FIRST POTOMAC REALTY TRUST

                      ARTICLES OF AMENDMENT AND RESTATEMENT

 

THIS IS TO CERTIFY THAT:

 

         FIRST: The Declaration of Trust of First Potomac Realty Trust, a

Maryland real estate investment trust (the "Company"), is hereby amended and

restated.

 

         SECOND: The following provisions are all of the provisions of the

Declaration of Trust as amended and restated:

 

                           FIRST POTOMAC REALTY TRUST

                 FIRST AMENDED AND RESTATED DECLARATION OF TRUST

 

         This FIRST AMENDED AND RESTATED DECLARATION OF TRUST (the "Declaration

of Trust") is made as of the date set forth above by the Trustees.

 

         WHEREAS, the Trustees have created a real estate investment trust under

the laws of the State of Maryland; and

 

         WHEREAS, the Trustees desire to amend and restate the Declaration of

Trust of the Company; and

 

         WHEREAS, the Trustees desire that the Trust qualify as a "real estate

investment trust" under Title 8, so long as such qualification, in the opinion

of the Trustees, is advantageous to the holders of beneficial interest in the

Trust; and

 

         WHEREAS, the beneficial interest in the Trust shall be divided into

transferable shares of one or more series or classes;

 

         NOW, THEREFORE, the Trustees hereby declare that they will hold in

trust all property which they have or may hereafter acquire as such Trustees,

together with the proceeds thereof, and manage the Trust Property for the

benefit of the holders of beneficial interest in the Trust as provided by this

Declaration of Trust.

 

                                    ARTICLE I

 

                             THE TRUST; DEFINITIONS

 

         SECTION 1.1 Name. The name of the Trust is:

 

                           FIRST POTOMAC REALTY TRUST

 

<PAGE>

 

So far as may be practicable, the business of the Trust shall be conducted and

transacted under such name, and such name (and the word "Trust" whenever used in

this Declaration of Trust, except where the context otherwise requires) shall

refer to the Trustees collectively but not individually or personally and shall

not refer to the Shareholders, or to any officers, employees or agents of the

Trust or of the Trustees.

 

         Under circumstances in which the Trustees determine that the use of the

name set forth in this Section is not practicable or desirable, they may use any

other designation or name for the Trust.

 

         SECTION 1.2 Resident Agent. The name and address of the resident agent

of the Trust in the State of Maryland is Douglas J. Donatelli, 7200 Wisconsin

Avenue, Suite 310, Bethesda, Maryland 20814. The Trust may have such offices or

places of business within or without the State of Maryland as the Trustees may

from time to time determine.

 

         SECTION 1.3 Nature of Trust. The Trust is a real estate investment

trust within the meaning of Title 8. The Trust shall not be deemed to be a

general partnership, limited partnership, joint venture, joint stock company or,

except as provided in Section 10.4, a corporation.

 

         SECTION 1.4 Powers. The Trust shall have all of the powers granted to

real estate investment trusts generally by Title 8 or any successor statute and

shall have any other and further powers as are not inconsistent with and are

appropriate to promote and attain the purposes set forth in this Declaration of

Trust, including engaging in business as a REIT.

 

         SECTION 1.5 REIT Qualification. The Board of Trustees shall use its

best efforts to cause the Trust to qualify for U.S. federal income tax treatment

in accordance with the provisions of the Code applicable to REITs. In

furtherance of the foregoing, the Board of Trustees shall take such actions as

are necessary, and may take such actions as it deems desirable, to preserve the

status of the Trust as a REIT. In the event the Board of Trustees determines

that it is no longer in the best interests of the Trust to qualify as a REIT,

the Board of Trustees shall take such actions as are required by the Code, the

Annotated Code of Maryland and other applicable law to cause the matter of

termination of qualification as a REIT to be submitted to a vote of the

Shareholders. The affirmative vote of the holders of not less than a majority of

the Shares outstanding and entitled to vote thereon shall be required to

terminate voluntarily the Trust's status as a REIT.

 

         SECTION 1.6 Definitions. As used in this Declaration of Trust, the

following terms shall have the following meanings unless the context otherwise

requires:

 

                  "Bylaws" means the Bylaws of the Trust, as the same may be

amended from time to time.

 

                  "Code" means the Internal Revenue Code of 1986, as the same

may be amended from time to time.

 

                                      -2-

 

<PAGE>

 

                  "Common Shares" means the common shares of beneficial

interest, par value $0.001 per share, of the Trust as referenced in Section 4.2.

 

                  "Conflicting Provisions" shall have the meaning set forth in

Section 10.3(a) of this Declaration of Trust.

 

                  "Declaration of Trust" means this Declaration of Trust, as the

same may be amended or supplemented from time to time.

 

                  "Person" means 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, limited liability company or other entity, or any

government and agency or political subdivision thereof, and also includes a

group as the term is used for purposes of Section 13(d)(3) of the Securities

Exchange Act of 1934, as amended from time to time.

 

                  "Preferred Shares" means the Preferred Shares of the Trust as

referenced in Section 4.3.

 

                  "REIT" shall mean "real estate investment trust" as that term

is used in the Code.

 

                  "Securities" means the Shares, any stock, shares or other

evidences of equity or beneficial or other interests, voting trust certificates,

bonds, debentures, notes or other evidences of indebtedness, secured or

unsecured, convertible, subordinated or otherwise, or in general any instruments

commonly known as "securities" or any certificates of interest, shares or

participation in, temporary or interim certificates for, receipts for,

guarantees of, or warrants, options or rights to subscribe to, purchase or

acquire, any of the foregoing.

 

                  "Securities of the Trust" means any Securities issued by the

Trust.

 

                  "Shareholders" means holders of record of outstanding Shares.

 

                  "Shares" means transferable shares of beneficial interest of

the Trust of any class or series.

 

                  "Title 8" means Title 8 of the Corporations and Associations

Article of the Annotated Code of Maryland, as the same may be amended from time

to time.

 

                  "Trust" means the real estate investment trust which is the

subject of this Declaration of Trust.

 

                  "Trustees" means, initially, the individuals named in Section

2.2 of this Declaration of Trust and all other individuals who have been duly

elected and qualified as trustees of the Trust hereunder so long as such

individuals continue in office.

 

                                      -3-

 

<PAGE>

 

                  "Trust Property" means any and all property, real, personal or

otherwise, tangible or intangible, which is transferred or conveyed to the Trust

or the Trustees, as such (including all rents, income, profits and gains

therefrom), which property is owned or held by, or for the account of, the Trust

or the Trustees, as such.

 

                                   ARTICLE II

 

                                    TRUSTEES

 

         SECTION 2.1 Number. The number of Trustees shall be seven (7), which

number may thereafter be increased or decreased by the Trustees then in office

from time to time; provided, however, the total number of Trustees at any time

shall be not fewer than one (1) and not more than fifteen (15).

 

         SECTION 2.2 Trustees; Term. The name and address of the current

Trustees who shall serve until the 2004 annual meeting of Shareholders and until

their successors are duly elected and qualify or until their earlier resignation

or removal are:

 

<TABLE>

<CAPTION>

       Name                                   Address

       ----                                   -------

<S>                              <C>

Douglas J. Donatelli             c/o 7200 Wisconsin Avenue, Suite 310

                                 Bethesda, Maryland 20814

 

Louis T. Donatelli               c/o 7200 Wisconsin Avenue, Suite 310

                                 Bethesda, Maryland 20814

 

Robert H. Arnold                 c/o 7200 Wisconsin Avenue, Suite 310

                                 Bethesda, Maryland 20814

 

Richard B. Chess                 c/o 7200 Wisconsin Avenue, Suite 310

                                 Bethesda, Maryland 20814

 

R. Michael McCullough            c/o 7200 Wisconsin Avenue, Suite 310

                                 Bethesda, Maryland 20814

 

Terry L. Stevens                 c/o 7200 Wisconsin Avenue, Suite 310

                                 Bethesda, Maryland 20814

 

John Roderick Heller, III        c/o 7200 Wisconsin Avenue, Suite 310

                                 Bethesda, Maryland 20814

</TABLE>

 

         At each succeeding annual meeting of Shareholders, the successors to

the Trustees whose terms shall expire that year shall be elected to serve for a

term of one (1) year and until their respective successors shall have been duly

elected and qualified to serve as such.

 

                                      -4-

 

<PAGE>

 

         SECTION 2.3 Resignation, Removal or Death. Any Trustee may resign by

written notice to the remaining Trustees, effective upon execution and delivery

to the remaining Trustees of such written notice or upon any future date

specified in the notice. A Trustee may be removed, with or without cause, at a

meeting of Shareholders called for that purpose only by the affirmative vote of

the holders of not less than a majority of all votes entitled to be cast for the

election of Trustees. Upon the resignation or removal of any Trustee, or such

Trustee's otherwise ceasing to be a Trustee, such Trustee shall automatically

cease to have any right, title or interest in and to the Trust Property and

shall execute and deliver such documents as the remaining Trustees require for

the conveyance of any Trust Property held in such Trustee's name, and shall

account to the remaining Trustees as they require for all Trust Property which

such Trustee holds as Trustee. Upon the incapacity or death of any Trustee, such

Trustee's legal representative shall execute and deliver such documents as the

remaining Trustees require for the conveyance of any Trust Property held in such

Trustee's name, and shall account to the remaining Trustees as they require for

all Trust Property which such Trustee holds as Trustee.

 

         SECTION 2.4 Legal Title. Legal title to all Trust Property shall be

vested in the Trustees, but they may cause legal title to any Trust Property to

be held by or in the name of any Trustee, or the Trust, or any other Person as

nominee. The right, title and interest of the Trustees in and to the Trust

Property shall automatically vest in successor and additional Trustees upon

their qualification and acceptance of election or appointment as Trustees, and

they shall thereupon have all the rights and obligations of Trustees, whether or

not conveyancing documents have been executed and delivered pursuant to Section

2.3 or otherwise. Written evidence of the qualification and acceptance of

election or appointment of successor and additional Trustees may be filed with

the records of the Trust and in such other offices, agencies or places as the

Trustees may deem necessary or desirable.

 

                                   ARTICLE III

 

                               POWERS OF TRUSTEES

 

         Subject to the express limitations herein or in the Bylaws, (a) the

business and affairs of the Trust shall be managed under the direction of the

Trustees and (b) the Trustees shall have full, exclusive and absolute power,

control and authority over the Trust property and over the business of the Trust

as if they, in their own right, were the sole owners thereof. The Trustees may

take any actions as in their sole judgment and discretion are necessary or

desirable to conduct the business of the Trust. This Declaration of Trust shall

be construed with a presumption in favor of the grant of power and authority to

the Trustees. Any construction of this Declaration of Trust or determination

made in good faith by the Trustees concerning their powers and authority

hereunder shall be conclusive. The powers of the Trustees shall in no way be

limited or restricted by reference to or inference from the terms of this or any

other provision of this Declaration of Trust or construed or deemed by inference

or otherwise in any manner to exclude or limit the powers conferred upon the

Trustees under the general laws of the State of Maryland as now or hereafter in

force, and the Trustees shall have and exercise all powers which

 

                                      -5-

 

<PAGE>

 

they deem necessary, useful or desirable to carry on the business of the Trust

or to carry out the provisions of this Declaration of Trust, even if such powers

are not specifically provided hereby.

 

                                   ARTICLE IV

 

                                     SHARES

 

         SECTION 4.1 Shares.

 

                  (a)      The beneficial interest in the Trust shall be divided

into Shares. The total number of Shares which the Trust has authority to issue

is Two Hundred Million (200,000,000), and shall consist of One Hundred Fifty

Million (150,000,000) Common Shares and Fifty Million (50,000,000) Preferred

Shares, which may comprise one or more series or classes, and such other types,

series or classes of Securities of the Trust as the Trustees may create and

authorize from time to time and designate as representing a beneficial interest

in the Trust. Shares may be issued for such consideration as the Trustees

determine or, if issued as a result of a Share dividend, Share split or similar

transaction, or if issued in accordance with Section 207 of Title 8, without any

consideration, in which case all Shares so issued by the Trust shall be fully

paid and nonassessable.

 

                  (b)      The Trustees may amend this Declaration of Trust from

time to time to increase or decrease the aggregate number of Shares of any class

that the Trust has the authority to issue.

 

                  (c)      Notwithstanding any other provision of this

Declaration of Trust, the Trustees may increase or decrease the number of, alter

the designation of, classify or reclassify any unissued Shares by setting or

changing, in any one or more respects, from time to time before issuing such

Shares, the terms, preferences, conversion and other rights, including but not

limited to voting powers, restrictions, limitations as to dividends or other

distributions, qualifications or terms or conditions of redemption of any class

of Shares, and in such event, the Trust shall file for record with the State

Department of Assessments and Taxation of Maryland articles supplementary in

substance and form as prescribed by Maryland law.

 

         SECTION 4.2. Common Shares. The Common Shares shall have a par value of

$0.001 per share and, subject to the provisions of Article V with respect to

Excess Shares (as defined in Article V), shall entitle the holders thereof to

one vote per Common Share on a non-cumulative basis on all matters upon which

Shareholders are entitled to vote pursuant to Section 6.2, and shares of a

particular class of issued Common Shares shall have equal dividend,

distribution, liquidation and other rights, and shall have no preference,

preemptive, appraisal, conversion or exchange rights. Subject to the express

terms of any class of Common Shares outstanding at the time, and notwithstanding

any other provision of this Declaration of Trust, the Trustees may increase or

decrease the number of, alter the designation of, classify or reclassify any

unissued Common Shares by setting or changing, in any one or more respects, from

time to time before issuing such Common Shares, subject to the provisions of

Article V regarding Excess Shares, the terms, preferences, conversion and other

rights, including but not

 

                                      -6-

 

<PAGE>

 

limited to voting powers, restrictions, limitations as to dividends or other

distributions, qualifications or terms or conditions of redemption of any class

of Common Shares, and in such event, the Trust shall file for record with the

State Department of Assessments and Taxation of Maryland articles supplementary

in substance and form as prescribed by Maryland law.

 

         SECTION 4.3 Preferred Shares. The Preferred Shares shall have a par

value of $0.001 per share. The Trustees are hereby expressly granted the

authority to authorize from time to time the issuance of one or more series of

Preferred Shares and, with respect to any such series, to fix the numbers,

designations, preferences, conversion or other rights, voting powers,

restrictions, limitations as to dividends, qualifications and other terms or

conditions of redemption of such series. Subject to the express terms of any

class of Preferred Shares outstanding at the time, and notwithstanding any other

provision of the Declaration of Trust, the Trustees may increase or decrease the

number of, alter the designation of, or classify or reclassify any unissued

Preferred Shares by setting or changing, in any one or more respects, from time

to time before issuing such Preferred Shares, subject to the provisions of

Article V regarding Excess Shares, the terms, preferences, conversion and other

rights, including but not limited to voting powers, restrictions, limitations as

to dividends or other distributions, qualifications or terms or conditions of

redemption of any series of Preferred Shares, and in such event, the Trust shall

file for record with the State Department of Assessments and Taxation of

Maryland articles supplementary in the substance and form as prescribed by

Maryland law.

 

         SECTION 4.4 Dividends or Distributions. The Trustees may from time to

time declare and 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 Trustees in their discretion shall determine. The Trustees

shall endeavor to declare and pay such dividends and distributions as shall be

necessary for the Trust to qualify as a real estate investment trust under the

REIT provisions of the Code; provided, however, Shareholders 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 shall

be subject to the provisions of any class or series of Shares at the time

outstanding. The receipt by any Person in whose name any Shares are registered

on the records of the Trust or by his 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 to see to the application

thereof.

 

         SECTION 4.5 General Nature of Shares. 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 Trust Property and the right to conduct the

business of the Trust are 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 of any Trust Property. The

death of a Shareholder shall not terminate the Trust or give such Shareholder's

legal representative any rights against other Shareholders, the Trustees or the

Trust Property, except the right, exercised in accordance with applicable

provisions of the Bylaws, to receive a new certificate for Shares in exchange

for the certificate held by the deceased Shareholder.

 

                                      -7-

 

<PAGE>

 

         SECTION 4.6 Fractional Shares. The Trust may, without the consent or

approval of any shareholder, issue fractional Shares, eliminate a fraction of a

Share by rounding up or down to a full Share, arrange for the disposition of a

fractional Share by the Person entitled to it, or pay cash for the fair value of

a fraction of a Share.

 

         SECTION 4.7 Divisions and Combinations. Subject to an express provision

to the contrary in the terms of any class or series of Shares hereafter

authorized, the Trustees shall have the power to divide or combine the

outstanding Shares of any class or series of Shares, without a vote of the

Shareholders.

 

         SECTION 4.8 Business Combination Opt-out. Notwithstanding any other

provision of this Declaration of Trust or the Bylaws, Title 3, Subtitle 6 of the

Corporations and Associations Article of the Annotated Code of Maryland (or any

successor statute) shall not apply to any business combination between the Trust

and any holder of shares of beneficial interest of the Trust.

 

                                    ARTICLE V

                            RESTRICTION ON TRANSFER,

                      ACQUISITION AND REDEMPTION OF SHARES;

                           EXCHANGE FOR EXCESS SHARES

 

         SECTION 5.1 Definitions. For the purposes of this Article V, the

following terms shall have the following meanings:

 

         "Aggregate Share Ownership Limit" shall mean Shares with an aggregate

value equal to 8.75%, or such greater percentage as determined in accordance

with Section 5.10, of the value of the outstanding Shares. The value of

outstanding Shares shall be determined by the Trustees in good faith, which

determination shall be conclusive for all purposes.

 

         "Beneficially Own" shall mean to own Shares directly or to be treated

as owning Shares under the constructive ownership rules in Section 544 of the

Code, as modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial

Owner," "Beneficial Ownership," "Beneficially Owns" and "Beneficially Owned"

shall have the correlative meanings.

 

         "Charitable Beneficiary" shall mean one or more organizations described

in Sections 170(b)(1)(A ) or 170(c) of the Code which shall be the beneficiaries

of the Charitable Trust.

 

         "Charitable Trust" shall mean the trust established for the benefit of

the Charitable Beneficiary pursuant to Section 5.15 for which the Trust is the

trustee, interests in which shall be allocated in accordance with the provisions

of Section 5.19.

 

         "Closing Date of the Initial Public Offering" shall mean the time and

date of payment for and delivery of Common Shares issued pursuant to the Initial

Public Offering, excluding the Common Shares issuable upon exercise of the

over-allotment option granted in connection with the Initial Public Offering.

 

                                      -8-

 

<PAGE>

 

         "Common Share Ownership Limit" shall mean that number of Common Shares

which equals the lesser of (i) 8.75%, or such greater percentage as determined

in accordance with Section 5.10, of the number of outstanding Common Shares and

(ii) 8.75%, or such greater percentage as determined in accordance with Section

5.10, of the value of the outstanding Common Shares. The number of and value of

outstanding Common Shares shall be determined by the Trustees in good faith,

which determination shall be conclusive for all purposes.

 

         "Constructively Own" shall mean to own Shares directly or to be treated

as owning Shares under the constructive ownership rules in Section 318(a) of the

Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive

Owner," "Constructive Ownership," "Constructively Owns" and "Constructively

Owned" shall have the correlative meanings.

 

         "Constructive Share Ownership Limit" shall mean shall mean (i) for

Persons who are not members of the Donatelli Group, Shares with an aggregate

value equal to 8.75%, or such greater percentage as determined in accordance

with Section 5.10, of the value of the outstanding Shares and (ii) for members

of the Donatelli Group, in the aggregate, Shares with an aggregate value equal

to 14.9%, or such greater percentage as determined in accordance with Section

5.10, of the value of the outstanding Shares; provided, however, that the 14.9%

limitation (as it may be adjusted in accordance with Section 5.10) shall be

reduced to 9.9% immediately prior to any time that (x) members of the Donatelli

Group, in the aggregate, Constructively Own a 10% or greater interest in a

direct or indirect tenant of the Trust from whom the Trustees anticipate the

Trust will derive more than $200,000 in gross income during the current taxable

year and (y) as a result of such Constructive Ownership by the members of the

Donatelli Group, the Trust would be treated as Constructively Owning a 10% or

greater interest in such direct or indirect tenant of the Trust. For these

purposes and for purposes of Sections 5.11 and 5.12 hereof, a "10% or greater

interest" shall mean, in the case of a tenant that is treated as a corporation

for federal income tax purposes, an interest in the stock of such tenant that

possesses 10% or more of the total combined voting power of such tenant's stock

or 10% or more of the total value of all classes of stock of such tenant and, in

the case of a tenant that is not treated as a corporation for federal income tax

purposes, an interest of 10% or more in the assets or net profits of such

tenant. The value of outstanding Shares and the anticipated rents from direct or

indirect tenants of the Trust shall be determined by the Trustees in good faith,

which determination shall be conclusive for all purposes.

 

         "Donatelli Group" shall include Louis T. Donatelli, Douglas J.

Donatelli and each Person (other than the Trust) to whom Shares actually owned

by either Louis T. Donatelli or Douglas J. Donatelli would be attributed under

the constructive ownership rules of either Section 544 of the Code, as modified

by Section 856(h) of the Code, or Section 318(a) of the Code, as modified by

Section 856(d)(5) of the Code.

 

         "Donatelli Group Aggregate Share Ownership Limit" shall mean Shares

with an aggregate value equal to 14.9%, or such greater percentage as determined

in accordance with Section 5.10, of the value of the outstanding Shares. The

value of outstanding Shares shall be determined by the Trustees in good faith,

which determination shall be conclusive for all purposes.

 

                                      -9-

<PAGE>

 

         "Donatelli Group Common Share Ownership Limit" shall mean that number

of Common Shares which equals the lesser of (i) 14.9%, or such greater

percentage as determined in accordance with Section 5.10, of the number of

outstanding Common Shares and (ii) 14.9%, or such greater percentage as

determined in accordance with Section 5.10, of the value of the outstanding

Common Shares. The number of and value of outstanding Common Shares shall be

determined by the Trustees in good faith, which determination shall be

conclusive for all purposes.

 

         "Excess Shares" shall have the meaning ascribed to it in Section 5.3.

 

         "Initial Public Offering" means the sale of Common Shares pursuant to

the Trust's first effective registration statement for such Common Shares filed

under the Securities Act of 1933, as amended.

 

         "Market Price" shall mean the last reported sales price reported on the

New York Stock Exchange, Inc. (the "Exchange") of Common Shares or Preferred

Shares, as the case may be, on the trading date immediately preceding the

relevant date, or if not then traded on the Exchange, the last reported sales

price of, or the average of the closing bid and asked prices for, Common Shares

or Preferred Shares, as the case may be, on the trading day immediately

preceding the relevant date as reported on any exchange or quotation system over

which Common Shares or Preferred Shares, as the case may be, may be traded, or

if not then traded over any exchange or quotation system, then the fair market

value of Common Shares or Preferred Shares, as the case may be, on the relevant

date as determined in good faith by the Trustees.

 

         "OP Units" shall mean units of limited partnership of the Operating

Partnership.

 

         "Operating Partnership" shall mean First Potomac Realty Investment,

L.P., a Delaware limited partnership.

 

         "Person" shall mean a Person as defined in Article I.

 

         "Purported Beneficial Transferee" shall mean, with respect to any

purported Transfer or other event which results in Excess Shares, (i) in the

case of a purported Transfer, the purported beneficial transferee for whom the

Purported Record Transferee would have acquired Shares, if such Transfer had

been valid under Section 5.2, or (ii) in the case of an event other than a

Transfer that results in Excess Shares, the purported beneficial owner for whom

the record holder holds such Shares.

 

         "Purported Record Transferee" shall mean, with respect to any purported

Transfer or other event which results in Excess Shares, (i) in the case of a

purported Transfer that results in Excess Shares, the record holder of the

Shares, if such Transfer had been valid under Section 5.2, or (ii) in the case

of an event other than a Transfer that results in Excess Shares, the record

holder of such Shares.

 

         "Restriction Termination Date" shall mean the first day after the

Closing Date of the Initial Public Offering on which the Trustees and the

Shareholders determine that it is no longer in the best interests of the Trust

to attempt to, or to continue to, qualify as a REIT.

 

                                      -10-

 

<PAGE>

 

         "Share Ownership Limit" shall mean all or any of the Aggregate Share

Ownership Limit, the Common Share Ownership Limit, the Constructive Share

Ownership Limit, the Donatelli Group Aggregate Share Ownership Limit or the

Donatelli Group Common Share Ownership Limit.

 

         "Special Trustee" shall mean the Trust in its capacity as trustee for

the Charitable Trust, and any successor trustee appointed by the Trust.

 

         "Transfer" shall mean any sale, transfer, gift, assignment, devise or

other disposition of Shares (including (a) the granting of any option or

entering into any agreement for the sale, transfer or other disposition of

Shares or (b) the sale, transfer, assignment or other disposition of any

securities or rights convertible into or exchangeable for Shares, whether

voluntary or involuntary, whether of record or beneficially and whether by

operation of law or otherwise). The terms "Transfers" and "Transferred" shall

have the correlative meanings.

 

         SECTION 5.2 Ownership Limitations. Subject to any exemptions granted

pursuant to Section 5.12, from and after the Closing Date of the Initial Public

Offering and prior to the Restriction Termination Date, the ownership of Shares

shall be limited as follows:

 

         (a)      A Person who is not a member of the Donatelli Group shall not

(i) Beneficially Own Common Shares in excess of the Common Share Ownership

Limit, or (ii) Beneficially Own Shares in excess of the Aggregate Share

Ownership Limit or (iii) Constructively Own Shares in excess of the Constructive

Share Ownership Limit. The members of the Donatelli Group shall not, in the

aggregate, (x) Beneficially Own Common Shares in excess of the Donatelli Group

Common Share Ownership Limit, or (y) Beneficially Own Shares in excess of the

Donatelli Group Aggregate Share Ownership Limit or (z) Constructively Own Shares

in excess of the Constructive Share Ownership Limit. For purposes of applying

each Share Ownership Limit to a Beneficial Owner or Constructive Owner of

Shares, all Shares that are treated as Beneficially Owned or Constructively

Owned, as the case may be, by that Beneficial Owner or Constructive Owner, shall

be treated as if they were outstanding Shares of the Trust.

 

         (b)      Any Transfer that, if effective, would result in any Person

Beneficially Owning or Constructively Owning Shares in excess of any of the

limitations set forth in Section 5.2(a) shall be void ab initio as to the

Transfer of such Shares which would otherwise be Excess Shares; and the intended

transferee shall acquire no rights in such Shares.

 

         (c)      Any Transfer that, if effective, would result in Shares being

owned by fewer than 100 Shareholders (determined without reference to any rules

of attribution) shall be void ab initio as to the Transfer of such Shares which

would be otherwise owned by the transferee; and the intended transferee shall

acquire no rights in such Shares.

 

         (d)      Any Transfer that, 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.

 

         SECTION 5.3 Excess Shares.

 

                                      -11-

 

<PAGE>

 

         (a)      If, notwithstanding the other provisions contained in this

Article V, at any time from and after the Closing Date of the Initial Public

Offering and prior to the Restriction Termination Date, there is a purported

Transfer, change in the capital structure of the Trust or other event such that

any Person would Beneficially Own or Constructively Own Shares in excess of any

of the ownership limitations set forth in Section 5.2(a), then, except as

otherwise provided in Section 5.12, such Shares in excess of the ownership

limitations set forth in Section 5.2(a) (rounded up to the nearest whole share)

shall constitute "Excess Shares" and be treated as provided in this Article V.

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, change in capital

structure or other event.

 

         (b)      If, notwithstanding the other provisions contained in this

Article V, at any time from and after the Closing Date of the Initial Public

Offering and prior to the Restriction Termination Date, there is a purported

Transfer, change in the capital structure of the Trust or other event which, if

effective, would cause the Trust to become "closely held" within the meaning of

Section 856(h) of the Code, then the Shares being Transferred, or as to which

there was a change in Beneficial Ownership or Constructive Ownership as a result

of such change in capital structure or other event, 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 constitute Excess Shares and be treated as

provided in this Article V. 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, change in capital structure or other event.

 

         SECTION 5.4 Prevention of Transfer. If the Trustees or their designee

shall at any time determine in good faith that a Transfer has taken place in

violation of Section 5.2 or that a Person intends to acquire or has attempted to

acquire ownership of any Shares that, if consummated, would result in a

violation of Section 5.2, the Trustees or their designee shall take such action

as they deem 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 Sections

5.2(c) or (d) shall automatically result in the designation and treatment

described in Section 5.3, irrespective of any action (or non-action) by the

Trustees.

 

         SECTION 5.5 Notice to Trust. Any Person who Beneficially Owns,

Constructively Owns, acquires or attempts to acquire Shares in violation of

Section 5.2, or any Person who is a transferee such that Excess Shares result

under Section 5.3, shall immediately give written notice or, in the event of a

proposed or attempted Transfer, give at least 15 days prior written notice to

the Trust of such Beneficial Ownership, Constructive Ownership or 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 on the Trust's status as a REIT.

 

         SECTION 5.6 Information for Trust. From and after the Closing Date of

the Initial Public Offering and prior to the Restriction Termination Date:

 

         (a)      Every record holder of more than 5.0% (or such other

percentage, between 0.5% and 5.0%, as provided in the income tax regulations

promulgated under the Code) of the

 

                                      -12-

 

<PAGE>

 

number or value of outstanding Shares shall, within 30 days after January 1 of

each year, give written notice to the Trust stating the name and address of such

record holder, the identity of the actual owner or actual owners of the Shares

held of record by such record holder and the maximum number of shares actually

owned by each such actual owner through such record holder during the preceding

calendar year. For these purposes, the "actual owner" of a Share is the Person

required to include in gross income for federal tax purposes dividends on such

Share. Each such record holder 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.

 

         (b)      Each Person who is a Beneficial Owner or Constructive Owner of

Shares and each Person (including the Shareholder of record) who is holding

Shares for a Beneficial Owner or Constructive Owner shall provide to the Trust

such information as the Trust may reasonably request in order to determine the

Trust's status as a REIT, to comply with the requirements of any taxing

authority or governmental agency or to determine any such compliance.

 

         SECTION 5.7 Other Action by Trustees. Nothing contained in this Article

V shall limit the authority of the Trustees to take such other action as they

deem necessary or advisable to protect the Trust and the interests of the

Shareholders by preservation of the Trust's status as a REIT.

 

         SECTION 5.8 Ambiguities. In the case of an ambiguity in the application

of any of the provisions of this Article V, including any definition contained

in Section 5.1 and the determination of which shares became Excess Shares in

particular circumstances, the Trustees shall have the power to determine the

application of the provisions of this Article V with respect to any situation

based on the facts known to them.

 

         SECTION 5.9 [Intentionally Omitted]

 

         SECTION 5.10 Increase in Ownership Limits. Subject to the limitations

provided in Section 5.11, the Trustees may from time to time increase one or

more of the Share Ownership Limits; provided, however, that no increase in any

Share Ownership Limit shall be effective without the prior affirmative vote of

not less than two-thirds of the Shares then outstanding and entitled to vote.

 

                                      -13-

 

<PAGE>

 

         SECTION 5.11 Limitations on Changes in Ownership Limits.

 

         (a)      Except as may occur in connection with action taken by the

Trustees to terminate the status of the Trust as a real estate investment trust

under the REIT provisions of the Code, no Share Ownership Limit may be increased

(nor may any exemptions from any Share Ownership Limit be granted under Section

5.12) if, after giving effect to such increase (or grant), (i) five Beneficial

Owners that are treated as individuals for purposes of Section 542 of the Code

could Beneficially Own, in the aggregate, more than 49.9% in value (determined

as provided in the definition of "Aggregate Share Ownership Limit") of the

outstanding Shares or (ii) any Person or group of Persons each of whom

Constructively Own 10% or more of the value of the outstanding Shares could, in

the aggregate, Constructively Own, other than as a result of the Trust's direct

or Constructive Ownership, a 10% or greater interest in a direct or indirect

tenant of the Trust from whom the Trustees anticipate the Trust will derive more

than $200,000 in gross income during the current taxable year.

 

         (b)      Prior to the modification of any Share Ownership Limit

pursuant to Section 5.10, the Trustees 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.

 

         SECTION 5.12 Exemptions by Trustees. The Trustees, upon receipt of a

ruling from the Internal Revenue Service or an opinion of counsel or other

evidence satisfactory to the Trustees, and upon at least 15 days written notice

from a Transferee prior to the proposed Transfer which, if consummated, would

result in a violation of one or more of the ownership limitations set forth in

Section 5.2(a), and upon such other conditions as the Trustees may direct, may

exempt a Person from one or more of the ownership limitations set forth in

Section 5.2(a); provided, however, that no exemption from any ownership

limitation set forth in Section 5.2(a) shall be effective if, after giving

effect to such exemption, (i) five Beneficial Owners that are treated as

individuals for purposes of Section 542 of the Code could, in the aggregate,

Beneficially Own more than 49.9% in value (determined as provided in the

definition of "Aggregate Share Ownership Limit") of the outstanding Shares,

assuming for this purpose that each such Beneficial Owner Beneficially Owns the

greater of (x) the greatest number or percentage of Shares such Person could own

without violating any of the ownership limitations set forth in Section 5.2(a)

or (y) the greatest number or percentage of Shares such Beneficial Owner is

permitted to own pursuant to this Section 5.12 or any other provision of this

Agreement or (ii) any Person or group of Persons each of whom Constructively Own

10% or more of the value of the outstanding Shares could, in the aggregate,

Constructively Own, other than as a result of the Trust's direct or Constructive

Ownership, a 10% or greater interest in a direct or indirect tenant of the Trust

from whom the Trustees anticipate the Trust will derive more than $200,000 in

gross income during the current taxable year.

 

         SECTION 5.13 Legend. Each certificate for Shares shall bear

substantially the following legend:

 

                  The securities represented by this certificate are subject to

         restrictions on ownership and transfer contained in the Declaration of

         Trust of the Trust for the purpose of the Trust's maintenance of

 

                                      -14-

 

<PAGE>

 

         its status as a real estate investment trust under the Internal Revenue

         Code of 1986, as amended. A copy of the Declaration of Trust and

         information about the restrictions in effect will be furnished by the

         Trust to any holder of this certificate upon request and without

         charge. All capitalized terms in this legend have the meanings defined

         in the Declaration of Trust of the Trust. If the restrictions on

         ownership or transfer are violated, the securities represented hereby

         will be designated and treated as Excess Shares which will be held in

         the Charitable Trust by the Trust.

 

         SECTION 5.14 Severability. If any provision of this Article V or any

application of any such provision is determined to be void, invalid or

unenforceable by any court of competent jurisdiction, the validity and

enforceability of the remaining provisions shall not be affected and other

applications of such provision shall be affected only to the extent necessary to

comply with the determination of such court.

 

         SECTION 5.15 Charitable Trust for Excess Shares. Upon any purported

Transfer or other event that results in Excess Shares pursuant to Section 5.3,

such Excess Shares shall be deemed to have been transferred to the Trust, as

Special Trustee of the Charitable Trust for the exclusive benefit of the

Charitable Beneficiary or Beneficiaries. Excess Shares so held in trust shall be

issued and outstanding Shares. Neither the Purported Record Transferee nor the

Purported Beneficial Transferee shall have any rights in such Excess Shares.

 

         SECTION 5.16 Dividends on Excess Shares. Excess Shares shall be

entitled to dividends or other distributions which shall be paid to the Special

Trustee for the exclusive benefit of the Charitable Beneficiary. Any dividend or

other distribution paid prior to the discovery by the Trust that the Shares have

become Excess Shares shall be repaid to the Special Trustee and held for the

exclusive benefit of the Charitable Beneficiary. Any dividend declared and

unpaid shall be void ab initio as to the Purported Record Transferee or the

Purported Beneficial Transferee and shall be repaid to the Special Trustee and

held for the exclusive benefit of the Charitable Beneficiary.

 

         SECTION 5.17 Liquidation Distributions for Excess Shares. Subject to

the preferential rights of the Preferred Shares, if any, as may be determined by

the Trustees, in the event of any voluntary or involuntary liquidation,

dissolution or winding up of, or any other distribution of all or substantially

all of the assets of, the Trust, the Special Trustee, as holder of Excess Shares

shall be entitled to receive, in the case of Excess Shares constituting

Preferred Shares, ratably with each other holder of Preferred Shares of the same

series and Excess Shares constituting Preferred Shares of the same series and in

the case of Excess Shares constituting Common Shares, ratably with each other

holder of Common Shares of the same class and Excess Shares constituting Common

Shares of the same class, that portion of the assets of the Trust available for

distribution to the Shareholders as the number of Excess Shares held by such

holder bears to the total number of (a) Preferred Shares and Excess Shares then

outstanding in the case of Excess Shares constituting Preferred Shares of the

same series and (b) Common Shares and Excess Shares then outstanding in the case

of Excess Shares constituting Common Shares of the

 

                                      -15-

 

<PAGE>

 

same class. The Special Trustee shall distribute any such assets received in

respect of the Excess Shares in any liquidation, dissolution or winding up of,

or any distribution of the assets of, the Trust in accordance with the

priorities and limitations set forth in Section 5.19, and as if such assets were

the proceeds from the disposition of the Excess Shares with respect to which the

distribution is received.

 

         SECTION 5.18 Voting Rights for Excess Shares. The holder of Excess

Shares shall not be entitled to vote on any matter, and subject to Maryland law,

effective as of the date that Shares have been transferred to the Special

Trustee, the Special Trustee shall have the authority (at the trustee's sole

discretion) (i) to rescind as void any vote cast by a Purported Record

Transferee or Purported Beneficial Transferee prior to the discovery by the

Trust that Shares have been transferred to the Special Trustee and (ii) to

recast such vote in accordance with the desires of the Special Trustee acting

for the benefit of the Charitable Beneficiary; provided, however, that if the

Trust has already taken irreversible trust action, then the Special Trustee

shall not have the authority to rescind and recast such vote. The Special

Trustee shall be deemed to have been given an irrevocable proxy by such holder

of Excess Shares to vote the shares for the benefit of the Charitable

Beneficiary. Notwithstanding the provisions of this Article V, until the Trust

has received notification that Shares have been transferred into a Charitable

Trust, the Trust shall be entitled to rely on its share transfer and other

Shareholder records for purposes of preparing lists of Shareholders entitled to

vote at meetings, determining the validity and authority of proxies and

otherwise conducting votes of Shareholders.

 

         SECTION 5.19 Non-Transferability of Excess Shares. Excess Shares shall

not be transferable except in a Transfer to which the Special Trustee is a

party. Subject to Section 5.20, within 20 days of receiving notice from the

Trust that Shares have been transferred to the Charitable Trust, the Special

Trustee shall sell the shares held in the Charitable Trust to a person,

designated by the Special Trustee, whose ownership of the shares will not

violate the ownership limitations set forth in Section 5.2. Upon such sale, the

interest of the Charitable Beneficiary in the shares sold shall terminate and

the Special Trustee shall distribute the net proceeds of the sale to the

Purported Beneficial Transferee and to the Charitable Beneficiary as provided in

this Section 5.19. If such a transfer is made by the Trust, the proceeds of such

a sale shall be payable in accordance with the terms of the Charitable Trust as

follows. The Purported Beneficial Transferee will receive the lesser of (i) the

price per share received by the Trust from the transfer of the Excess Shares or

(ii) the price per Share such Purported Beneficial Transferee paid for the

Shares in the purported Transfer that resulted in the Excess Shares, or, if the

Purported Beneficial Transferee did not give value for such Excess Shares in the

event resulting in Excess Shares, a price per Share equal to the Market Price

for the Excess Shares on the date of the purported Transfer or other event that

resulted in the Excess Shares. Any proceeds in excess of the amount payable to

the Purported Beneficial Transferee shall be payable to the Charitable

Beneficiary. Upon such transfer of an interest in the Charitable Trust, the

corresponding Excess Shares in the Charitable Trust shall be automatically

exchanged for an equal number of Common Shares and/or Preferred Shares, as

applicable, and such Common Shares and/or Preferred Shares, as applicable, shall

be transferred of record to the transferee of the interest in the Trust if such

Common Shares and/or Preferred Shares, as applicable, would not be Excess Shares

in the hands of such transferee. If, prior to the discovery by the Trust that

Shares have been transferred to the trustee of the Charitable Trust, such shares

are sold by a Purported Beneficial Transferee or Purported Record Transferee,

then (i) such shares shall be deemed to have been sold on behalf of

 

                                      -16-

 

<PAGE>

 

the Charitable Trust and (ii) to the extent that the Purported Beneficial

Transferee or Purported Record Transferee received an amount for such shares

that exceeds the amount that such Purported Beneficial Transferee or Purported

Record Transferee was entitled to receive pursuant to this Section 5.19, such

excess shall be paid to the trustee of the Charitable Trust upon demand.

 

         SECTION 5.20 Call by Trust on Excess Shares. Excess Shares shall be

deemed to have been offered for sale to the Trust, or its designee, on the date

of the transaction or event resulting in such Excess Shares at a price per Share

equal to the lesser of (a) the price per Share in the transaction that created

such Excess Shares (or, in the case of a gift, devise or other purported

Transfer or event not involving any payment, the Market Price at the time of

such gift, devise or other purported Transfer or event not involving any

payment) and (b) the Market Price of Common Shares or Preferred Shares to which

such Excess Shares relate on the date the Trust, or its designee, accepts such

offer. 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 transaction or event that resulted

in such Excess Shares and (b) the date the Trustees determine in good faith that

a transaction or event resulting in Excess Shares has occurred, if the Trust

does not receive a notice of such Transfer or event pursuant to Section 5.5, but

in no event later than a permitted Transfer pursuant to and in compliance with

the terms of Section 5.19.

 

         SECTION 5.21 Trust as Agent. If any of the foregoing provisions of this

Article V are 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, and to comply with the determination of such court, 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 and subject to its direction.

 

         SECTION 5.22 Amendment to Article V. Notwithstanding any other

provision in this Declaration of Trust or Bylaws, unless no Shares are

outstanding or subscribed for, no Section of this Article V may be amended or

repealed without the affirmative vote of the holders of two-thirds of the Shares

then outstanding and entitled to vote.

 

         SECTION 5.23 Priority of New York Stock Exchange, Inc. Transactions.

Notwithstanding anything in this Article V to the contrary, nothing herein shall

preclude the settlement of a transaction entered into through the facilities of

the New York Stock Exchange or any other national securities exchange. The fact

that the settlement of any transaction occurs shall not negate the effect of any

other provision of this Article V and any transferee in such a transaction shall

be subject to all of the provisions and limitations set forth in this Article V.

 

                                   ARTICLE VI

 

                                  SHAREHOLDERS

 

         SECTION 6.1 Meetings of Shareholders. There shall be an annual meeting

of the Shareholders, to be held at the time of or after delivery of the annual

report of operations of the Trust, to the extent such a report is required to be

delivered pursuant to Title 8, at such time and convenient place as shall be

determined by or in the manner prescribed in the

 

                                      -17-

 

<PAGE>

 

Bylaws at which the Trustees shall be elected in accordance with the provisions

of Section 2.2 and the Bylaws and any other proper business may be conducted.

Except as otherwise provided in this Declaration of Trust, special meetings of

Shareholders may be called in the manner provided in the Bylaws. If there are no

Trustees, the officers of the Trust shall promptly call a special meeting of the

Shareholders entitled to vote for the election of successor Trustees. Any

meeting may be adjourned and reconvened as the Trustees determine or as provided

in the Bylaws.

 

         SECTION 6.2 Voting Rights of Shareholders. Subject to the provisions of

any class or series of Shares then outstanding, the Shareholders shall be

entitled to vote only on the following matters: (a) election or removal of

Trustees as provided in Sections 6.1 and 2.3; (b) amendment of any provision of

this Declaration of Trust as provided in Section 8.1, except that the Trustees

may amend this Declaration of Trust to increase or decrease the aggregate number

of Shares of any class without a vote of Shareholders as provided in Section

4.1(b); (c) termination of the Trust as provided in Section 9.2; (d)

reorganization of the Trust as provided in Section 8.2; (e) merger or

consolidation of the Trust, or the sale or disposition of substantially all of

the Trust Property, except for (i) a merger into the Trust of any entity in

which the Trust owns ninety percent (90%) or more of the entire equity interests

in such entity, or (ii) a merger that does not reclassify or change the Trust's

outstanding Shares or otherwise amend this Declaration of Trust and the number

of Shares to be issued or delivered pursuant to the merger is not more than

twenty percent (20%) of the number of Shares of the same class or series

outstanding immediately before the merger becomes effective, as provided in

Section 8.3; (f) any matter for which a vote of Shareholders is required by a

national securities exchange or other market on which the Shares are traded; (g)

revocation of the Trust's REIT status as provided in Section 1.5; and (h) such

other matters with respect to which a vote of the Shareholders is required by

applicable law or the Trustees have adopted a resolution declaring that a

proposed action is advisable and directing that the matter be submitted to the

Shareholders for approval or ratification. Except with respect to subsection (a)

above, none of the actions enumerated in this Section 6.2 may be taken by the

Shareholders unless such action has first been approved by the Trustees. Except

with respect to the foregoing matters, no action taken by the Shareholders at

any meeting shall in any way bind the Trustees.

 

                                   ARTICLE VII

 

                 LIABILITY OF SHAREHOLDERS, TRUSTEES, OFFICERS,

                              EMPLOYEES AND AGENTS

                   AND TRANSACTIONS BETWEEN THEM AND THE TRUST

 

         SECTION 7.1 Limitation of Shareholder Liability. No Shareholder shall

be liable for any debt, claim, demand, judgment or obligation of any kind of,

against or with respect to the Trust by reason of such Shareholder's status as a

Shareholder, nor shall any Shareholder be subject to any personal liability

whatsoever, in tort, contract or otherwise, to any Person in connection with the

Trust Property or the affairs of the Trust.

 

                                      -18-

<PAGE>

 

         SECTION 7.2 Limitation of Trustee and Officer Liability. To the maximum

extent that Maryland law in effect from time to time permits limitation of the

liability of trustees and officers of a real estate investment trust, no Trustee

or 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, nor the

adoption or amendment of any other provision of this Declaration of Trust

inconsistent with this Section, 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 and 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 Trustee or officer of the Trust

shall be liable to the Trust or to any Shareholder for money damages except to

the extent that (a) the Trustee or officer actually received an improper benefit

or profit in money, property, or services, in which case the liability shall not

exceed the amount of the benefit or profit in money, property, or services

actually received; or (b) a judgment or other final adjudication adverse to the

Trustee or officer is entered in a proceeding based on a finding in the

proceeding that the Trustee's or 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 7.3 Express Exculpatory Clauses in Instruments. Neither the

Shareholders nor the Trustees, officers, employees or agents of the Trust shall

be liable under any written instrument creating an obligation of the Trust, and

all Persons shall look solely to the Trust Property for the payment of any claim

under or for the performance of that instrument. The omission of the foregoing

exculpatory language from any instrument shall not affect the validity or

enforceability of such instrument and shall not render any Shareholder, Trustee,

officer, employee or agent liable thereunder to any third party, nor shall the

Trustees or any officer, employee or agent of the Trust be liable to anyone for

such omission.

 

         SECTION 7.4 Indemnification. The Trust shall have the power, to the

maximum extent permitted by Maryland law in effect from time to time, to

obligate itself to indemnify, and to pay or reimburse reasonable expenses to, as

such expenses are incurred by, each Shareholder, Trustee, officer, employee or

agent of the Trust (including any Person who, while a Shareholder, Trustee,

officer, employee or agent of the Trust, is or was serving at the request of the

Trust as a director, officer, partner, trustee, employee or agent of another

foreign or domestic corporation, partnership, joint venture, trust, other

enterprise or employee benefit plan) from all claims and liabilities to which

such Person may become subject by reason of that Person being or having been a

Shareholder, Trustee, officer, employee or agent. The Trust shall have the power

to provide such indemnification and advancement of expenses to a Person who

served a predecessor of the Trust in any of the capacities described above and

to any employee or agent of the Trust or a predecessor of the Trust.

 

         SECTION 7.5 Transactions Between the Trust and its Trustees, Officers,

Employees and Agents. Subject to any express restrictions in this Declaration of

Trust or adopted by the Trustees in the Bylaws or by resolution, the Trust may

enter into any contract or transaction of any kind (including, without

limitation, a contract or transaction 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,

 

                                      -19-

 

<PAGE>

 

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.

 

                                  ARTICLE VIII

 

                     AMENDMENT; REORGANIZATION; MERGER, ETC.

 

         SECTION 8.1 Amendment.

 

                  (a)      This Declaration of Trust may be amended by the

affirmative vote of the holders of not less than a majority of the Shares then

outstanding and entitled to vote thereon, except that the terms of service of

the Trustees set forth in Section 2.2, as well as Section 2.3, Article V,

Section 6.2, Section 9.1 and this sentence of this Section 8.1, may be amended

only by the affirmative vote of the holders of two-thirds of the Shares then

outstanding and entitled to vote.

 

                  (b)      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 Title 8 or Sections 856-860 of

the Code.

 

                  (c)      The Trustees, by a majority vote, may (i) amend

provisions of this Declaration of Trust from time to time to increase or

decrease the aggregate number of Shares of any class that the Trust has the

authority to issue and to establish the terms of any class of Shares pursuant to

Sections 4.2, 4.3, 4.4 or 4.5, and (ii) amend any provision of this Declaration

of Trust if there are no Shares outstanding or subscribed for entitled to be

voted on an amendment.

 

                  (d)      An amendment to this Declaration of Trust shall

become effective as provided in Section 10.5.

 

                  (e)      This Declaration of Trust may not be amended except

as provided in this Section 8.1.

 

         SECTION 8.2 Reorganization. Subject to the provisions of any class or

series of Shares at the time outstanding, the Trustees shall have the power to

(a) cause the organization of a corporation, association, trust or other

organization to take over the Trust Property and carry on the affairs of the

Trust; (b) merge the Trust into or sell, convey and transfer the Trust Property

to, any such corporation, association, trust or organization in exchange for

Securities thereof or beneficial interests therein, and the assumption by the

transferee of the liabilities of the Trust; and (c) thereupon terminate the

Trust and deliver such Securities or beneficial interests ratably among the

Shareholders according to the respective rights of the class or series of Shares

held by them; provided, however, that any such action shall have been approved,

at a meeting of the Shareholders called for that purpose, by the affirmative

vote of the holders of not less than a majority of the Shares then outstanding

and entitled to vote thereon.

 

                                      -20-

 

<PAGE>

 

         SECTION 8.3 Merger, Consolidation or Sale of Trust Property.

 

                  (a)      Subject to the provisions of any class or series of

Shares at the time outstanding, the Trustees shall have the power to (i) merge

the Trust 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 Trust Property; provided, however, that, except as

provided in Section 6.2, such action shall have been approved, at a meeting of

the Shareholders 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.

 

                  (b)      A vote of the Shareholders shall not be required for

the merger into the Trust of any entity in which the Trust owns 90% or more of

the entire equity interests in such entity, subject to the conditions and rights

set forth in Section 8-501.1(c)(4) of Title 8.

 

                  (c)      A vote of the Shareholders shall not be required if

the merger does not reclassify or change the Trust's outstanding shares or

otherwise amend this Declaration of Trust and if the number of shares to be

issued or delivered in the merger is not more than twenty percent (20%) of the

number of shares of the same class or series outstanding immediately before the

merger becomes effective.

 

                                   ARTICLE IX

 

                        DURATION AND TERMINATION OF TRUST

 

         SECTION 9.1 Duration of Trust. The Trust shall continue perpetually

unless terminated pursuant to Section 9.2 or pursuant to any applicable

provisions of Title 8.

 

         SECTION 9.2 Termination of Trust.

 

                  (a)      Subject to the provisions of any class or series of

Shares at the time outstanding, the Trust may be terminated at any meeting of

Shareholders called for that purpose, by the affirmative vote of the holders of

not less than a majority of the Shares then outstanding and entitled to vote

thereon. Upon the termination of the Trust:

 

                           (i)      The Trust shall carry on no business except

for the purpose of winding up its affairs.

 

                           (ii)     The Trustees shall proceed to wind up the

affairs of the Trust, and all of the powers of the Trustees under this

Declaration of Trust shall continue, including the powers to fulfill or

discharge the Trust's contracts, collect its assets, sell, convey, assign,

exchange, transfer or otherwise dispose of all or any part of the remaining

Trust Property to one or more Persons at a public or private sale for

consideration which may consist in whole or in part of cash, Securities or other

property of any kind, discharge or pay its liabilities and do all other acts

appropriate to liquidate its business.

 

                                      -21-

 

<PAGE>

 

                           (iii)    After paying or adequately providing for the

payment of all liabilities, and upon receipt of such releases, indemnities and

agreements as they deem necessary for their protection, the Trustees may

distribute the remaining Trust Property, in cash or in kind or partly each,

among the Shareholders according to their respective rights, so that after

payment in full or the setting apart for payment of such preferential amounts,

if any, to which the holders of any Shares (other than Common Shares) at the

time outstanding shall be entitled, the remaining Trust Property available for

payment and distribution to Shareholders shall, subject to any participating or

similar rights of Shares (other than Common Shares) at the time outstanding, be

distributed ratably among the holders of Common Shares at the time outstanding.

 

                  (b)      After termination of the Trust, the liquidation of

its business and the distribution to the Shareholders as herein provided, a

majority of the Trustees shall execute and file with the Trust's records a

document certifying that the Trust has been duly terminated, and thereupon the

Trustees shall be discharged from all liabilities and duties hereunder, and the

rights and interests of all Shareholders shall cease.

 

                                    ARTICLE X

 

                                  MISCELLANEOUS

 

         SECTION 10.1 Governing Law. This Declaration of Trust is approved by

the Trustees and delivered in the State of Maryland with reference to the laws

thereof, and the rights of all parties and the validity, construction and effect

of every provision hereof shall be subject to and construed according to the

laws of the State of Maryland without regard to conflicts of laws provisions

thereof.

 

         SECTION 10.2 Reliance by Third Parties. Any certificate shall be final

and conclusive as to any Persons dealing with the Trust if executed by an

individual who, according to the records of the Trust or of any recording office

in which this Declaration of Trust may be recorded, appears to be the Secretary

or an Assistant Secretary of the Trust or a Trustee, and if certifying to: (a)

the number or identity of Trustees, officers of the Trust or Shareholders; (b)

the due authorization of the execution of any document; (c) the action or vote

taken, and the existence of a quorum, at a meeting of Trustees or Shareholders;

(d) a copy of this Declaration of Trust or the Bylaws as a true and complete

copy as then in force; (e) an amendment to this Declaration of Trust; (f) the

termination of the Trust; or (g) the existence of any fact or facts which relate

to the affairs of the Trust. No purchaser, lender, transfer agent or other

Person shall be bound to make any inquiry concerning the validity of any

transaction purporting to be made on behalf of the Trust by the Trustees or by

any officer, employee or agent of the Trust.

 

         SECTION 10.3 Provisions in Conflict with Law or Regulations.

 

                  (a)      The provisions of this Declaration of Trust are

severable, and if the Trustees shall determine, with the advice of counsel, that

any one or more of such provisions (the "Conflicting Provisions") are in

conflict with Title 8 or other applicable federal or state laws, the Conflicting

Provisions shall be deemed never to have constituted a part of this Declaration

of

 

                                      -22-

 

<PAGE>

 

Trust, even without any amendment of this Declaration of Trust pursuant to

Section 8.1; provided, however, that such determination by the Trustees shall

not affect or impair any of the remaining provisions of this Declaration of

Trust or render invalid or improper any action taken or omitted prior to such

determination. No Trustee shall be liable for making or failing to make such a

determination.

 

                  (b)      If any provision of this Declaration of Trust shall

be held invalid or unenforceable in any jurisdiction, such holding shall not in

any manner affect or render invalid or unenforceable such provision in any other

jurisdiction or any other provision of this Declaration of Trust in any

jurisdiction.

 

         SECTION 10.4 Construction. In this Declaration of Trust, unless the

context otherwise requires, words used in the singular or in the plural include

both the plural and singular and words denoting any gender include all genders.

The title and headings of different parts are inserted for convenience and shall

not affect the meaning, construction or effect of this Declaration of Trust. In

defining or interpreting the powers and duties of the Trustees and officers of

the Trust, reference may be made, to the extent appropriate and not inconsistent

with Title 8, to Titles 1 through 3 of the Corporations and Associations Article

of the Annotated Code of Maryland, as amended from time to time. This

Declaration of Trust is subject to modification to Title 8 by public general law

of the General Assembly.

 

         SECTION 10.5 Recordation. This Declaration of Trust and any amendment

hereto shall be filed for record with the State Department of Assessments and

Taxation of Maryland 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 or any amendment hereto in any office other than in the State of

Maryland shall not affect or impair the validity or effectiveness of this

Declaration of Trust or any amendment hereto. Articles of amendment, setting

forth any amendment and stating the manner in which it was approved, shall be

signed and acknowledged by at least a majority of the Trustees, or an officer

duly authorized by at least a majority of the Trustees. A restated Declaration

of Trust shall, upon filing, be conclusive evidence of all amendments contained

therein and may thereafter be referred to in lieu of the original Declaration

and the various amendments thereto.

 

         THIRD: The First Amended and Restated Declaration of Trust of the

Company as set forth above has been duly advised by the board of trustees and

approved by the shareholders of the Company as required by law.

 

         FOURTH: The current address of the principal office of the Company is

7200 Wisconsin Avenue, Suite 310, Bethesda, Maryland 20814.

 

         FIFTH: The name and address of the resident agent of the Company is as

set forth in Article I of the First Amended and Restated Declaration of Trust

above.

 

         SIXTH: The number of trustees of the Company and the names of those

currently in office are as set forth in Article II of the First Amended and

Restated Declaration of Trust above.

 

                                      -23-

 

<PAGE>

         SEVENTH: The total number of shares of stock which the Company had

authority to issue immediately prior to this amendment and restatement was Six

Hundred Million (600,000,000) shares of beneficial interest, consisting of Five

Hundred Million (500,000,000) shares of common stock, $0.001 par value and One

Hundred Million (100,000,000) shares of preferred stock, $0.001 par value,

having an aggregate par value of Six Hundred Thousand Dollars ($600,000).

 

         EIGHTH: The total number of shares of stock which the Company has

authority to issue, pursuant to the Declaration of Trust of the Company as

amended and restated is Two Hundred Million (200,000,000) shares of beneficial

interest, consisting of One Hundred Fifty Million (150,000,000) shares of common

stock, $0.001 par value and Fifty Million (50,000,000) shares of preferred

stock, $0.001 par value, having an aggregate par value of Two Hundred Thousand

Dollars ($200,000).

 

         NINTH: The undersigned President acknowledges these Articles of

Amendment and Restatement to be the trust act of the Company and as to all

matters or facts required to be verified under oath, the undersigned President

acknowledges that to the best of the President's 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 Company has caused these Articles of Amendment

and Restatement to be signed in its name and on its behalf by its President and

attested to by its Secretary on this ______ day of September, 2003.

 

ATTEST:                                FIRST POTOMAC REALTY TRUST

 

________________________________       By:______________________________ (SEAL)

Kyung Rhee, Secretary                     Douglas J. Donatelli, President