dividend payment record date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding any redemption of such shares before such Dividend Payment Date. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on Series M Preferred Shares called for redemption. (iii) If full cumulative dividends on the Series M Preferred Shares and any other class or series of Parity Shares have not been declared and paid or declared and set apart for payment, the Series M Preferred Shares may not be redeemed under this subsection (e) of this Section 14 in part and the Trust may not purchase or acquire Series M Preferred Shares, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Series M Preferred Shares. (iv) Notice of the redemption of any Series M Preferred Shares under this subsection (e) of this Section 14 shall be sent by facsimile and by overnight courier at the facsimile number and address provided by the holder to the Trust to each holder of record of Series M Preferred Shares to be redeemed at the address of each such holder as shown on the Trust's records, not less than 30 nor more than 60 days prior to the Call Date. Neither the failure to send any notice required by this subsection (e)(iv), nor any defect therein or in the sending thereof, to any particular holder, shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was sent in the manner herein provided shall be conclusively presumed to have been duly given on the date sent whether or not the holder receives the notice. Each such sent notice shall state, as appropriate: (1) the Call Date; (2) the number of Series M Preferred Shares to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; (4) the place or places at which certificates for such shares are to be surrendered; (5) the then-current Conversion Price; and (6) that dividends on the shares to be redeemed shall cease to accrue on such Call Date except as otherwise provided herein. Notice having been mailed as aforesaid, from and after the Call Date (unless the Trust shall fail to make available an amount of cash necessary to effect such redemption), (A) except as otherwise provided herein, dividends on the Series M Preferred Shares so called for redemption shall cease to accrue, (B) such shares shall no longer be deemed to be outstanding, and (C) all rights of the holders thereof as holders of Series M Preferred Shares of the Trust shall cease (except the rights to convert and to receive the cash payable upon such redemption, without M-9 interest thereon, upon surrender and endorsement of their certificates if so required and to receive any dividends payable thereon). The Trust's obligation to provide cash in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Call Date, the Trust shall deposit with a bank or trust company (which may be an affiliate of the Trust) that has an office in the Borough of Manhattan, City of New York, and that has, or is an affiliate of a bank or trust company that has, capital and surplus of at least $250,000,000, necessary for such redemption, in trust, with irrevocable instructions that such cash be applied to the redemption of the Series M Preferred Shares so called for redemption. No interest shall accrue for the benefit of the holders of Series M Preferred Shares to be redeemed on any cash so set aside by the Trust. Subject to applicable escheat laws, any such cash unclaimed at the end of two years from the Call Date shall revert to the general funds of the Trust, after which reversion the holders of such shares so called for redemption shall look only to the general funds of the Trust for the payment of such cash. As promptly as practicable after the surrender in accordance with such notice of the certificates for any such shares so redeemed (properly endorsed or assigned for transfer, if the Trust shall so require and if the notice shall so state), such shares shall be exchanged for any cash (without interest thereon) for which such shares have been redeemed. If fewer than all the outstanding Series M Preferred Shares are to be redeemed, shares to be redeemed shall be selected by the Trust from outstanding Series M Preferred Shares not previously called for redemption pro rata in proportion to the aggregate number of Series M Preferred Shares held by each holder (as nearly as may be). If fewer than all the Series M Preferred Shares represented by any certificate are redeemed, then new certificates representing the unredeemed shares shall be issued without cost to the holder thereof. (f) Conversion. Holders of Series M Preferred Shares shall have the right to convert all or a portion of such shares into Common Shares, as follows: (i) Subject to and upon compliance with the provisions of this subsection (f) and the provisions of Section 18A of Article II of the Declaration of Trust, a holder of Series M Preferred Shares shall have the right, at any time, at his or her option, to convert such shares into the number of fully paid and non-assessable Common Shares obtained by dividing the aggregate Liquidation Preference of such shares (exclusive of accrued but unpaid dividends) by the Conversion Price (as in effect at the time and on the date provided for in the last paragraph of subsection (f)(ii) of this Section 14; provided, however, that the right to convert shares called -------- ------- for redemption pursuant to subsection (e) of this Section 14 shall terminate at the close of business on the fifth Business Day prior to the Call Date fixed for such redemption, unless the Trust shall default in making payment of the cash payable upon such redemption under subsection (e) of this Section 14. M-10 (ii) In order to exercise the conversion right, the holder of each Series M Preferred Share to be converted shall surrender the certificate representing such share, duly endorsed or assigned to the Trust or in blank, at the office of the Transfer Agent, accompanied by written notice to the Trust that the holder thereof elects to convert such Series M Preferred Shares. Unless the shares issuable on conversion are to be issued in the same name as the name in which such Series M Preferred Share is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Trust, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Trust demonstrating that such taxes have been paid). Holders of Series M Preferred Shares at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the conversion thereof following such dividend payment record date and prior to such Dividend Payment Date. However, Series M Preferred Shares surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding Dividend Payment Date (except shares converted after the issuance of notice of redemption with respect to a Call Date during such period, such Series M Preferred Shares being entitled to such dividend on the Dividend Payment Date) must be accompanied by payment of an amount equal to the dividend payable on such shares on such Dividend Payment Date. A holder of Series M Preferred Shares on a dividend payment record date who (or whose transferee) tenders any such shares for conversion into Common Shares on the corresponding Dividend Payment Date will receive the dividend payable by the Trust on such Series M Preferred Shares on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of Series M Preferred Shares for conversion. Except as provided above, the Trust shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the Common Shares issued upon such conversion. As promptly as practicable after the surrender of certificates for Series M Preferred Shares as aforesaid, the Trust shall issue and shall deliver at such office to such holder, or on his or her written order, a certificate or certificates for the number of full Common Shares issuable upon the conversion of such shares in accordance with provisions of this subsection (f) of this Section 14, and any fractional interest in respect of a Common Share arising upon such conversion shall be settled as provided in subsection (f)(iii) of this Section 14. M-11 Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for Series M Preferred Shares shall have been surrendered and such notice shall have been received by the Trust as aforesaid (and if applicable, payment of an amount equal to the dividend payable on such shares shall have been received by the Trust as described above), and the person or persons in whose name or names any certificate or certificates for Common Shares shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date unless the share transfer books of the Trust shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such share transfer books are open, but such conversion shall be at the Conversion Price in effect on the date on which such shares shall have been surrendered and such notice received by the Trust. (iii) No fractional shares or scrip representing fractions of Common Shares shall be issued upon conversion of the Series M Preferred Shares. Instead of any fractional interest in a Common Share that would otherwise be deliverable upon the conversion of a Series M Preferred Share, the Trust shall pay to the holder of such share an amount in cash based upon the Current Market Price of the Common Shares on the Trading Day immediately preceding the date of conversion. If more than one Series M Preferred Share shall be surrendered for conversion at one time by the same holder, the number of full Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series M Preferred Shares so surrendered. (iv) The Conversion Price shall be adjusted from time to time as follows: (A) If the Trust shall after the Issue Date (1) pay a dividend or make a distribution on its capital shares in Common Shares, (2) subdivide its outstanding Common Shares into a greater number of shares, (3) combine its outstanding Common Shares into a smaller number of shares or (4) issue any Shares by reclassification of its Common Shares, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or distribution or at the opening of business on the Business Day next following the day on which such subdivision, combination or reclassification becomes effective, as the case may be, shall be adjusted so that the holder of any Series M Preferred Share thereafter surrendered for conversion shall be entitled to receive the number of Common Shares that such holder would have owned or have been entitled to receive after the happening of any of the events M-12 described above as if such Series M Preferred Shares had been converted immediately prior to the record date in the case of a dividend or distribution or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this subsection (f)(iv)(A) shall become effective immediately after the opening of business on the Business Day next following the record date (except as provided in subsection (f)(viii) of this Section 14) in the case of a dividend or distribution and shall become effective immediately after the opening of business on the Business Day next following the effective date in the case of a subdivision, combination or reclassification. (B) If the Trust shall issue after the Issue Date rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Shares at a price per share less than 94% (100% if a stand-by underwriter is used and charges the Trust a commission) of the Fair Market Value per Common Share on the record date for the determination of shareholders entitled to receive such rights, options or warrants, then the Conversion Price in effect at the opening of business on the Business Day next following such record date shall be adjusted to equal the price determined by multiplying (i) the Conversion Price in effect immediately prior to the opening of business on the Business Day next following the date fixed for such determination by (ii) a fraction, the numerator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of shares that the aggregate proceeds to the Trust from the exercise of such rights, options or warrants for Common Shares would purchase at 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), and the denominator of which shall be the sum of (x) the number of Common Shares outstanding on the close of business on the date fixed for such determination and (y) the number of additional Common Shares offered for subscription or purchase pursuant to such rights, options or warrants. Such adjustment shall become effective immediately after the opening of business on the day next following such record date (except as provided in subsection (f)(viii) of this Section 14). In determining whether any rights, options or warrants entitle the holders of Common Shares to subscribe for or purchase Common Shares at less than 94% of such Fair Market Value (or 100% in the case of a stand-by underwriting), there shall be taken into account any consideration received by the Trust upon issuance and upon exercise of such rights, options or warrants, the value of such consideration, if other than cash, to be determined by the Board. M-13 (C) If the Trust shall distribute to all holders of its Common Shares any securities of the Trust (other than Common Shares) or evidence of its indebtedness or assets (excluding cumulative cash dividends or distributions paid with respect to the Common Shares or common shares of Smith Realty after December 31, 1998 which are not in excess of the following: the sum of (i) the cumulative undistributed Funds from Operations at December 31, 1998, plus (ii) the cumulative amount of Funds from Operations, as determined by the Board, after December 31, 1998, minus (iii) the cumulative amount of dividends accrued or paid in respect of the Series M Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Smith Realty after September 13, 1999) or rights, options or warrants to subscribe for or purchase any of its securities (excluding those rights, options and warrants issued to all holders of Common Shares entitling them for a period expiring within 45 days after the record date referred to in subsection (f)(iv)(B) of this Section 14 above to subscribe for or purchase Common Shares, which rights and warrants are referred to in and treated under subsection (f)(iv)(B) of this Section 14 above) (any of the foregoing being hereinafter in this subsection (f)(iv)(C) of this Section 14 collectively called the "Securities" and individually a "Security"), then in each such case ----------- -------- the Conversion Price shall be adjusted so that it shall equal the price determined by multiplying (x) the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by (y) a fraction, the numerator of which shall be the Fair Market Value per Common Share on the record date mentioned below less the then fair market value (as determined by the Board, whose determination shall be conclusive), of the portion of the Securities or assets or evidences of indebtedness so distributed or of such rights, options or warrants applicable to one Common Share, and the denominator of which shall be the Fair Market Value per Common Share on the record date mentioned below. Such adjustment shall become effective immediately at the opening of business on the Business Day next following (except as provided in subsection (f)(viii) of this Section 14) the record date for the determination of shareholders entitled to receive such distribution. For the purposes of this subsection (f)(iv)(C) of this Section 14, the distribution of a Security, which is distributed not only to the holders of the Common Shares on the date fixed for the determination of shareholders entitled to such distribution of such Security, but also is distributed with each Common Share delivered to a Person converting a Series M Preferred Share after such determination date, shall not require an adjustment of the Conversion Price pursuant to this subsection (f)(iv)(C); provided that on the -------- date, if any, on which a person converting a Series M Preferred Share would no longer be entitled to receive such Security with a Common Share (other than as a result of the termination of all such Securities), a M-14 distribution of such Securities shall be deemed to have occurred and the Conversion Price shall be adjusted as provided in this subsection (f)(iv)(C) (and such day shall be deemed to be "the date fixed for the determination of the shareholders entitled to receive such distribution" and "the record date" within the meaning of the two preceding sentences). (D) In case a tender or exchange offer (which term shall not include open market repurchases by the Trust) made by the Trust or any subsidiary of the Trust for all or any portion of the Common Shares shall expire and such tender or exchange offer shall involve the payment by the Trust or such subsidiary of consideration per Common Share having a fair market value (as determined in good faith by the Board, whose determination shall be conclusive and described in a resolution of the Board), at the last time (the "Expiration Time") --------------- tenders or exchanges may be made pursuant to such tender or exchange offer, that exceeds the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subparagraph, by a fraction of which the numerator shall be the number of Common Shares outstanding (including any tendered or exchanged shares) at the Expiration Time, multiplied by the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based upon the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any maximum, being referred to as the "Purchased Shares") and (ii) the product of the number of Common ---------------- Shares outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price per Common Share on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time. (E) No adjustment in the Conversion Price shall be required unless such adjustment would require a cumulative increase or decrease of at least 1% in such price; provided, however, that any adjustments -------- ------- that by reason of this subsection (f)(iv)(E) of this Section 14 are not required to be made shall be carried forward and taken into account in any subsequent adjustment until made; and provided, -------- further, that any adjustment shall be required and made in accordance ------- with the provisions of M-15 this subsection (f) (other than this subsection (f)(iv)(E)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of Common Shares. Notwithstanding any other provisions of this subsection (f), the Trust shall not be required to make any adjustment of the Conversion Price for the issuance of any Common Shares pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Trust and the investment of additional optional amounts in Common Shares under such plan. All calculations under this subsection (f) shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest one-tenth of a share (with .05 of a share being rounded upward), as the case may be. Anything in this subsection (f)(iv) to the contrary notwithstanding, the Trust shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this subsection (f)(iv), as it in its discretion shall determine to be advisable in order that any share dividends, subdivision of shares, reclassification or combination of shares, distribution of rights or warrants to purchase shares or securities, or distribution of other assets (other than cash dividends) hereafter made by the Trust to its shareholders shall not be taxable. (v) If the Trust shall be a party to any transaction (including without limitation a merger, consolidation, statutory share exchange, self tender offer for all or substantially all of its Common Shares, sale of all or substantially all of the Trust's assets or recapitalization of the Common Shares and excluding any transaction as to which subsection (f)(iv)(A) of this Section 14 applies) (each of the foregoing being referred to herein as a "Transaction"), in each case as a result of which ----------- all or substantially all of the Trust's Common Shares are converted into the right to receive shares, securities or other property (including cash or any combination thereof), each Series M Preferred Share which is not redeemed or converted into the right to receive shares, securities or other property prior to such Transaction shall thereafter be convertible into the kind and amount of shares, securities and other property (including cash or any combination thereof) receivable upon the consummation of such Transaction by a holder of that number of Common Shares into which one Series M Preferred Share was convertible immediately prior to such Transaction, assuming such holder of Common Shares (A) is not a Person with which the Trust consolidated or into which the Trust merged or which merged into the Trust or to which such sale or transfer was made, as the case may be ("Constituent Person"), or an affiliate of a Constituent Person and (B) ------------------ failed to exercise his rights of election, if any, as to the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction (provided that if the kind or amount of shares, securities and other property (including cash) receivable upon such Transaction is not the same for each Common Share held immediately prior to such Transaction by other than a Constituent Person or an affiliate M-16 thereof and in respect of which such rights of election shall not have been exercised ("Non-Electing Share"), then for the purpose of this subsection ------------------ (f)(v) the kind and amount of shares, securities and other property (including cash) receivable upon such Transaction by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). The Trust shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this subsection (f)(v), and it shall not consent or agree to the occurrence of any Transaction until the Trust has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series M Preferred Shares that will contain provisions enabling the holders of the Series M Preferred Shares that remain outstanding after such Transaction to convert into the consideration received by holders of Common Shares at the Conversion Price in effect immediately prior to such Transaction. The provisions of this subsection (f)(v) shall similarly apply to successive Transactions. (vi) If: (A) the Trust shall declare a dividend (or any other distribution) on its Common Shares (other than cash dividends or distributions paid with respect to the Common Shares or the common shares of Smith Realty after December 31, 1998 not in excess of the sum of the cumulative undistributed Funds from Operations at December 31, 1998, plus the cumulative amount of Funds from Operations, as determined by the Board, after December 31, 1998, minus the cumulative amount of dividends accrued or paid in respect of the Series M Preferred Shares or any other class or series of preferred Shares of the Trust or preferred shares of Smith Realty after September 13, 1999); or (B) the Trust shall authorize the granting to all holders of Common Shares of rights, options or warrants to subscribe for or purchase any shares of any class or any other rights, options or warrants; or (C) there shall be any reclassification of the Common Shares (other than an event to which subsection (f)(iv)(A) of this Section 14 applies) or any consolidation or merger to which the Trust is a party and for which approval of any shareholders of the Trust is required, or a statutory share exchange, or a self tender offer by the Trust for all or substantially all of its outstanding Common Shares or the sale or transfer of all or substantially all of the assets of the Trust as an entirety; or (D) there shall occur the voluntary or involuntary liquidation, dissolution or winding up of the Trust; M-17 then the Trust shall cause to be filed with the Transfer Agent and shall cause to be mailed to the holders of Series M Preferred Shares at their addresses as shown on the records of the Trust, as promptly as possible, but at least 10 days prior to the applicable date hereinafter specified, a notice stating (1) the date on which a record is to be taken for the purpose of such dividend, distribution or granting of rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Shares of record to be entitled to such dividend, distribution or rights, options or warrants are to be determined or (2) the date on which such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up is expected to become effective, and the date as of which it is expected that holders of Common Shares of record shall be entitled to exchange their Common Shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, statutory share exchange, sale, transfer, liquidation, dissolution or winding up. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of the proceedings described in this subsection (f). (vii) Whenever the Conversion Price is adjusted as herein provided, the Trust shall promptly file with the Transfer Agent an officer's certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after delivery of such certificate, the Trust shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the effective date of such adjustment and shall mail such notice of such adjustment of the Conversion Price to the holder of each Series M Preferred Share at such holder's last address as shown on the records of the Trust. (viii) In any case in which subsection (f)(iv) of this Section 14 provides that an adjustment shall become effective on the day next following the record date for an event, the Trust may defer until the occurrence of such event (A) issuing to the holder of any Series M Preferred Share converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount of cash in lieu of any fraction pursuant to subsection (f)(iii) of this Section 14. (ix) There shall be no adjustment of the Conversion Price in case of the issuance of any Shares in a reorganization, acquisition or other similar transaction except as specifically set forth in this subsection (f). If any action or transaction would require adjustment of the Conversion Price pursuant to more than one paragraph of this subsection M-18 (f), only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value. (x) If the Trust shall take any action affecting the Common Shares, other than action described in this subsection (f), that in the opinion of the Board would materially and adversely affect the conversion rights of the holders of the Series M Preferred Shares, the Conversion Price for the Series M Preferred Shares may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board, in its sole discretion, may determine to be equitable in the circumstances. (xi) The Trust covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Shares, for the purpose of effecting conversion of the Series M Preferred Shares, the full number of Common Shares deliverable upon the conversion of all outstanding Series M Preferred Shares not theretofore converted. For purposes of this subsection (f)(xi), the number of Common Shares that shall be deliverable upon the conversion of all outstanding Series M Preferred Shares shall be computed as if at the time of computation all such outstanding shares were held by a single holder. The Trust covenants that any Common Shares issued upon conversion of the Series M Preferred Shares shall be validly issued, fully paid and non- assessable. Before taking any action that would cause an adjustment reducing the Conversion Price below the then-par value of the Common Shares deliverable upon conversion of the Series M Preferred Shares, the Trust will take any action that, in the opinion of its counsel, may be necessary in order that the Trust may validly and legally issue fully paid and (subject to any customary qualification based upon the nature of a real estate investment trust) non-assessable Common Shares at such adjusted Conversion Price. The Trust shall endeavor to list the Common Shares required to be delivered upon conversion of the Series M Preferred Shares, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Shares are listed at the time of such delivery. The Trust shall endeavor to comply with all federal and state securities laws and regulations thereunder in connection with the issuance of any securities that the Trust shall be obligated to deliver upon conversion of the Series M Preferred Shares. In addition to any legend required by Section 18A of Article II of the Declaration of Trust, the certificates evidencing such securities shall bear such legends restricting transfer thereof in the absence M-19 of registration under applicable securities laws or an exemption therefrom as the Trust may in good faith deem appropriate. (xii) The Trust will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Shares or other securities or property on conversion of the Series M Preferred Shares pursuant hereto; provided, however, that the Trust shall -------- ------- not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Shares or other securities or property in a name other than that of the holder of the Series M Preferred Shares to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Trust the amount of any such tax or established, to the reasonable satisfaction of the Trust, that such tax has been paid. (g) Shares To Be Retired. All Series M Preferred Shares which shall have been issued and reacquired in any manner by the Trust shall be restored to the status of authorized but unissued shares of beneficial interest of the Trust, without designation as to class or series. (h) Ranking. Any class or series of Shares shall be deemed to rank: (i) senior to the Series M Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if the holders of such class or series are entitled to the receipt of dividends or of amounts distributable upon any liquidation, dissolution or winding up of the Trust, as the case may be, in preference or priority to the holders of Series M Preferred Shares; (ii) on a parity with the Series M Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, whether or not the dividend rates, dividend payment dates or redemption or liquidation prices per share thereof are different from those of the Series M Preferred Shares, if the holders of such class or series and the holders of the Series M Preferred Shares are entitled to the receipt of dividends and amounts distributable upon liquidation, dissolution or winding up of the Trust in proportion to their respective amounts of dividends accrued and unpaid per share or liquidation preferences, without preference or priority to each other ("Parity Shares"); --------------- (iii) junior to the Series M Preferred Shares, in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Junior Shares; and M-20 (iv) junior to the Series M Preferred Shares, in the payment of dividends and in the distribution of assets upon any liquidation, dissolution or winding up of the Trust, if such class or series is Fully Junior Shares. (i) Voting. If and whenever six quarterly dividends (whether or not consecutive) payable on the Series M Preferred Shares or any series or class of Parity Shares shall be in arrears (which shall, with respect to any such quarterly dividend, mean that any such dividend has not been paid in full), whether or not earned or declared, the number of Trustees then constituting the Board shall be increased by two and the holders of Series M Preferred Shares, together with the holders of shares of every other series of Parity Shares (any such other series, the "Voting Preferred Shares"), voting as a single class ----------------------- regardless of series, shall be entitled to elect the two additional Trustees to serve on the Board at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series M Preferred Shares and the Voting Preferred Shares called as hereinafter provided. Whenever all arrears in dividends on the Series M Preferred Shares and the Voting Preferred Shares then outstanding shall have been paid and dividends thereon for the current quarterly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series M Preferred Shares and the Voting Preferred Shares to elect such additional two Trustees shall cease (but subject always to the same provision for the vesting of such voting rights in the case of any similar future arrearage in quarterly dividends), and the terms of office of all persons elected as Trustees by the holders of the Series M Preferred Shares and the Voting Preferred Shares shall forthwith terminate and the number of the Board shall be reduced accordingly. At any time after such voting power shall have been so vested in the holders of Series M Preferred Shares and the Voting Preferred Shares, the Secretary of the Trust may, and upon the written request of any holder of Series M Preferred Shares (addressed to the Secretary at the principal office of the Trust) shall, call a special meeting of the holders of the Series M Preferred Shares and of the Voting Preferred Shares for the election of the Trustees to be elected by them as herein provided, such call to be made by notice similar to that provided in the Bylaws of the Trust for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of Series M Preferred Shares may call such meeting, upon the notice above provided, and for that purpose shall have access to the records of the Trust. The Trustees elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in lieu thereof if such office shall not have previously terminated as above provided. If any vacancy shall occur among the Trustees elected by the holders of the Series M Preferred Shares and the Voting Preferred Shares, a successor shall be elected by the Board, upon the nomination of the then- remaining Trustee elected by the holders of the Series M Preferred Shares and the Voting Preferred Shares or the successor of such remaining Trustee, to serve until the next annual meeting of the shareholders or special meeting held in place thereof if such office shall not have previously terminated as provided above. M-21 So long as any Series M Preferred Shares are outstanding, in addition to any other vote or consent of shareholders required by law or by the Declaration of Trust, the affirmative vote of at least 66 2/3% of the votes entitled to be cast by the holders of the Series M Preferred Shares given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating: (i) Any amendment, alteration or repeal of any of the provisions of the Declaration of Trust or the By-Laws that materially and adversely affects the voting powers, rights or preferences of the holders of the Series M Preferred Shares; provided, however, that the amendment of the -------- ------- provisions of the Declaration of Trust so as to authorize or create or to increase the authorized amount of, any Fully Junior Shares, Junior Shares that are not senior in any respect to the Series M Preferred Shares or any Parity Shares shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Series M Preferred Shares; or (ii) A share exchange that affects the Series M Preferred Shares, a consolidation with or merger of the Trust into another entity, or a consolidation with or merger of another entity into the Trust, unless in each such case each Series M Preferred Share (A) shall remain outstanding without a material and adverse change to its terms and rights or (B) shall be converted into or exchanged for convertible preferred shares of the surviving entity having preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms or conditions of redemption thereof identical to that of a Series M Preferred Share (except for changes that do not materially and adversely affect the holders of the Series M Preferred Shares); or (iii) The authorization, reclassification or creation of, or the increase in the authorized amount of, any shares of any class or any security convertible into shares of any class ranking senior to the Series M Preferred Shares in the distribution of assets on any liquidation, dissolution or winding up of the Trust or in the payment of dividends; or (iv) Any increase in the authorized number of Series M Preferred Shares or decrease in the authorized number of Series M Preferred Shares below the number of shares then issued and outstanding; provided, however, that no such vote of the holders of Series M Preferred Shares - -------- ------- shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect, or when the issuance of any such prior shares or convertible security is to be made, as the case may be, provision is made for the redemption of all Series M Preferred Shares at the time outstanding to the extent M-22 such redemption is authorized by subsection (e) of this Section 14. For purposes of the foregoing provisions, a "share exchange" means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and which does not affect the existence of either entity, and the term "surviving entity" shall include the entity acquiring equity securities in a share exchange. For purposes of the foregoing provisions of this subsection (i), each Series M Preferred Share shall have one (1) vote per share, except that when any other series of preferred Shares shall have the right to vote with the Series M Preferred Shares as a single class on any matter, then the Series M Preferred Shares and such other series shall have with respect to such matters one (1) vote per $25.00 of stated liquidation preference. Except as otherwise required by applicable law or as set forth herein, the Series M Preferred Shares shall not have any relative, participating, optional or other special voting rights and powers other than as set forth herein, and the consent of the holders thereof shall not be required for the taking of any Trust action. (j) Record Holders. The Trust and the Transfer Agent may deem and treat the record holder of any Series M Preferred Shares as the true and lawful owner thereof for all purposes, and neither the Trust nor the Transfer Agent shall be affected by any notice to the contrary. M-23 EX-2.1(E) 7 dex21e.txt FORM OF AMENDED AND RESTATED BYLAWS EXHIBIT E --------- ARCHSTONE-SMITH TRUST BYLAWS ARTICLE I. MEETINGS OF SHAREHOLDERS Section 1. Place. All meetings of shareholders ("Shareholders") of Archstone-Smith Trust (the "Trust") shall be held at the principal office of the Trust or at such other place within the United States as shall be stated in the notice of the meeting. Section 2. Annual Meetings. Failure to hold an annual meeting does not invalidate the Trust's existence or affect any otherwise valid acts of the Trust Section 3. Special Meetings. The Chairman of the Board, President, Chief Executive Officer or Board of Trustees may call a special meeting of the Shareholders. Requests by Shareholders for special meetings shall state the purpose of such meeting and the matters proposed to be acted on at such meeting. The Secretary shall inform the requesting Shareholders of the reasonably estimated cost of preparing and mailing notice of the meeting and, upon payment to the Trust by such Shareholders of such costs, the Secretary shall give notice of the meeting. Unless requested by the Shareholders entitled to cast a majority of the votes entitled to be cast at such meeting, a special meeting need not be called to consider any matter which is substantially the same as a matter voted on at any meeting of Shareholders held during the preceding twelve months. The Board has the sole power to fix (i) the record date for determining shareholders entitled to notice of and to vote at the special meeting and (ii) the date, time and place of the special meeting. Section 4. Notice. Notice of any meeting may be given in any manner permitted by Maryland law. If mailed, notices of meetings of Shareholders shall be deemed to be given when deposited in the United States mail addressed to the Shareholder at his or her post office address as it appears on the records of the Trust, with postage thereon prepaid. Section 5. Scope of Notice. Any business of the Trust may be transacted at an annual meeting of Shareholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of Shareholders except as specifically designated in the notice. Section 6. Waiver of Notice. Whenever any notice of a meeting of Shareholders is required to be given pursuant to the Trust's Declaration of Trust (as amended, supplemented or restated from time to time, the "Declaration of Trust") or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the Shareholder or Shareholders entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any Shareholder at any meeting shall constitute a waiver of notice of such meeting. Section 7. Organization. At every meeting of Shareholders, the Chairman of the Board, if there is one (or any Co-Chairman of the Board, if there is more than one), shall conduct the meeting or, in the case of vacancy in office or absence of the Chairman of the Board (or all Co-Chairmen of the Board), one of the following officers present shall conduct the meeting in the order stated: the President, the Managing Directors in their order of rank and seniority, the Vice Presidents in their order of rank and seniority, or a chairman chosen by the Shareholders entitled to cast a majority of the votes which all Shareholders present in person or by proxy are entitled to cast, shall act as chairman, and the Secretary, or, in his or her absence, an Assistant Secretary, or in the absence of both the Secretary and Assistant Secretaries, a person appointed by the chairman shall act as secretary. At any Shareholders' meeting, the chairman shall determine the construction or interpretation of these Bylaws, or any part thereof, and the ruling of the chairman shall be final. Section 8. Quorum. Unless otherwise provided in the Declaration of Trust or these Bylaws, with respect to any matter to be considered at any meeting of Shareholders, the presence in person or by proxy of Shareholders entitled to cast a majority of all the votes entitled to be cast with respect to such matter shall constitute a quorum. If a quorum is not present at any meeting of the Shareholders, the Shareholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn such meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at such meeting. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. A plurality of all the votes cast by Shareholders entitled to vote with respect to the election of Trustees at a meeting duly called at which a quorum is present shall be sufficient to elect a Trustee. Section 9. Proxies. A Shareholder may cast the votes entitled to be cast by the shares ("Shares") of the Trust owned of record by him, either in person or by proxy in any manner authorized by law, by the Shareholder or by his or her duly authorized attorney in fact. Such proxy shall be filed with the Secretary before or at the time of the meeting. A Shareholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, an authorization by telegram, cablegram, datagram, electronic mail or any other electronic or telephonic means to the person authorized to act as proxy or to any other person authorized to receive the proxy authorization on behalf of the person authorized to act as proxy, including a proxy solicitation firm or proxy support service organization. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Section 10. Voting of Shares by Certain Holders. (a) Shares Held by an Entity. Shares registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such Shares pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or 2 agreement, in which case such person may vote such Shares. Any director or other fiduciary may vote Shares registered in his or her name as such fiduciary, either in person or by proxy. (b) Shares Held by Certain Persons. Shares registered in the name of a person adjudged incompetent may be voted and all rights incident thereto may be exercised only by his guardian, in person or by proxy. Shares registered in the name of a deceased person may be voted and all rights incident thereto may be exercised only by his executor or administrator, in person or by proxy. Shares registered in the name of a minor may be voted and all rights incident thereto may be exercised by his guardian, in person or by proxy, or in the absence of such representation by his guardian, by the minor, in person or by proxy, whether or not the Trust has notice, actual or constructive, of the minority or the appointment of a guardian, and whether or not a guardian has in fact been appointed. (c) Shares Held by Two or More Persons. Shares registered in the names of two or more persons shall be voted or represented in accordance with the vote or consent of the majority of the persons in whose names the Shares stand. If only one such person is present in person or by proxy, he or she may vote all the Shares, and all the Shares standing in the names of such persons are represented for the purpose of determining a quorum. This procedure also applies to the voting of Shares by two or more administrators, executors, trustees or other fiduciaries, unless the instrument or order of court appointing them otherwise directs. (d) Shares Held by the Trust. Shares of the Trust directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding Shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding Shares at any given time. (e) Certifications of Beneficial Ownership. The Board of Trustees (the "Board") may adopt by resolution a procedure by which a Shareholder may certify in writing to the Trust that any Shares registered in the name of the Shareholder are held for the account of a specified person other than the Shareholder. The resolution shall set forth: the class of Shareholders who may make the certification; the purpose for which the certification may be made; the form of certification; the information to be contained in it; if the certification is with respect to a record date or closing of the Share transfer books, the time after the record date or closing of the Share transfer books within which the certification must be received by the Trust; and any other provisions with respect to the procedure which the Board considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the Shareholder of record of the specified Shares in place of the Shareholder who makes the certification. Section 11. Inspectors. At any meeting of Shareholders, the chairman of the meeting may, or upon the request of any Shareholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of Shares represented at the meeting based on their determination of the validity and effect of proxies, count all votes, report the 3 results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the Shareholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of Shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. Section 12. Action Without Meetings. Any action required or permitted to be taken at a meeting of Shareholders may be taken without a meeting if there is filed with the records of Shareholders' meetings a unanimous written consent which sets forth the action and is signed by each Shareholder entitled to vote on the matter. Section 13. Nominations and Proposals by Shareholders. (a) Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board and the proposal of business to be considered by the Shareholders may be made at an annual meeting of Shareholders (i) pursuant to the Trust's notice of a meeting, (ii) by or at the direction of the Board or (iii) by any Shareholder of the Trust who was a Shareholder of record at the time of the giving of notice provided for in this Section 12(a) and at the time of the annual meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 12(a). (2) For nominations or other business to be properly brought before an annual meeting by a Shareholder pursuant to clause (iii) of paragraph (a)(1) of this Section 12, the Shareholder must have given timely notice thereof in writing to the Secretary and such nomination or other business must otherwise be a proper matter for action by Shareholders. To be timely, a Shareholder's notice shall be delivered to the Secretary at the principal executive offices of the Trust not less than 90 days nor more than 120 days prior to the first anniversary of the date of the proxy statement released to shareholders in connection with the preceding year's annual meeting of shareholders; provided, however, that if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary of the preceding year's annual meeting, notice by the Shareholder to be timely must be so delivered (x) not more than 120 days prior to the first anniversary of the date of the proxy statement released to shareholders in connection with the preceding year's annual meeting nor less than 90 days prior to the first anniversary of the date of the proxy statement released to shareholders in connection with the preceding year's annual meeting or (y) not later than the close of business on the tenth day following the day on which public announcement of the date of such meeting is first made by the Trust. Such Shareholder's notice shall set forth (i) as to each person whom the Shareholder proposes to nominate for election or reelection as a Trustee all information relating to such person which is required to be disclosed in solicitations of proxies for election of Trustees, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Trustee if elected); (ii) as to any other business which the Shareholder proposes 4 to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such Shareholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the Shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such Shareholder, as they appear on the Trust's books, and of such beneficial owner, (y) the number of Shares of each class of the Trust which are owned beneficially and of record by such Shareholder and such beneficial owner and (z) in the case of a nomination, (A) 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, (B) a representation that such Shareholder intends to appear in person or by proxy at the meeting, if there is a meeting, to nominate the persons named in its notice and (C) 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. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 12 to the contrary, if the number of Trustees to be elected to the Board is increased and there is no public announcement by the Trust naming all of the nominees for Trustee or specifying the size of the increased Board at least 100 days prior to the first anniversary of the date of the proxy statement released to shareholders in connection with the preceding year's annual meeting of shareholders, a Shareholder's notice required by this Section 12(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Trust not later than the close of business on the tenth day following the day on which such public announcement is first made by the Trust. (b) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of Shareholders as shall have been brought before the meeting pursuant to the Trust's notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of Shareholders at which Trustees are to be elected (i) pursuant to the Trust's notice of meeting, (ii) by or at the direction of the Board or (iii) provided that the Board has determined that Trustees shall or may be elected at such special meeting, by any Shareholder of the Trust who was a Shareholder of record both at the time of giving of notice provided for in this Section 12(b) and at the time of the special meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 12(b). If the Trust calls a special meeting of Shareholders for the purpose of electing one or more Trustees to the Board, any such Shareholder may nominate a person or persons (as the case may be) for election to such position as specified in the Trust's notice of meeting, if the Shareholder's notice containing the information required by paragraph (a)(2) of this Section 12 shall be delivered to the Secretary at the principal executive offices of the Trust (A) not more than 120 days prior to such special meeting nor less than 90 days prior to such special meeting or (B) not later than the close of business on the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. 5 (c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 12 shall be eligible to serve as Trustees and only such business shall be conducted at a meeting of Shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 12. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed in accordance with the procedures set forth in this Section 12 and, if any proposed nomination or business is not in compliance with this Section 12, to declare that such nomination or proposal shall be disregarded. (2) For purposes of this Section 12, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Trust with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Section 12, a Shareholder shall also comply with all applicable requirements of Maryland law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 12. Nothing in this Section 12 shall be deemed to affect any rights of Shareholders to request inclusion of, nor any rights of the Trust to omit, proposals in the Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Section 14. Voting by Ballot. Voting on any question or in any election may be by voice unless the presiding officer shall order or any Shareholder shall demand that voting be by ballot. ARTICLE II. TRUSTEES Section 1. Annual And Regular Meetings. An annual meeting of the Board shall be held immediately after and at the same place as the annual meeting of Shareholders, no notice other than this bylaw being necessary. The Board may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Board without other notice than such resolution. Section 2. Special Meetings. Special meetings of the Board may be called by or at the request of the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or by a majority of the Trustees then in office. The person or persons authorized to call special meetings of the Board may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Board called by them. Section 3. Notice. Notice of any special meeting of the Board shall be delivered personally or by telephone, facsimile transmission, United States mail or courier to each Trustee at his or her business or residence address. Notice by personal delivery, by telephone or a facsimile transmission shall be given at least two days prior to the meeting. Notice by mail shall be given at 6 least five days prior to the meeting and shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Telephone notice shall be deemed to be given when the Trustee is personally given such notice in a telephone call to which he is a party. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Trust by the Trustee and receipt of a completed transmission indicating receipt. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board need be stated in the notice, unless specifically required by statute or these Bylaws. Section 4. Waiver of Notice. Whenever any notice of a meeting of the Board or any committee thereof is required to be given pursuant to the Declaration of Trust or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the Trustee or Trustees entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any Trustee at any meeting shall constitute a waiver of notice of such meeting. Section 5. Organization. A majority of the Board may designate or elect a Trustee to preside at Board meetings. In the absence of such designation or election, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one) or the Chief Executive Officer shall preside at Board meetings; in his absence, the Trustees present at each meeting shall elect one of the Trustees present as chairman. All rules of conduct adopted and used at Board meetings shall be determined by the chairman, whose ruling on all procedural matters shall be final. Section 6. Quorum. A majority of the Trustees shall constitute a quorum for the transaction of business at any meeting of the Board of Trustees, provided that if less than a quorum of Trustees is present at a meeting, a majority of the Trustees present may adjourn the meeting from time to time without further notice, and further provided that if, pursuant to the Declaration of Trust or these Bylaws, the vote of a majority of a particular group of Trustees is required for action, a quorum must also include a majority of such group. The Trustees present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Trustees to leave less than a quorum. Section 7. Voting at Meetings. Voting at Board meetings may be conducted orally, by show of hands, or, if requested by any Trustee, by written ballot. The results of all voting shall be recorded by the Secretary in the minute book. Section 8. Telephone Meetings. Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 9. Compensation. Trustees shall not receive any stated salary for their services as Trustees but, by resolution of the Board, may receive fixed sums per year and/or per meeting and/or per visit to real property owned or to be acquired by the Trust and for any service or activity 7 they performed or engaged in as Trustees. Trustees may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they performed or engaged in as Trustees; but nothing herein contained shall be construed to preclude any Trustees from serving the Trust in any other capacity and receiving compensation therefor. Section 10. Distributions. Dividends and other distributions upon the shares of beneficial interest of the Trust may be authorized and declared by the Trustees, subject to the provisions of law and the Declaration of Trust. In determining the amount of any distribution, the Trustees may establish, modify, and reverse such reserves for contingencies (including, without limitation, for equalizing distributions, for property repair and maintenance, or for such other purposes as the Trustees shall determine to be appropriate) as they shall determine in good faith to be appropriate. Section 11. Investment Policy. Subject to the provisions of the Declaration of Trust, the Board may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Trust as it shall deem appropriate in its sole discretion. Section 12. Loss of Deposits. No Trustee shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association or other institution with whom moneys or shares have been deposited. Section 13. Surety Bonds. Unless required by law, no Trustee shall be obligated to give any bond or surety or other security for the performance of any of his or her duties. Section 14. Reliance. Each Trustee, officer, employee and agent of the Trust shall, in the performance of his or her duties with respect to the Trust, be fully justified and protected with regard to any act or failure to act in reliance in good faith on the books of account or other records of the Trust, on an opinion of counsel or on reports made to the Trust by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Board or officers of the Trust, regardless of whether such counsel or expert may also be a Trustee. Section 15. Certain Rights of Trustees, Officers, Employees And Agents. The Trustees shall have no responsibility to devote their full time to the affairs of the Trust. Any Trustee or officer, employee or agent of the Trust, in his or her personal capacity or in a capacity as an affiliate, employee or agent of any other person, or otherwise, may have business interests and engage in business activities similar to or in addition to or in competition with those of or relating to the Trust. Section 16. Duties of Trustees. Except to the extent that the Trustees are subject to a different standard under Maryland law or the Declaration of Trust, the Trustees shall perform their duties as Trustees or members of committees of Trustees in accordance with Section 2-405.1 of the Maryland General Corporation Law and may rely on information, opinions, reports, or statements as contemplated by Section 2-405.1. 8 Section 17. Presumption of Assent. A Trustee who is present at a meeting of the Board of Trustees at which action on any matter is taken on behalf of the Trust shall be presumed to have assented to such action unless such Trustee announces his or her dissent at the meeting and (a) such Trustee's dissent is entered into the minutes of the meeting, (b) such Trustee files his or her written dissent to such action with the secretary of the meeting before adjournment thereof, or (c) such Trustee forwards his or her written dissent, by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, to the secretary of the meeting or the Secretary of the Trust within 24 hours after the meeting is adjourned. Such right to dissent shall not apply to a trustee who voted in favor of such action or failed to make his or her dissent known at the meeting. ARTICLE III COMMITTEES Section 1. Number, Tenure And Qualifications. The Board may appoint from among its members an Executive Committee, an Audit Committee, an Executive Compensation Committee, an Investment Committee and other committees, composed of one or more Trustees, to serve at the pleasure of the Board. Section 2. Meetings. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The Board may designate a chairman of any committee and such chairman or any two members of any committee may fix the time and place of its meeting unless the Board shall otherwise provide. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another Trustee to act in the place of such absent member. Each committee shall keep minutes of its proceedings. Section 3. Telephone Meetings. Members of a committee of the Board may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting. Section 4. Informal Action by Committees. Any action required or permitted to be taken at any meeting of a committee of the Board may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee. Section 5. Vacancies. Subject to the provisions hereof, the Board shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee. ARTICLE IV. OFFICERS Section 1. General Provisions. The officers of the Trust shall be elected annually by the Board at the first meeting of the Board held after each annual meeting of Shareholders, except 9 that the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one) or the Chief Executive Officer may appoint a President, a Chief Operating Officer, a Chief Financial Officer, a Treasurer, a President of each division of the Trust, a Chairman of each division of the Trust, and one or more Managing Directors, Vice Presidents, Assistant Secretaries and Assistant Treasurers, or such other officers as the Board, the Chairman of the Board or the Chief Executive Officer shall deem proper. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his or her successor is elected and qualifies or until his or her death, resignation or removal in the manner hereinafter provided. Any two or more offices may be held by the same person. In its discretion, the Board may leave unfilled any office except that of Chairman of the Board (or Co-Chairman of the Board, if there is more than one) and Secretary. Any two offices except President and Vice President may be held concurrently by the same person. Section 2. Resignation. Any officer of the Trust may resign at any time by giving written notice of his or her resignation to the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the Secretary. Any resignation shall take effect at any time subsequent to the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Trust. Section 3. Vacancies. A vacancy in any office may be filled by the Board for the balance of the term. Section 4. Chairman of The Board. The Chairman of the Board (or the Co-Chairmen of the Board in the order of their election, if there is more than one) shall also serve as the Chief Executive Officer and, as such, shall have general supervision, direction and control of the business and affairs of the Trust, subject to the control of the Board, shall preside at meetings of Shareholders and shall have such other functions, authority and duties as customarily appertain to the office of the chief executive of a business corporation or as may be prescribed by the Board. Section 5. Chief Executive Officer. The Chief Executive Officer, if elected, shall be the chief executive officer of the Trust and, as such, shall have general supervision, direction and control of the business and affairs of the Trust, subject to the control of the Board, shall preside at meetings of Shareholders and shall have such other functions, authority and duties as customarily appertain to the office of the chief executive of a business corporation or as may be prescribed by the Board or the Chairman of the Board. Section 6. President. The President shall have such functions, authority and duties as may be prescribed by the Board or the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one). Section 7. Managing Director. The Managing Director (or the Managing Directors, if there is more than one), shall have such functions, authority and duties, and shall have such 10 additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 8. Chief Operating Officer. The Chief Operating Officer shall have such functions, authority and duties, and have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 9. Chief Financial Officer. The Chief Financial Officer shall have the custody of the funds and securities of the Trust and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Trust and shall deposit all moneys and other valuable effects in the name and to the credit of the Trust in such depositories as may be designated by the Board and shall perform such other duties as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 10. President of a Division. Each President of a division of the Trust shall have such functions, authority and duties, and shall have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 11. Chairman of a Division. Each Chairman of a division of the Trust shall have such functions, authority and duties, and shall have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 12. Vice Presidents. Each Vice President shall have such functions, authority and duties, and have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer, the President or any Managing Director. Section 13. Secretary. The Secretary shall keep a record of all proceedings of the Shareholders of the Trust and of the Board and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice, if any, of all meetings of the Shareholders and shall perform such other duties as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. The Secretary shall have custody of the corporate seal of the Trust and the Secretary or, in the absence of the Secretary, any Assistant Secretary shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by the signature of the Secretary or any Assistant Secretary. The Board may give general authority to any other officer to affix the seal of the Trust and to attest such affixing of the seal. 11 Section 14. Assistant Secretary. The Assistant Secretary, or if there is more than one, the Assistant Secretaries in the order determined by the Board (or if there is no such determination, then in the order of their election), shall, in the absence of the Secretary or if the Secretary is unable or refuses to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer, the President or the Secretary. Section 15. Treasurer. The Treasurer shall have such functions, authority and duties, and have such additional descriptive designations in his or her title (if any), as may be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer or the President. Section 16. Assistant Treasurer. The Assistant Treasurer, or if there is more than one, the Assistant Treasurers in the order determined by the Board (or if there is no such determination, then in the order of their election), shall, in the absence of the Treasurer or if the Treasurer is unable or refuses to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the Chief Executive Officer, the President or the Treasurer. Section 17. Salaries. The salaries and other compensation of the officers shall be fixed from time to time by the Board and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that he or she is also a Trustee. Section 18. Execution of Documents. A person who holds more than one office in the Trust may not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer. Section 19. Bonds. The Board may require any officer, agent or employee of the Trust to give a bond to the Trust, conditioned on the faithful discharge of his or her duties, with one or more sureties and in such amount as may be satisfactory to the Board. ARTICLE V. INDEMNIFICATION Section 1. Procedure. Any indemnification, or payment of expenses in advance of the final disposition of any proceeding, shall be made promptly, and in any event within 60 days, upon the written request of the Trustee or officer entitled to seek indemnification (the "Indemnified Party"). The right to indemnification and advances hereunder shall be enforceable by the Indemnified Party in any court of competent jurisdiction, if (i) the Trust denies such request, in whole or in part, or (ii) no disposition thereof is made within 60 days. The Indemnified Party's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be reimbursed by the Trust. It shall be a defense to any action for advance of expenses that (a) a determination has been made that the 12 facts then known to those making the determination would preclude indemnification or (b) the Trust has not received both (i) an undertaking as required by law to repay such advances if it shall ultimately be determined that the standard of conduct has not been met and (ii) a written affirmation by the Indemnified Party of such Indemnified Party's good faith belief that the standard of conduct necessary for indemnification by the Trust has been met. Section 2. Exclusivity, Etc. The indemnification and advance of expenses provided by the Declaration of Trust and these Bylaws shall not be deemed exclusive of any other rights to which a person seeking indemnification or advance of expenses may be entitled under any law (common or statutory), or any agreement, vote of Shareholders or disinterested Trustees or other provision which is consistent with law, both as to action in his or her official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Trust, shall continue in respect of all events occurring while a person was a Trustee or officer after such person has ceased to be a Trustee or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of such person. All rights to indemnification and advancement of expenses under the Declaration of Trust and these Bylaws shall be deemed to be a contract between the Trust and each Trustee or officer of the Trust who serves or served in such capacity at any time while such provisions are in effect. Nothing herein shall prevent the amendment of these Bylaws, provided that no such amendment shall diminish the rights of any person hereunder with respect to events occurring or claims made before its adoption or as to claims made after its adoption in respect of events occurring before its adoption. Any repeal or modification of these Bylaws shall not in any way diminish any rights to indemnification or advancement of expenses of such Trustee or officer of the obligations of the Trust arising hereunder with respect to events occurring, or claims made, while these Bylaws or any provision hereof is in effect. ARTICLE VI. CONTRACTS AND ACCOUNTING Section 1. Contracts. The Board may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Trust and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document executed by one or more of the Trustees or by an authorized person shall be valid and binding on the Board and on the Trust when authorized or ratified by action of the Board. Section 2. Checks And Drafts. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Trust shall be signed by such officer or agent of the Trust in such manner as shall from time to time be determined by the Board. Section 3. Deposits. All funds of the Trust not otherwise employed shall be deposited from time to time to the credit of the Trust in such banks, trust companies or other depositories as the Board may designate. Section 4. Books and Records. The Trust shall keep correct and complete books and records of its accounts and transactions and minutes of the proceedings of its Shareholders and 13 Board and of any executive or other committee when exercising any of the powers of the Board. The books and records of the Trust may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. Minutes shall be recorded in written form but may be maintained in the form of a reproduction. The original or a certified copy of the Bylaws shall be kept at the principal office of the Trust. Section 5. Fiscal Year. The fiscal year of the Trust shall be the twelve months ending December 31 in each year, unless otherwise provided by the Board. ARTICLE VII SHARES Section 1. Certificates. Each Shareholder shall be entitled to a certificate or certificates which shall represent and certify the number of Shares of each class held by him or her in the Trust; provided, however, that the Board may provide by resolution or resolutions that some or all of any class or series of Shares shall be uncertificated. Each certificate shall be signed by the Chairman of the Board (or any Co-Chairman of the Board, if there is more than one), the President or a Vice President and countersigned by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and may be sealed with the seal, if any, of the Trust. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the Trust shall, from time to time, issue several classes of Shares, each class may have its own number series. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. Each certificate representing Shares which are restricted as to their transferability or voting powers, which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Trust, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. If the Trust has authority to issue Shares of more than one class, the certificate shall contain on the face or back a full statement or summary of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of each class of Shares and, if the Trust is authorized to issue any preferred or special class in series, the differences in the relative rights and preferences between the Shares of each series to the extent they have been set and the authority of the Board to set the relative rights and preferences of subsequent series. In lieu of such statement or summary, the certificate may state that the Trust will furnish a full statement of such information to any Shareholder upon request and without charge. If any class of Shares is restricted by the Trust as to transferability, the certificate shall contain a full statement of the restriction or state that the Trust will furnish information about the restrictions to the Shareholder on request and without charge. Section 2. Transfers. Upon surrender to the Trust or the transfer agent of the Trust of a Share certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Trust shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction on its books. Notwithstanding the foregoing, transfers of Shares of any class will be subject in all respects to the Declaration of Trust and all of the terms and conditions contained therein. 14 Section 3. Replacement Certificate. Any officer designated by the Board may direct a new certificate to be issued in place of any certificate previously issued by the Trust alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, an officer designated by the Board may, in his or her discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner's legal representative to advertise the same in such manner as he or she shall require and/or to give bond, with sufficient surety, to the Trust to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate. Section 4. Closing of Transfer Books or Fixing of Record Date. (a) Fixing of Record Date. The Board may set, in advance, a record date for the purpose of determining Shareholders entitled to notice of or to vote at any meeting of Shareholders or determining Shareholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of Shareholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days, and in the case of a meeting of the Shareholders not less than ten days, before the date on which the particular action requiring such determination of Shareholders of record is to be held or taken. In lieu of fixing a record date, the Board may provide that the Share transfer books shall be closed for a stated period but not longer than 20 days. (b) If Record Date Not Fixed. If no record date is fixed and the Share transfer books are not closed for the determination of Shareholders, the record date for the determination of Shareholders entitled to receive a payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Board, declaring the dividend or allotment of rights, is adopted. (c) Record Dates for Adjourned Meetings. When a determination of Shareholders entitled to vote at any meeting of Shareholders has been made as provided in the Declaration of Trust, such determination shall apply to any adjournment thereof, except when the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in which case a new record date shall be determined as set forth in the Declaration of Trust. (d) Share Transfers After Record Date. Except where the Board fixes a new record date for any adjourned meeting as provided above, any Shareholder who was a Shareholder on the original record date shall be entitled to receive notice of and to vote at a meeting of Shareholders or any adjournment thereof and to receive a dividend or allotment of rights even though he or she has since such date disposed of his or her Shares, and no Shareholder becoming a Shareholder after such date shall be entitled to receive notice of or to vote at such meeting or any adjournment thereof or to receive such dividend or allotment of rights. 15 Section 5. Share Ledger. The Trust shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate Share ledger containing the name and address of each Shareholder and the number of Shares of each class held by such Shareholder. The Trust shall be entitled to treat the holder of record of any Share as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Share or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland. Section 6. Fractional Shares; Issuance of Units. The Board may issue fractional Shares or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Declaration of Trust or these Bylaws to the contrary, the Board may issue units consisting of different securities of the Trust. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Trust, except that the Board may provide that, for a specified period, securities of the Trust issued in such unit may be transferred on the books of the Trust only in such unit. ARTICLE VIII EXEMPTION FROM CONTROL SHARE ACQUISITION ACT The provisions of Title 3, Subtitle 7 of the Maryland General Corporation Law (the Maryland Control Share Acquisition Act), or any successor statute, shall not apply to any acquisition by any person of Shares of the Trust. This section may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw and consistent with applicable law, apply to any prior or subsequent control share acquisition. ARTICLE IX. AMENDMENT These Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, at any meeting of the Board by vote of a majority of the Trustees, subject to repeal or change by action of the Shareholders of the Trust entitled to vote thereon. ARTICLE X. SEAL Section 1. Seal. The Board may adopt a suitable seal, bearing the name of the Trust, which shall be in the charge of the Secretary. The Board may authorize one or more duplicate seals and provide for the custody thereof. Section 2. Affixing Seal. Whenever the Trust is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the signature of the person authorized to execute the document on behalf of the Trust. 16 EX-2.1(F) 8 dex21f.txt FORM OF PROPOSED CHARTER AMENDMENTS EXHIBIT 2.1(f) EXHIBIT F --------- ARTICLES OF AMENDMENT AMENDED AND RESTATED DECLARATION OF TRUST OF ARCHSTONE COMMUNITIES TRUST The undersigned, being an officer duly authorized by unanimous vote of the Trustees of Archstone Communities Trust, a Maryland real estate investment trust (the "Trust"), does hereby certify pursuant the provisions of Article VI, Section 1 of the Trust's Amended and Restated Declaration of Trust, as amended and supplemented (the "Declaration of Trust"), and Section 8-501 of the Corporations and Associations Article of the Annotated Code of Maryland, that the Board of Trustees of the Trust has adopted a resolution declaring this amendment to the declaration of trust as hereinafter set forth to be advisable and that the shareholders of the Trust have approved such amendment by the affirmative vote of at least a majority of all the votes entitled to be cast on the matter. Therefore, the Declaration of Trust is hereby amended as follows: 1. The following provision is hereby added at the end of each of the following provisions of the Declaration of Trust; (i) Section (i)(ii) of Annex A to Article II, Section 2; (ii) Section (h)(ii) of Annex C to Article II, Section 3; and (i) Section 8(b) of the Articles Supplementary designating a Series of Shares of Beneficial Interest as Series D Cumulative Redeemable Preferred Shares of Beneficial Interest: "For purposes of the foregoing provisions, a "share exchange" means a transaction (including a forward or reverse triangular merger) in which an entity acquires all the issued or all the outstanding equity securities of one or more classes of another entity and which does not affect the existence of either entity, and the term "surviving entity" shall include the entity acquiring equity securities in a share exchange." The undersigned officer acknowledges these Articles of Amendment to be the act of the Trust and, as to all other matters or facts required to be verified under oath, that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects, and that this statement is made under the penalties for perjury. IN WITNESS WHEREOF, the undersigned officer, duly authorized by a majority of the Trustees, has executed these articles of amendment as of this _______ day of _________, 2001. _________________________________ Charles E. Mueller, Jr. Senior Vice President and Chief Financial Officer ATTEST: _________________________________ Caroline Brower Secretary EX-99.1 9 dex991.txt FORM OF VOTING AGREEMENT EXHIBIT 99.1 VOTING AGREEMENT This VOTING AGREEMENT is entered into on May 3, 2001, by and between Archstone Communities Trust, a Maryland real estate investment trust ("Archstone"), and [See Exhibit A for a list of directors who have executed the agreement] (the "Shareholder"). WHEREAS, the Shareholder is the beneficial owner of shares of common stock, $.01 par value per share (the "Common Stock"), of Charles E. Smith Residential Realty, Inc., a Maryland corporation ("Smith"), and units of limited partnership interest ("Units") of Charles E. Smith Residential Realty, L.P., a Delaware limited partnership ("L.P."); WHEREAS, Archstone, New Garden Residential Trust, a wholly-owned subsidiary of Archstone and a Maryland real estate investment trust ("New Archstone"), Smith and L.P. have entered into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which provides for New Archstone to create a wholly owned subsidiary ("Archstone Merger Sub"), for Archstone Merger Sub to merge with and into Archstone with Archstone surviving as a wholly owned subsidiary of New Archstone, for the merger of Smith with and into New Archstone, and for the merger of L.P. into Archstone, all such transactions on the terms and subject to the conditions set forth in the Merger Agreement (all such transactions collectively referred to as the "Merger"); WHEREAS, the Shareholder desires to facilitate the consummation of the Merger, and for such purpose the Shareholder has agreed to vote all of the shares of the Common Stock and Units, as applicable, owned by the Shareholder as of the date hereof and any shares or Units acquired by Shareholder after the date hereof (all such shares of Common Stock and Units are collectively referred to as the "Securities") as provided in this Agreement; and WHEREAS, as a condition of Archstone to enter into the Merger Agreement, it is a requirement of the Merger Agreement that the Shareholder enters into this Agreement. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Agreement to Vote. (a) At such time as Smith and/or L.P. conducts a meeting of, solicits written consents from, or otherwise seeks a vote of, its shareholders and/or limited partners for the purpose of approving the Merger or any of the transactions contemplated by the Merger, the Shareholder agrees, subject to Section 1(d) below, to vote all of the Securities, as applicable, beneficially owed by her or with respect to which she exercises voting power (directly or indirectly) in favor of the Merger and all other actions contemplated by the Merger Agreement or otherwise necessary or desirable for the consummation of the Merger. If Smith and/or L.P. conducts a meeting of, solicits written consents from, or otherwise seeks a vote of, its shareholders and/or limited partners with respect to any Acquisition Event (as defined below) or any other matter which may contradict or conflict with any provision of this Agreement or the Merger Agreement or may make it more difficult or less desirable for Archstone to consummate the Merger, then the Shareholder further agrees, subject to Section 1(c) below, to vote her Securities, as applicable, in the manner most favorable to the consummation of the Merger and the transactions contemplated by the Merger Agreement. (b) When used herein, the term "Acquisition Event" means the earliest to occur of any of the following: (i) a merger, consolidation, business combination, reorganization, recapitalization, liquidation, dissolution or similar transaction; (ii) a sale, acquisition, tender offer, exchange offer (or the filing of a registration statement under the Securities Act in connection with such an exchange offer), share exchange or other transaction or series of related transactions, that, if consummated, would result in the issuance of securities representing, or the sale, exchange or transfer of, 15% or more of the outstanding voting equity securities of Smith and or outstanding partnership interests of L.P. (including, without limitation, partnership interests and units), except an underwritten public offering of Smith Common Stock for cash; or (iii) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (collectively, a "Transfer") of any assets of Smith and/or L.P. in one or a series of related transactions that, if consummated, would result in the Transfer of more than 15% of the assets of Smith and/or L.P.; other than the Merger. (c) Notwithstanding any other provision of this Agreement, the Shareholder may terminate this Agreement and be released from all obligations to vote her Securities in accordance with the provisions of this Agreement in the event the Merger Agreement is terminated. (d) Subject to the terms and conditions of this Agreement, prior to the Effective Time (as defined in the Merger Agreement), (i) Shareholder shall not, directly or indirectly, (A) initiate, solicit or encourage any inquiries or the making or implementation of any proposal or offer (including, without limitation, any proposal or offer with respect to an Acquisition Event or (B) engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to -2- an Acquisition Event, or otherwise facilitate any effort or attempt to make or implement an Acquisition Event, and (ii) Shareholder will notify Archstone immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with SRW and/or L.P.; provided; however, that the foregoing shall not prevent any discussion or other communications between Archstone and Shareholder. 2. Waiver of Dissenters' Rights. The Shareholder hereby agrees to waive any dissenters' rights which may be available under applicable Maryland or Delaware law in connection with the Merger Agreement and the Merger. 3. Representations, Warranties and Covenants of Shareholder. The Shareholder represents and warrants to, and agrees with, Archstone that: (a) this Agreement has been duly executed and delivered by the Shareholder and constitutes a valid and legally binding obligation of the Shareholder enforceable in accordance with its terms subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity; (b) the Shareholder is not subject to or obligated under any provision of (i) any contract, (ii) any license, franchise or permit or (iii) any law, regulation, order, judgment or decree that would be breached or violated by the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, which breach or violation would materially and adversely affect the Shareholder's ability to perform any of her obligations under this Agreement; (c) no authorization, consent or approval of, or any filing with, any public body or authority is necessary for consummation by the Shareholder of the transactions contemplated by this Agreement, other than where the failure to make such filings or obtain such authorizations, consents or approvals would not materially and adversely affect the Shareholder's ability to perform her obligations under this Agreement; (d) as of the date of this Agreement, the Securities beneficially owned by the Shareholder consist of the shares of Common Stock and the Units set forth on Schedule 1; (e) on the date hereof the Shareholder has, and the Shareholder will have at all times up to the termination of this Agreement or the earlier purchase by Archstone of her Shares, the unrestricted power to vote her Securities, as applicable; and -3- (f) the Shareholder will not sell, transfer, hypothecate, pledge, encumber or otherwise dispose of any of her Securities or any interests therein, or grant any option or other right with respect thereto, without the prior written consent of Archstone; provided, however, that nothing herein shall prevent (i) the sale, transfer, hypothecation, pledge, encumbrance, or other disposition of any of such Securities, provided that the purchaser, transferee, or pledgee thereof agrees in writing, prior to such sale, transfer, hypothecation, pledge, encumbrance or other disposition, to be bound by the terms of this Agreement or (ii) the continuance of current pledges of the Securities in effect on the date hereof. 4. Expenses. Each party hereto will pay its own expenses incurred in connection with this Agreement. 5. Amendment; Assignment. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by Archstone and the Shareholder. Archstone may not assign any of its rights or obligations under this Agreement without the prior written consent of the Shareholder. The Shareholder may not assign any of its rights or obligations under this Agreement without the prior written consent of Archstone. 6. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given upon (a) confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by an overnight courier or when delivered by hand, or (c) confirmation of receipt when sent by certified or registered mail, postage prepaid, addressed to the applicable parties as follows: If to the Shareholder: [insert name and address of Shareholder] with a copy to: Hogan & Hartson L.L.P. 555 Thirteenth Street, N.W. Washington, D.C. 20004-1109 Facsimile No.: (202) 637-5910 Attention: J. Warren Gorrell, Jr. Bruce Gilchrist -4- If to Archstone: 7670 South Chester Street Suite 100 Englewood, Colorado 80112 Telephone: Facsimile No.: Attention with a copy to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, IL 60603-3441 Facsimile No.: (312) 701-7711 Attention: Michael T. Blair or to such other address as the party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. 7. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but which together shall constitute one and the same document. 8. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland (without giving effect to the provisions thereof relating to conflicts of law). 9. Binding Effect. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the heirs, personal representatives, successors and permitted assigns of the parties hereto. Nothing expressed or referred to in this Agreement is intended or shall be construed to give any person other than the parties to this Agreement, or their respective heirs, personal representatives, successors or assigns, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 10. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof. -5- 11. Term. This Agreement shall immediately terminate upon the earlier of either (a) the Effective Time (as defined in the Merger Agreement), or (b) the date of termination of the Merger Agreement. None of the representations, warranties, covenants or agreements in this Agreement shall survive the termination of this Agreement. 12. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 13. Further Assurances. The Shareholder will, upon the request of Archstone, execute and deliver such documents and take such action deemed by Archstone to be reasonably necessary to effectuate the purposes of this Agreement 14. Remedies. The Shareholder agrees that, for any violation of this Agreement, Archstone shall have the right to seek equitable relief in any court of competent jurisdiction to require that the Shareholder comply with the terms of this Agreement. 15. Shareholder Capacity. The Shareholder has executed this Agreement solely in his capacity as a securityholder of SRW or L.P. and not in his capacity as an officer, director, employee or manager of SRW or L.P. Without limiting the foregoing, nothing in this Agreement shall limit or affect any actions taken by the Shareholder in his capacity as an officer, director, employee or manager of SRW or L.P. in connection with the exercise of SRW's or L.P.'s rights under the Merger Agreement. -6- IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to be duly executed as of the day and year first above written. ARCHSTONE COMMUNITIES TRUST By:_________________________ Name:____________________ Title:___________________ _________________________ [insert name of shareholder] -7- SCHEDULE 1 - ------------------------------------------------------------------------------ Number of Shares of Common Stock Number of Units - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ [insert numbers from attached Exhibit A] EXHIBIT A The following directors of Charles E. Smith Residential Realty, Inc. have executed the Voting Agreement and own the number of shares of common stock of Charles E. Smith Residential Realty, Inc. and number of units of Charles E. Smith Residential Realty, L.P. set forth next to their name: Name Number of Shares Number of Units - ---- ---------------- --------------- Ernest A. Gerardi, Jr. 66,153 26,000 Charles B. Gill 5,665 0 Roger J. Kiley, Jr. 118 0 Robert P. Kogod 144,408/1/ 1,975,056/2/ R. Michael McCullough 264 0 Robert H. Smith 25,738/3/ 2,018,635/4/ Karen Hastie Williams 118 0 /1/ Includes 52,185 shares held by Robert Kogod's spouse, Arlene Kogod. /2/ The total number of Units includes 62,392 Units held by Robert Kogod, 34,806 Units held by Arlene Kogod and 1,877,858 Units held by corporations wholly-owned by Robert Kogod and Robert Smith and/or their spouses. /3/ Includes 18,150 shares held by Robert Smith's spouse, Clarice Smith. /4/ The total number of Units includes 95,771 Units held by Robert Smith, 45,006 Units held by Clarice Smith and 1,877,858 Units held by corporations wholly-owned by Robert Smith and Robert P. Kogod and/or their spouses. -9- EX-99.2 10 dex992.txt FORM OF VOTING AGREEMENT Exhibit 99.2 VOTING AGREEMENT This VOTING AGREEMENT is entered into on May 3, 2001, by and between Charles E. Smith Residential Realty, Inc., a Maryland corporation ("Smith"), and [See Exhibit A for list of trustees who have executed the agreement] ("Shareholder"). WHEREAS, the Shareholder is the beneficial owner of common shares of beneficial interest, $1.00 par value per share (the "Common Shares"), of Archstone Communities Trust, a Maryland real estate investment trust ("Archstone"); WHEREAS, Archstone, New Garden Residential Trust, a Maryland real estate investment trust ("New Archstone"), Smith and Charles E. Smith Residential Realty, L.P., a Delaware limited partnership ("L.P."), have entered into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which provides for New Archstone to create a wholly owned subsidiary ("Archstsone Merger Sub"), for Archstone Merger Sub to merge with and into Archstone with Archstone surviving as a wholly owned subsidiary of New Archstone, for the merger of Smith with and into New Archstone, and for the merger of L.P. into Archstone, all such transactions on the terms and subject to the conditions set forth in the Merger Agreement (all such transactions collectively referred to as the "Merger"); WHEREAS, the Shareholder desires to facilitate the consummation of the Merger, and for such purpose the Shareholder has agreed to vote all of the Common Shares owned by the Shareholder as of the date hereof and any shares acquired by Shareholder after the date hereof, of either Archstone or New Archstone (all such Common Shares are collectively referred to as the "Securities") as provided in this Agreement; and WHEREAS, as a condition of Smith to enter into the Merger Agreement, it is a requirement of the Merger Agreement that the Shareholder enters into this Agreement. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Agreement to Vote. (a) At such time as Archstone conducts a meeting of, solicits written consents from, or otherwise seeks a vote of, its shareholders and/or limited partners for the purpose of approving the Merger or any of the transactions contemplated by the Merger, the Shareholder agrees, subject to Section 1(b) below, to vote all of the Securities, as applicable, beneficially owned by him or with respect to which he exercises voting power (directly or indirectly) in favor of the Merger and all other actions contemplated by the Merger Agreement or otherwise necessary or desirable for the consummation of the Merger. (b) Notwithstanding any other provision of this Agreement, the Shareholder may terminate this Agreement and be released from all obligations to vote his Securities in accordance with the provisions of this Agreement in the event the Merger Agreement is terminated. 2. Waiver of Dissenters' Rights. The Shareholder hereby agrees to waive any dissenters' rights which may be available under applicable Maryland law in connection with the Merger and the Merger Agreement. 3. Representations, Warranties and Covenants of Shareholder. The Shareholder represents and warrants to, and agrees with, Smith that: (a) this Agreement has been duly executed and delivered by the Shareholder and constitutes a valid and legally binding obligation of the Shareholder enforceable in accordance with its terms subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity; (b) the Shareholder is not subject to or obligated under any provision of (i) any contract, (ii) any license, franchise or permit or (iii) any law, regulation, order, judgment or decree that would be breached or violated by the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, which breach or violation would materially and adversely affect the Shareholder's ability to perform any of his obligations under this Agreement; (c) no authorization, consent or approval of, or any filing with, any public body or authority is necessary for consummation by the Shareholder of the transactions contemplated by this Agreement, other than where the failure to make such filings or obtain such authorizations, consents or approvals would not materially and adversely affect the Shareholder's ability to perform his obligations under this Agreement; (d) as of the date of this Agreement, the Securities beneficially owned by the Shareholder consist of the Common Shares set forth on Schedule 1; (e) on the date hereof the Shareholder has, and the Shareholder will have at all times up to the termination of this Agreement, the unrestricted power to vote his Securities, as applicable; and (f) the Shareholder will not sell, transfer, hypothecate, pledge, encumber or otherwise dispose of any of his Securities or any interests therein, or grant any option or other right with respect thereto, without the prior written consent of Smith provided, however, that nothing herein shall prevent (i) the sale, transfer, hypothecation, pledge, encumbrance, or other disposition of any of such Securities, provided that the purchaser, transferee, or pledgee thereof agrees in writing, prior to such sale, transfer, hypothecation, pledge, encumbrance or -2- other disposition, to be bound by the terms of this Agreement or (ii) the continuance of current pledges of the Securities in effect on the date hereof. 4. Expenses. Each party hereto will pay its own expenses incurred in connection with this Agreement. 5. Amendment; Assignment. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by Smith and the Shareholder. Smith may not assign any of its rights or obligations under this Agreement without the prior written consent of the Shareholder. The Shareholder may not assign any of its rights or obligations under this Agreement without the prior written consent of Smith. 6. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given upon (a) confirmation of a receipt of a facsimile transmission, (b) confirmed delivery by an overnight courier or when delivered by hand, or (c) confirmation of receipt when sent by certified or registered mail, postage prepaid, addressed to the applicable parties as follows: If to the Shareholder: [insert name of Shareholder] c/o Archstone Communities Trust 7670 South Chester Street, Suite 100 Englewood, Colorado 80112 Facsimile: (303) 858-0021 Attention: General Counsel with a copy to: Mayer, Brown & Platt 190 South LaSalle Street Chicago, Illinois 60603 Facsimile No.: (312) 701-7711 Attention: Michael T. Blair -3- If to Smith: Charles E. Smith Residential Realty, Inc. 2345 Crystal Drive Crystal Park #4 Arlington, Virginia 22202 Facsimile No.: (703) 769-1312 Attention: General Counsel with a copy to: Hogan & Hartson L.L.P. 555 Thirteenth Street, N.W. Washington, D.C. 20549 Facsimile No.: (202) 637-5910 Attention: Bruce W. Gilchrist J. Warren Gorrell, Jr. or to such other address as the party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. 7. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but which together shall constitute one and the same document. 8. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland (without giving effect to the provisions thereof relating to conflicts of law). 9. Binding Effect. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by the heirs, personal representatives, successors and permitted assigns of the parties hereto. Nothing expressed or referred to in this Agreement is intended or shall be construed to give any person other than the parties to this Agreement, or their respective heirs, personal representatives, successors or assigns, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 10. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parities hereto with respect to the subject matter hereof. 11. Term. This Agreement shall immediately terminate upon the earlier of either (a) the Effective Time (as defined in the Merger Agreement) or (b) the date of termination of the Merger Agreement. None of the representations, warranties, covenants or agreements in this Agreement shall survive the termination of this Agreement. -4- 12. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. 13. Further Assurances. The Shareholder will, upon the request of Smith, execute and deliver such documents and take such action deemed by Smith to be reasonably necessary to effectuate the purposes of this Agreement. 14. Remedies. The Shareholder agrees that, for any violation of this Agreement, Smith shall have the right to seek equitable relief in any court of competent jurisdiction to require that the Shareholder comply with the terms of this Agreement. 15. Shareholder Capacity. The Shareholder has executed this Agreement solely in his capacity as a securityholder of Archstone or New Archstone and not in his capacity as an officer, director, employee or manager of Archstone or New Archstone without limiting the foregoing, nothing in this Agreement shall limit or affect any actions taken by the Shareholder in his capacity as an officer, trustee, employee or manager of Archstone or New Archstone in connection with the exercise of Archstone's or New Archstone's rights under the Merger Agreement. -5- IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to be duly executed as of the day and year first above written. CHARLES E. SMITH RESIDENTIAL REALTY, INC. By:_______________________________ Name:__________________________ Title:_________________________ _________________________________ [insert name of shareholder] -6- Schedule 1 ---------- Number of Common Shares Beneficially Owned: - ------------------------------------------ [insert number from attached Exhibit A] -7- EXHIBIT A --------- The following trustees of Archstone Communities Trust have executed the Voting Agreement and own the number of common shares of Archstone Communities Trust set forth next to their name: Name Number of Shares - ---- ---------------- James A. Cardwell 38,956 Ned S. Holmes 18,804 James H. Polk, III 16,778 John M. Richman 15,500 John C. Schweitzer 59,250 R. Scot Sellers 340,634 -8- -----END PRIVACY-ENHANCED MESSAGE-----