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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e) (2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to §240.14a-12
CNL Healthcare Properties, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| [X] | No fee required. |
| [ ] | Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11. |
| 1) | Title of each class of securities to which transaction applies: |
| 2) | Aggregate number of securities to which transaction applies: |
| 3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): |
| 4) | Proposed maximum aggregate value of transaction: |
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| [ ] | Fee paid previously with preliminary materials. |
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
| 1) | Amount Previously Paid: |
| 2) | Form, Schedule or Registration Statement No.: |
| 3) | Filing Party: |
| 4) | Date Filed: |
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CNL HEALTHCARE PROPERTIES, INC.
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
April 29, 2013
To Our Stockholders:
You are cordially invited to attend the 2013 Annual Meeting of stockholders of CNL Healthcare Properties, Inc. (the “Company”) on Thursday, June 27, 2013 at 9:30 a.m. Eastern Time, at CNL Center at City Commons, 450 South Orange Avenue, Orlando, Florida 32801 (such meeting, and any adjournment or postponement thereof, the “2013 Annual Meeting”). The Company’s board of directors (the “Board”) and executive officers look forward to greeting you personally. Enclosed for your review are the proxy card, the proxy statement with the notice setting forth the business to come before the 2013 Annual Meeting and the Company’s 2012 annual report to shareholders.
In the accompanying proxy statement, the Board is requesting that you consider (i) the election of five (5) directors; (ii) the approval of an amendment and restatement of the Company’s charter (the “Charter”) as more fully described in the accompanying proxy statement, (iii) the approval of an amendment and restatement of the Company’s bylaws (the “Bylaws”) as more fully described in the accompanying proxy statement, and (iv) the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered certified public accounting firm for the fiscal year ending December 31, 2013.
The Board unanimously recommends that you vote“FOR ALL” to elect each of the nominated directors; “FOR” approval of the amendment and restatement of the Charter;“FOR”approval of the amendment and restatement of the Bylaws; and “FOR” ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered certified public accounting firm for the fiscal year ending December 31, 2013.
Your vote is critical. Regardless of the number of shares you own in the Company, it is very important that your shares be represented. You may authorize your proxy by Internet or telephone or by mailing your completed proxy card. Please authorize your proxy today. Authorizing a proxy will ensure your representation at the 2013 Annual Meeting if you choose not to attend and vote in person. Thank you for your attention to this matter.
Sincerely,
James M. Seneff, Jr.
Chairman of the Board
Stephen H. Mauldin
President and Chief Executive Officer
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CNL HEALTHCARE PROPERTIES, INC.
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
NOTICE OF 2013 ANNUAL MEETING OF STOCKHOLDERS AND PROXY
STATEMENT
2013 Annual Meeting to be held June 27, 2013
To Our Stockholders:
Notice is hereby given that the annual meeting of stockholders of CNL Healthcare Properties, Inc., a Maryland corporation (the “Company”), will be held at CNL Center at City Commons, 450 South Orange Avenue, Orlando, Florida 32801 on June 27, 2013 at 9:30 a.m. Eastern Time (such meeting, and any adjournment or postponement thereof, the “2013 Annual Meeting”) for the following purposes:
| 1. | To consider and vote upon the election of five (5) directors of the Company for terms expiring at the 2014 Annual Meeting of stockholders and until their successors are duly elected and qualify; |
| 2. | To consider and vote upon the approval of the amendment and restatement of the Company’s charter, consisting of amendments relating to (i) Stockholder election of directors; (ii) the Company’s Board of Directors (the “Board”); (iii) business combinations; (iv) extraordinary transactions; (v) stock; and (vi) stockholders’ rights, as more fully described in the accompanying proxy statement; |
| 3. | To consider and vote upon the approval of the amendment and restatement of the Company’s bylaws, consisting of amendments relating to (i) the Company’s Board of Directors (the “Board”), (ii) stockholders’ rights; and (iii) extraordinary transactions, as more fully described in the accompanying proxy statement; |
| 4. | To consider and vote upon the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered certified public accounting firm for the fiscal year ending December 31, 2013; and |
| 5. | To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. |
The Board does not know of any matters that may be voted upon at the 2013 Annual Meeting other than the matters set forth in the first four proposals listed above.
Only stockholders of record at the close of business on April 1, 2013 are entitled to notice of and to vote at the 2013 Annual Meeting.
Stockholders are cordially invited to attend the 2013 Annual Meeting in person. All stockholders, whether or not they plan to attend the 2013 Annual Meeting, are requested to complete, date and sign the enclosed proxy card and return it promptly in the envelope provided. You may also authorize your proxy by Internet or telephone by following the instructions on the proxy card. It is important that your shares be voted. By authorizing your proxy promptly, you can help the Company avoid additional expenses to ensure that a quorum is met so the 2013 Annual Meeting can be held. If you decide to attend the 2013 Annual Meeting, you may revoke your proxy and vote your shares in person.
| By Order of the Board of Directors, | ||||||
| Holly J. Greer | ||||||
April 29, 2013 Orlando, Florida | Secretary | |||||
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PROXY STATEMENT
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PROPOSAL II-F-2: APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER RELATING TO AMENDMENTS TO BYLAWS | 21 | |||
| 21 | ||||
PROPOSAL II-F-4: APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER RELATING TO STOCK CERTIFICATES | 21 | |||
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PROPOSAL III: APPROVAL OF PROPOSED AMENDMENT AND RESTATEMENT OF THE BYLAWS | 23 | |||
PROPOSAL III-A: APPROVAL OF PROPOSED AMENDMENTS TO THE BYLAWS RELATING TO THE BOARD OF DIRECTORS | 23 | |||
PROPOSAL III-B: APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER RELATING TO STOCKHOLDERS’ RIGHTS | 23 | |||
| 23 | ||||
PROPOSAL IV: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM | 24 | |||
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EXHIBIT A – ARTICLES OF AMENDMENT AND RESTATEMENT OF CNL HEALTHCARE PROPERTIES, INC. | ||||
EXHIBIT B – AMENDED AND RESTATED BYLAWS OF CNL HEALTHCARE PROPERTIES, INC. | ||||
ANNEX 1 – 2013 FORM OF PROXY | ||||
ANNEX 2 – VOTING REMINDER FLYER | ||||
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CNL HEALTHCARE PROPERTIES, INC.
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida 32801
(800) 522-3863
PROXY STATEMENT
This proxy statement is furnished by the board of directors (the “Board”) of CNL Healthcare Properties, Inc., Maryland corporation (the “Company”), in connection with the solicitation by the Board of proxies to be voted at the annual meeting of stockholders to be held at 9:30 a.m. Eastern Time on Thursday, June 27, 2013 at the Company’s offices located at CNL Center at City Commons, 450 South Orange Avenue, 12th Floor, Orlando, Florida 32801 (such meeting, and any adjournment or postponement thereof, the “2013 Annual Meeting”) for the purposes set forth in the accompanying notice of such meeting. Only stockholders of record at the close of business on April 1, 2013 (the “Record Date”) will be entitled to notice of, and to vote at, the 2013 Annual Meeting. This proxy statement, the proxy card, the notice setting forth matters upon which stockholders are entitled to vote and the 2012 annual report are first being mailed to stockholders on or about April 29, 2013.
As of April 1, 2013, there were 26,093,552 shares of common stock of the Company outstanding and entitled to vote. As of the Record Date, officers and directors of the Company had the power to vote, as determined by the rules of the U.S. Securities and Exchange Commission (the “Commission”), less than 1% of the outstanding shares of common stock.
Your vote is important. You can save the Company the expense of a
second mailing by authorizing a proxy promptly.
A proxy card is enclosed for your use. Simply mark your proxy card, date and sign it, and return it in the postage-paid envelope provided. Authorizing a proxy will not limit your right to vote at the 2013 Annual Meeting if you decide to attend in person. If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the 2013 Annual Meeting.
All proxies that have been properly authorized and not revoked will be voted at the 2013 Annual Meeting. If you authorize a proxy but do not indicate any voting instructions, the shares represented by that proxy will be voted (i) “FOR ALL” to elect the five nominees for director named herein; (ii) “FOR” approval of the amendment and restatement of the Company’s charter (the “Charter”); (iii) “FOR” approval of the amendment and restatement of the Company’s bylaws (the “Bylaws”) and (iv) “FOR” ratification of the appointment of PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as the Company’s independent registered certified public accounting firm for the fiscal year ending December 31, 2013. With respect to any other business that may properly come before the stockholders for any vote at the 2013 Annual Meeting, your shares will be voted in the discretion of the proxy holder.
Each share of common stock outstanding on the Record Date is entitled to one vote on all matters coming before the 2013 Annual Meeting. If a share is represented for any purpose at the 2013 Annual Meeting, it is deemed to be present for quorum purposes and for all other matters as well. The presence, in person or by proxy, of the holders of 50% of the outstanding shares of common stock entitled to vote at the 2013 Annual Meeting constitutes a quorum. A stockholder may withhold his or her vote in the election of directors or may abstain with respect to each other item submitted for stockholder approval. Withheld votes, abstentions and “broker non-votes” will be counted as present and entitled to vote for purposes of determining the existence of a quorum, but will not be counted as votes cast. A broker non-vote occurs when a broker has not received voting instructions from the beneficial owner of shares held in street name and the broker does not have discretionary authority to vote uninstructed shares on non-routine matters.
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The affirmative vote of a majority of the shares represented in person or by proxy at the 2013 Annual Meeting is required for the election of each director, provided a quorum is present. Abstentions, broker non-votes and withheld votes will have the effect of a vote against each nominee for director.
The affirmative vote of a majority of the outstanding shares entitled to vote at the 2013 Annual Meeting is required for the approval of the amendment and restatement of each of the Charter and the Bylaws. Abstentions and broker non-votes will have the effect of a vote against such proposals.
The affirmative vote of a majority of the votes cast in person or by proxy at the 2013 Annual Meeting is required for the ratification of the Board’s appointment of PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”) as the Company’s independent registered certified public accounting firm for the fiscal year ending December 31, 2013, provided a quorum is present. Abstentions will have no effect on the outcome of the proposal. Because brokers have discretionary authority to vote on routine proposals, there will not be any broker non-votes with respect to the ratification of the appointment of the Company’s independent registered public accounting firm.
If sufficient votes for approval of any of the matters to be considered at the 2013 Annual Meeting have not been received prior to the meeting date, the Company intends to postpone or adjourn the 2013 Annual Meeting in order to solicit additional votes with respect to that matter. The form of proxy the Company is soliciting requests authority for the proxies, in their discretion, to vote the stockholders’ shares with respect to a postponement or adjournment of the 2013 Annual Meeting. At any postponed or adjourned meeting, the Company will vote any proxies received in the same manner described in this Proxy Statement with respect to the original meeting.
Proxy Authorization by Internet or Telephone
Stockholders of record who live in the United States may authorize proxies by following the “Vote by Phone” instructions on their proxy cards. Stockholders of record with Internet access also may authorize proxies by following the “Vote by Internet” instructions on their proxy cards. The telephone and Internet proxy authorization procedures are designed to authenticate the stockholder’s identity and to allow stockholders to authorize a proxy and confirm that their instructions have been properly recorded. If you have questions about authorizing your proxy by telephone or Internet, call Broadridge Investor Communications Solutions, Inc., the Company’s proxy solicitor (“Broadridge”), toll free at 1-877-757-5405.
Please refer to the enclosed proxy card for instructions on how to authorize your proxy. If you choose not to authorize a proxy by telephone or by Internet, please complete, sign and return the paper proxy card in the pre-addressed, postage-paid envelope provided with this Proxy Statement.
Any stockholder giving a proxy has the power to revoke it at any time before it is exercised. A proxy may be revoked (1) by delivery of a written statement to the Secretary of the Company stating that the proxy is being revoked, (2) by presentation before or at the 2013 Annual Meeting of a subsequent proxy properly executed by the person executing the prior proxy, or (3) by attendance at the 2013 Annual Meeting and voting in person.
In addition to the solicitation of proxies by mail, proxies may be solicited in person and by telephone or facsimile transmission by directors and officers of the Company, or certain employees of CNL Capital Markets Corp., CNL Securities Corp., and affiliates of the Company’s advisor, CNL Healthcare Corp. (the “Advisor”), without special compensation therefor. The Company has also retained Broadridge Investor Communication Solutions, Inc. to assist in the solicitation of proxies for a base fee of approximately $2,500 plus additional fees per contact of shareholders subject to a maximum fee of approximately $[14,742], and for reimbursement of reasonable out-of-pocket expenses. Any proxy given pursuant to this solicitation may be revoked by notice from the person giving the proxy at any time before it is exercised. Any such notice of revocation should be provided in writing and signed by the stockholder in the same manner as the proxy being revoked and delivered to the Company’s proxy tabulator.
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Notice of Internet Availability of Proxy Materials
In accordance with the Commission’s rules and regulations, in addition to mailing printed copies of proxy materials to stockholders, the Company is also providing access to these materials via the Internet. As more fully described on the proxy card, stockholders may access and review the Company’s proxy materials, authorize their proxies and/or elect to receive next year’s proxy materials electronically via the web address provided below.
This Proxy Statement and the Company’s 2012 Annual Report to
Shareholders are available atwww.proxyvote.com.
Where to Obtain More Information
The mailing address of the principal executive offices of the Company is CNL Center at City Commons, 450 South Orange Avenue, Orlando, Florida 32801. Notices of revocation of proxies should be sent to the attention of the Company’s Secretary, Holly J. Greer, at this address.
The Company makes available free of charge on its websitewww.cnlhealthcareproperties.com the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2012 (the “2012 Annual Report on Form 10-K”), as well as all other filings as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Commission.
A copy of the Company’s 2012 Annual Report on Form 10-K that was filed with the Commission will be furnished without the accompanying exhibits to stockholders without charge upon written request sent to the Company’s Secretary, Holly J. Greer, at the Company’s offices. Each such request must set forth a good faith representation that as of April 1, 2013, the person making the request was the beneficial owner of common stock entitled to vote at the 2013 Annual Meeting. Upon payment of a reasonable fee, stockholders may also obtain a copy of the exhibits to the Company’s 2012 Annual Report on Form 10-K.
A copy of the Company’s Annual Report to Shareholders for the year ended December 31, 2012 (the “2012 Annual Report to Shareholders”) accompanies this proxy statement.
ELECTION OF DIRECTORS
Nominees for Election to the Board of Directors
The persons named below have been nominated by the Board for election as directors to serve until the 2014 Annual Meeting of stockholders and until their successors have been elected and qualify. James M. Seneff, Jr. has been a director since the Company’s inception in June 2010. Thomas K. Sittema has been a director since April 13, 2012. A majority of the Company’s directors are required to be independent, as that term is defined in the Charter and as set forth below under “Board Leadership Structure: Independence and Role in Risk Oversight” (the “Independent Directors”). Michael P. Haggerty and J. Douglas Holladay have served as Independent Directors since April 13, 2012. J. Chandler Martin has served as an Independent Director since July 27, 2012.
In the event that any nominee(s) should be unable to accept the office of director, which is not anticipated, it is intended that the persons named in the proxy will vote for the election of such other person in the place of such nominee(s) for the office of director as the Board may recommend. The affirmative vote of a majority of all of the shares represented in person or by proxy at the 2013 Annual Meeting is required for the election of directors.
The Company’s officers and directors that own shares of common stock have advised the Company that they intend to vote their shares of common stock for the election of each of the nominees.
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Set forth below is each nominee’s name, age, principal occupation or employment during the periods indicated and other biographical information.
The Board unanimously recommends a vote “FOR ALL” to elect each of the
following nominees to the Board:
James M. Seneff, Jr.
Thomas K. Sittema
J. Chandler Martin
Michael P. Haggerty
J. Douglas Holladay
Directors and Executive Officers as of April 29, 2013.
Name | Age | Position | ||
James M. Seneff, Jr. | 66 | Director and Chairman of the Board | ||
Thomas K. Sittema | 54 | Director and Vice Chairman of the Board | ||
J. Chandler Martin | 62 | Independent Director | ||
Michael P. Haggerty | 60 | Independent Director | ||
J. Douglas Holladay | 66 | Independent Director | ||
Stephen H. Mauldin | 44 | President and Chief Executive Officer (Principal Executive Officer) | ||
Joseph T. Johnson | 38 | Senior Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer) | ||
Ixchell C. Duarte | 46 | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | ||
Holly J. Greer | 41 | Senior Vice President, General Counsel and Secretary | ||
James M. Seneff, Jr.,Chairman of the Board and Director. Mr. Seneff has served as the chairman of the Board and a director since the Company’s inception in June 2010, and as the chairman of the Company’s Advisor, CNL Healthcare Corp., since its inception in June 2010. Mr. Seneff has served as a director of CNL Lifestyle Properties, Inc., a public, non-traded real estate investment trust (“REIT”) (2003 to present), a director of the managing member of its former advisor, CNL Lifestyle Company, LLC (2003 to December 2010), and a director of its current advisor, CNL Lifestyle Advisor Corporation (December 2010 to present); chairman of the board and a director of CNL Growth Properties, Inc., a public, non-traded REIT, since its inception in December 2008, and chairman of the board and a manager of its advisor, CNL Global Growth Advisors, LLC, since its inception in December 2008; and chairman of the board and a director of Global Income Trust, Inc., a public, non-traded REIT, since its inception in March 2009, and a manager of its advisor, CNL Global Income Advisors, LLC, since its inception in December 2008.
Mr. Seneff is the sole member of CNL Holdings, LLC (“CNL Holdings”) and has served as the chairman, chief executive officer and/or president of several of CNL Holdings’ subsidiaries, including chief executive officer and president (2008 to present) of CNL Financial Group, LLC, the Company’s sponsor (“CFG”), and as executive chairman (January 2011 to present), chairman (1988 to January 2011), chief executive officer (1995 to January 2011) and president (1980 to 1995) of CNL Financial Group, Inc., a diversified real estate company (“CNL”). Mr. Seneff serves or has served on the board of directors of the following CNL Holdings’ affiliates: CNL Hotels & Resorts, Inc., a public, non-traded REIT (1996 to April 2007), and its advisor, CNL Hospitality Corp. (1997 to June 2006 (became self-advised)); CNL Retirement Properties, Inc., a public, non-traded REIT, and its advisor, CNL Retirement Corp. (1997 to October 2006); CNL Restaurant Properties, Inc., a public, non-traded REIT, and its advisor (1994 to 2005 (became self-advised)); National Retail Properties, Inc., a publicly traded REIT (1994 to 2005); Trustreet Properties, Inc. (“Trustreet”), a publicly traded REIT (2005 to February 2007); CNL Securities Corp., a FINRA-registered broker-dealer and the managing dealer of the Company’s current offering (1979 to present); and CNL Capital Markets Corp. (1990 to present). Mr. Seneff is also the chairman and a principal stockholder of CNLBancshares, Inc. (1999 to present), which owns CNLBank. Mr. Seneff received his B.A. in business administration from Florida State University.
As a result of these professional and other experiences, Mr. Seneff possesses particular knowledge of real estate acquisition, ownership and dispositions in a variety of public and private real estate investment vehicles. This experience strengthens the Board’s collective knowledge, capabilities and experience. Mr. Seneff is principally responsible for overseeing the formulation of the Company’s strategic objectives.
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Thomas K. Sittema,Vice Chairman of the Board and Director. Mr. Sittema has served as the vice chairman of the Board and a director since April 2012. Mr. Sittema served as the Company’s chief executive officer from September 2011 to April 2012, and has served as chief executive officer of the Company’s Advisor since September 2011. Mr. Sittema also serves as vice chairman of the board of CNL Lifestyle Properties, Inc. (April 2012 to present). He served as chief executive officer of CNL Lifestyle Properties, Inc. from September 2011 to April 2012 and has served in that position for its advisor since September 2011. Mr. Sittema has served as chief executive officer (January 2011 to present) and vice president (February 2010 to January 2011) of CNL, an affiliate of CFG and the sponsor of CNL Lifestyle Properties, Inc.
Mr. Sittema has also served as chairman and a member of the board of directors of Corporate Capital Trust, Inc., a non-diversified, closed-end management investment company that has elected to be regulated as a business development company (October 2010 to present). Mr. Sittema has also served in various roles with Bank of America Corporation and predecessors, including NationsBank, NCNB and affiliate successors (1982 to October 2009). Most recently, while at Bank of America Corporation Merrill Lynch, he served as managing director of real estate, gaming, and lodging investment banking. Mr. Sittema joined the real estate investment banking division of Banc of America Securities at its formation in 1994 and initially assisted in the establishment and build-out of the company’s securitization/permanent loan programs. He also assumed a corporate finance role with the responsibility for mergers and acquisitions, or M&A, advisory and equity and debt capital raising for his client base. Throughout his career, Mr. Sittema has led numerous M&A transactions, equity offerings and debt transactions including high grade and high-yield offerings, commercial paper and commercial mortgage-backed security conduit originations and loan syndications. Mr. Sittema has been a director of Crescent Holdings, LLC since February 2013. Mr. Sittema received his B.A. in Business Administration from Dordt College, and an M.B.A. with a concentration in Finance from Indiana University.
As a result of these professional and other experiences, Mr. Sittema possesses particular knowledge of real estate acquisition, ownership and disposition, which strengthens the Board’s collective knowledge, capabilities and experience.
J. Chandler Martin,Independent Director and Audit Committee Financial Expert. Mr. Martin has been an Independent Director and has served as the Company’s Audit Committee financial expert since July 2012. Mr. Martin served as Corporate Treasurer of Bank of America, a banking and financial services company, from 2005 until his retirement in March 2008. During his 27 years at Bank of America, Mr. Martin held a number of line and risk management roles, including leadership roles in commercial real estate risk management, capital markets risk management, and private equity investing. As corporate treasurer, he was responsible for funding, liquidity, and interest rate risk management. From 2003 to 2005, Mr. Martin was Bank of America’s enterprise market and operational risk executive, and from 1999 until 2003, he served as the risk management executive for Bank of America’s global corporate and investment banking. From April 2008 through July 2008, following his retirement, Mr. Martin served as a member of the Counterparty Risk Management Policy Group III (“CPMPG III”), co-chaired its Risk Monitoring and Risk Management Working Group, and participated in the production of CPMPG III’s report: “Containing Systemic Risk: The Road to Reform,” a forward-looking and integrated framework of risk management best practices. Mr. Martin returned to Bank of America in October 2008 to assist with the integration process for Enterprise Risk Management following Bank of America’s acquisition of Merrill Lynch. After working on the transition, Mr. Martin served as Bank of America’s enterprise credit and market risk executive until July 2009. Since January 2010, Mr. Martin works as an independent financial consultant focusing primarily on real estate companies needing assistance in restructuring and reorganization. Currently, Mr. Martin is a member of the board of directors of FNB United Corp., a community bank holding company headquartered in Asheboro, North Carolina, serving as the chair of its Risk Management Committee, and as a member of its audit committee. Mr. Martin attained an M.B.A. from Samford University in 1976 and a B.A. in Economics from Emory University in 1972.
As a result of his professional and other experiences, Mr. Martin possesses particular knowledge of, among other things, systems of internal controls, risk management best practices, sound corporate governance, and the relationship between liquidity, leverage and capital adequacy, which strengthens the Board’s collective knowledge, capabilities and experience.
Michael P. Haggerty,Independent Director. Mr. Haggerty joined the Board as an Independent Director in April 2012. Since 1984, Mr. Haggerty has been a partner at Jackson Walker, LLC, a Dallas-based law firm. For more than 20 years, Mr. Haggerty has headed the finance group of Jackson Walker. Mr. Haggerty’s commercial
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real estate practice has included the negotiation, structuring, and documentation of interim and permanent financing of office buildings, shopping centers, retirement facilities, restaurants, industrial properties, and multi-family residential projects. The credit facilities have involved: both single asset and portfolio transactions; multi-state transactions; partnerships, corporations, REITs, conduits, and pension funds; equity participations; loan participations; letters of credit; multi-creditor facilities; and commercial and residential mortgage warehouse lines of credit. Mr. Haggerty has served as a director of North Dallas Bank & Trust Co. Mr. Haggerty attained a B.B.A. from the University of Georgia and a J.D. from the University of Virginia School of Law. Since 1978, Mr. Haggerty has been admitted to practice law in the states of both Texas and Georgia.
As a result of these professional and other experiences, Mr. Haggerty possesses particular knowledge of real estate and commercial law , which strengthens the Board’s collective knowledge, capabilities and experience.
J. Douglas Holladay,Independent Director. Mr. Holladay has been an Independent Director since April 2012. Mr. Holladay has served as a general partner of Elgin Capital Partners, a private energy company based in Denver from 2008 to the present. He is an advisor to Alexander Proudfoot, Headwaters, the Business Growth Alliance, and the Case Foundation. From 1999 to 2008, Mr. Holladay was co-founder of a middle market private equity fund, Park Avenue Equity Partners. Since 2011, Mr. Holladay has been a guest columnist for the online Washington Post and is an adjunct professor at Georgetown University. From 2009 to the present, Mr. Holladay has served on the board of Miraval, a privately held luxury resort and spa located in Arizona. From July 2004 to April 2007, Mr. Holladay served as a director of CNL Hotels & Resorts, Inc., a public non-traded REIT affiliated with CNL. From 2004 until July 2008, Mr. Holladay also served as an advisor to Providence Capital (now CNL Opportunity Fund), a hedge fund based in Minnesota. Previously, Mr. Holladay held senior positions at Goldman, Sachs & Co., the U.S. State Department and the White House. While a diplomat, Mr. Holladay was accorded the personal rank of ambassador. Between 2000 and 2009, Mr. Holladay served as a director for Sunrise Senior Living, Inc., a public company that provides senior living services in the United States, Canada and the United Kingdom. Mr. Holladay attained an M.Litt. in political and economic history from Oxford University, an M.A. in theology from Princeton Theological Seminary, and an A.B. in political science from the University of North Carolina, Chapel Hill. He holds honorary doctorates from Morehouse College and Nyack College.
As a result of these professional and other experiences, Mr. Holladay possesses particular knowledge of real estate investment and finance and the capital markets , which strengthens the Board’s collective knowledge, capabilities and experience.
Stephen H. Mauldin,Chief Executive Officer and President. Mr. Mauldin has served as the Company’s chief executive officer since April 2012. Mr. Mauldin has also served as the Company’s president and as president of the Company’s Advisor since September 2011. He served as the Company’s chief operating officer from September 2011 to April 2012, and since September 2011 has held that position with the Company’s Advisor. He also serves as president since September 2011 of each of CNL Lifestyle Properties, Inc., a public-non-traded REIT, and its advisor, CNL Lifestyle Advisor Corporation, chief executive officer of CNL Lifestyle Properties, Inc. (since April 2012), and was the chief operating officer of each of CNL Lifestyle Properties, Inc. (September 2011 to April 2012) and its advisor (September 2011 to present).
Prior to joining us, Mr. Mauldin most recently served as chief executive officer, president and a member of the board of directors of Crosland, LLC, a privately held real estate development and asset management company headquartered in Charlotte, North Carolina, from July 2010 until March 2011. Mr. Mauldin originally joined Crosland, LLC in 2006 and served as its chief financial officer from July 2009 to July 2010 and as president of Crosland’s mixed-use and multi-used development division prior to his appointment as chief financial officer. Prior to joining Crosland, LLC, from 1998 to June 2006, Mr. Mauldin was a co-founder and served as a partner of Crutchfield Capital, LLC, a privately held investment and operating company with a focus on small and medium-sized companies in the southeastern United States. From 1996 to 1998, Mr. Mauldin held various positions in the capital markets group and the office of the chairman of Security Capital Group, Inc., which prior to its sale in 2002, owned controlling interests in 18 public and private real estate operating companies (eight of which were NYSE-listed) with a total market capitalization of over $26 billion. Mr. Mauldin graduated with a B.S. in finance from The University of Tampa and received an M.B.A. from the J.L. Kellogg Graduate School of Management at Northwestern University.
Joseph T. Johnson,Senior Vice President, Treasurer and Chief Financial Officer. Mr. Johnson has served as the Company’s treasurer since April 2012. Mr. Johnson has also served as the Company’s senior vice president since June 2010 and chief financial officer since August 2011. He previously served as the Company’s chief
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accounting officer (June 2010 to August 2011), and secretary (June 2010 to March 2011). Mr. Johnson has also served as chief accounting officer (June 2010 to March 2012), and senior vice president of finance of the Company’s Advisor (April 2011 to present). Mr. Johnson has served as treasurer since April 2012, senior vice president since February 2007, and chief financial officer since August 2011 of CNL Lifestyle Properties, Inc., a public-non-traded REIT. He was previously vice president of accounting and financial reporting (January 2006 to February 2007), and chief accounting officer (February 2007 to August 2011) of CNL Lifestyle Properties, Inc. He served in comparable positions at CNL Lifestyle Properties, Inc.’s former advisor, CNL Lifestyle Company, LLC, and is currently serving as senior vice president of finance and chief accounting officer of its current advisor, CNL Lifestyle Advisors Corporation. Mr. Johnson was previously employed by CNL Hospitality Corp. (2001 to 2005), the advisor to CNL Hotels and Resorts, Inc., most recently as vice president of accounting and financial reporting. Prior to that, he worked in the audit practice of KPMG LLP. Mr. Johnson is a certified public accountant. He received a B.S. in accounting and an M.S. in accounting from the University of Central Florida.
Ixchell C. Duarte,Senior Vice President and Chief Accounting Officer. Ms. Duarte has served as the Company’s senior vice president and chief accounting officer since March 2012, and previously served as the Company’s vice president (February 2012 to March 2012). Ms. Duarte has also served as senior vice president and chief accounting officer since March 2012 of CNL Lifestyle Properties, Inc., a public, non-traded REIT, and was previously its vice president (February 2012 to March 2012). Since June 2012, Ms. Duarte has served as senior vice president and chief accounting officer of CNL Growth Properties, Inc., a public non-traded REIT, and since June 2012 she has served as senior vice president and chief accounting officer of Global Income Trust, Inc., a public non-traded REIT. Ms. Duarte served as controller at GE Capital, Franchise Finance, from February 2007 through January 2012 as a result of GE Capital’s acquisition of Trustreet Properties, Inc., a publicly traded REIT. Prior to that, Ms. Duarte served as senior vice president and chief accounting officer of Trustreet Properties, Inc. and served as senior vice president and controller of its predecessor CNL companies (2002 to February 2007). Ms. Duarte also served as senior vice president, chief financial officer, secretary and treasurer of CNL Restaurant Investments, Inc. (2000 to 2002) and as a director of accounting and then vice president and controller of CNL Fund Advisors, Inc. and other CNL Financial Group, Inc. affiliates (1995 to 2000). Prior to that, Ms. Duarte served as an audit senior and then as audit manager in the Orlando, Florida office of Coopers & Lybrand where she serviced several CNL entities (1990 to 1995), and as audit staff in the New York office of KPMG (1988 to 1990). Ms. Duarte is a certified public accountant. She received a B.S. in accounting from the Wharton School of the University of Pennsylvania.
Holly J. Greer,Senior Vice President, General Counsel and Secretary. Ms. Greer has served as the Company’s senior vice president, general counsel and secretary since March 2011. She previously served as the Company’s vice president and associate general counsel (June 2010 to March 2011). Ms. Greer has also served as senior vice president, legal affairs of the Company’s Advisor since March 2011. Ms. Greer has served as a senior vice president, general counsel and secretary of CNL Growth Properties, Inc. and Global Income Trust, Inc., public, non-traded REITs, since August 2011 and as senior vice president and secretary of their advisors since August 2011. Ms. Greer joined CNL Lifestyle Properties, Inc., a public, non-traded REIT, in August 2006, where she initially served as acquisition counsel for its former advisor, CNL Lifestyle Company, LLC, until April 2007. From April 2007 until November 2009, Ms. Greer served as counsel to the former advisor of CNL Lifestyle Properties, Inc., overseeing real estate and general corporate legal matters. Ms. Greer served as associate general counsel and vice president of CNL Lifestyle Properties, Inc. and its former advisor since November 2009. Effective March 2011, Ms. Greer has served as general counsel, senior vice president and secretary of CNL Lifestyle Properties, Inc., and effective April 2011, as senior vice president, legal affairs of CNL Lifestyle Advisor Corporation, its current advisor. Prior to joining CNL Lifestyle Properties, Inc., Ms. Greer spent seven years in private legal practice, primarily at the law firm of Lowndes, Drosdick, Doster, Kantor & Reed, P.A., in Orlando, Florida. Ms. Greer is licensed to practice law in Florida and is a member of the Florida Bar Association and the Association of Corporate Counsel. She received a B.S. in communications and political science from Florida State University and her J.D. from the University of Florida.
Board Leadership Structure: Board Independence and Role in Risk Oversight
The Board is currently comprised of five directors, with Mr. Seneff serving as the chairman of the Board. The Bylaws allow the roles of chairman of the board and chief executive officer to be separated or combined, and the Board believes that it is appropriate to have these as separate positions at this time on account of the varying strengths, experiences and relationships of each of these individuals in the real estate industry. The Chairman, Mr. Seneff, has unique knowledge, experience and relationships with the Board and management and within a broad spectrum of the real estate market, and his continued role as Chairman provides significant value to the Company. Mr. Sittema, the vice chairman of the Board, has extensive experience and relationships in the sectors in which the Company acquires
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and owns real estate properties and the Board believes that his experience and attributes are complementary to the strengths of Mr. Seneff. Mr. Mauldin, the president and chief executive officer, also has extensive real estate investment experience which complements that of Messrs. Seneff and Sittema.
For the year ended December 31, 2012, each of Dr. Douglas and Messrs. Folken, Haggerty, Holladay, Martin and Woody served as Independent Directors. Mr. Folken served as an Independent Director from the Company’s inception until his death on May 28, 2012. Mr. Woody served as an Independent Director from the Company’s inception through his resignation effective April 13, 2012. Dr. Douglas, who will not stand for re-election at this 2013 Annual Meeting, has served as an Independent Director of the Company since its inception.
Although the Company’s shares are not listed on the New York Stock Exchange, the Company applies the exchange’s standards of independence to its own outside directors and for the year ended December 31, 2012, each of Dr. Douglas and Messrs. Folken, Haggerty, Holladay, Martin and Woody met the definition of “independent” under Section 303A.02 of the New York Stock Exchange listing standards.
The Audit Committee focuses on the adequacy of the Company’s enterprise risk management and risk mitigation processes. The Audit Committee meets regularly to discuss the strategic direction and the issues and opportunities facing the Company in light of trends and developments in the REIT industry and general business environment. Throughout the year, the Board provides guidance to management regarding the Company’s strategy and helps to refine its operating plans to implement the Company’s strategy. Annually, the Audit Committee holds an extensive meeting with senior management, PricewaterhouseCoopers and internal audit dedicated to reviewing the categories of risk the Company faces, including any risk concentrations and risk interrelationships, as well as the likelihood of occurrence, the potential impact of those risks and mitigating measures. The involvement of the Audit Committee in setting the Company’s business strategy is critical to the determination of the types and appropriate levels of risk undertaken by the Company. The Board’s role in risk oversight of the Company is consistent with the Company’s leadership structure, with the president and chief executive officer and other members of senior management having responsibility for assessing and managing the Company’s risk exposure, and the Board and the Audit Committee providing oversight of risk management efforts.
Compensation of Independent Directors
During the year ended December 31, 2012, each Independent Director received a $15,000 annual fee for services as well as $2,000 per Board meeting attended, whether they participated by telephone or in person. Each Independent Director serving on the Audit Committee received $2,000 per Audit Committee meeting attended, whether they participated by telephone or in person. The Audit Committee Chair received an annual retainer of $10,000 in addition to Audit Committee meeting fees and fees for meeting with the independent accountants as a representative of the Audit Committee. Independent Directors are also paid $2,000 per day for their participation in certain meetings and other Company related business outside of normally scheduled Board meetings. No additional compensation is paid for attending the 2013 Annual Meeting.
The following table sets forth the compensation earned or paid to the Company’s directors during the year ended December 31, 2012 for their service on the Board and Audit Committee (where applicable):
Name | Fees Earned or | Total | ||
James M. Seneff, Jr. | None | None | ||
Thomas K. Sittema | None | None | ||
Bruce Douglas(1) | $35,000 | $35,000 | ||
Dennis N. Folken(2) | $17,250 | $17,250 | ||
Michael P. Haggerty | $26,000 | $26,000 | ||
J. Douglas Holladay | $16,750 | $16,750 | ||
J. Chandler Martin | $22,500 | $22,500 | ||
Robert J. Woody(3) | $9,000 | $9,000 |
| (1) | Dr. Douglas served as an Independent Director of the Company from its inception and will serve as such until the date of the 2013 Annual Meeting at which he will not stand for re-election. |
| (2) | Mr. Folken served as an Independent Director of the Company from its inception until his death on May 28, 2012. |
| (3) | Mr. Woody served as an Independent Director of the Company from its inception until his resignation effective April 13, 2012. |
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Board Meetings During Fiscal Year 2012
The Board met six times during 2012. Each member of the Board attended at least 75% of the total Board meetings, except for Mr. Martin who joined the Board in July 2012. During 2012, the Audit Committee held four meetings and each member of the Audit Committee attended at least 75% of the total meetings, except for Mr. Martin who joined the Audit Committee in July 2012. Although the Company does not have a policy on director attendance at the 2013 Annual Meeting of stockholders, directors are encouraged to do so. All the directors of the Company were in attendance at the 2012 annual meeting of stockholders.
Committees of the Board of Directors
The Company has a standing Audit Committee, the members of which are selected by the Board each year. During 2012, the Audit Committee was comprised of Bruce Douglas, Michael P. Haggerty, J. Chandler Martin and Robert J. Woody until his resignation effective April 13, 2012. Each of the members of the Audit Committee was determined to be “independent” under the listing standards of the New York Stock Exchange referenced above. The Committee operates under a written charter adopted by the Board. A copy of the Audit Committee Charter is posted on the Company’s website athttp://www.cnlhealthcareproperties.com/n-filings.asp. The Audit Committee assists the Board by providing oversight responsibilities relating to:
| — | The integrity of financial reporting; |
| — | The independence, qualifications and performance of the Company’s independent auditors; |
| — | The systems of internal controls; |
| — | The performance of the Company’s internal audit function; |
| — | Compliance with management’s audit, accounting and financial reporting policies and procedures; and |
| — | Company risk management. |
In addition, the Audit Committee engages and is responsible for the compensation and oversight of the Company’s independent auditors and internal auditors. In performing these functions, the Audit Committee meets periodically with the independent auditors, management and internal auditors (including private sessions) to review the results of their work. During the year ended December 31, 2012, the Audit Committee met four times with the Company’s independent auditors, internal auditors and management to discuss the annual and quarterly financial reports prior to filing them with the Commission. The Audit Committee has determined that Mr. Martin, the chairman of the Audit Committee and an Independent Director, is an “audit committee financial expert” under the rules and regulations of the Commission for purposes of Section 407 of the Sarbanes-Oxley Act of 2002.
Currently, the Company does not have a nominating committee, and therefore, does not have a nominating committee charter. The Board is of the view that it is not necessary to have a nominating committee at this time because the Board is composed of only five members, including a majority of “independent directors” (as defined under the New York Stock Exchange listing standards), and each director is responsible for identifying and recommending qualified Board candidates. The Board does not have a formal policy regarding diversity. The Board considers many factors with regard to each candidate, including judgment, integrity, diversity, prior professional experience, background, the interplay of the candidate’s experience with the experience of other Board members, the extent to which the candidate would be desirable as a member of the Audit Committee, and the candidate’s willingness to devote substantial time and effort to Board responsibilities.
Company stockholders may recommend individuals to the Board for consideration as potential director candidates by timely submitting their names and appropriate background and biographical information to the Company’s Secretary at the Company’s offices. Assuming that the appropriate information has been timely provided, the Board will consider these candidates substantially in the same manner as it considers other Board candidates it identifies.
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Currently, the Company does not have a compensation committee because it does not have any employees and does not separately compensate its executive officers for their services as officers. At such time, if any, as the Company’s shares of common stock are listed on a national securities exchange such as the New York Stock Exchange or the NASDAQ Stock Market or the Company has employees whom it directly provides compensation, the Company will form a compensation committee, the members of which will be selected by the full Board each year.
The information contained in this report shall not be deemed to be “soliciting material” or to be “filed” with the Commission, nor shall such information be incorporated by reference into any previous or future filings under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”) except to the extent that the Company incorporates it by specific reference.
Review and Discussions with Management. The Audit Committee has reviewed and discussed the Company’s audited financial statements for the year ended December 31, 2012 with the management of the Company. The Audit Committee also discussed with the Company’s senior management the process for certifications by the Company’s chief executive officer and chief financial officer required by the Commission and the Sarbanes-Oxley Act of 2002 for certain of the Company’s filings with the Commission.
Review and Discussions with Independent Auditors. The Audit Committee has discussed with PricewaterhouseCoopers, the Company’s independent registered certified public accounting firm, the matters required to be discussed by Statement on Auditing Standards No. 114, “The Auditor’s Communication with those Charged with Governance,” which includes, among other items, matters related to the conduct of the audit of the Company’s financial statements. In addition, the Audit Committee has reviewed the selection, application and disclosure of the Company’s critical accounting policies. The Audit Committee has also received written disclosures and letters from PricewaterhouseCoopers required by Rule 3524 and Rule 3526 of the Public Company Accounting Oversight Board, “Communication with Audit Committees Concerning Independence,” and has discussed with PricewaterhouseCoopers their independence from the Company.
Conclusion. Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the Company’s audited financial statements be included in the 2012 Annual Report of the Company on Form 10-K for filing with the Commission.
The Audit Committee:
Dr. Bruce Douglas Michael P. Haggerty J. Chandler Martin |
The Board has adopted corporate governance policies and procedures that the Board believes are in the best interest of the Company and its stockholders as well as compliant with the Sarbanes-Oxley Act of 2002 and the Commission’s rules and regulations. In particular:
| — | The majority of the Board are Independent Directors and all of the members of the Audit Committee are Independent Directors. |
| — | The Board has adopted a charter for the Audit Committee. One member of the Audit Committee is an “audit committee financial expert” under Commission rules. |
| — | The Audit Committee hires, determines compensation of, and decides the scope of services performed by the Company’s independent auditors. |
| — | The Company has adopted a Code of Business Conduct that applies to all directors and officers of the Company, as well as all directors, officers and employees of the Company’s Advisor. The Code of Business Conduct sets forth the basic principles to guide their day-to-day activities. |
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| — | The Company has adopted a Whistleblower Policy that applies to the Company and all employees of the Company’s Advisor, and establishes procedures for the anonymous submission of employee complaints or concerns regarding financial statement disclosures, accounting, internal accounting controls or auditing matters. |
The Company’s Code of Business Conduct and Whistleblower Policy are available on the Company’s website atwww.cnlhealthcareproperties.com.
Stockholders who wish to communicate with a member or members of the Board may do so by addressing their correspondence to the Board member or members, c/o Holly J. Greer, Secretary, CNL Healthcare Properties, Inc., 450 South Orange Avenue, Orlando, Florida, 32801. The Secretary will review and forward correspondence to the appropriate person or persons for response.
Board of Directors Report on Compensation
The following report of the Board does not constitute “soliciting material” and should not be deemed “filed” with the Commission or incorporated by reference into any other filing the Company makes under the Securities Act or the Exchange Act except to the extent the Company specifically incorporates this report by reference therein.
The Board reviewed and discussed with management the Compensation Discussion and Analysis set forth below in this Proxy Statement (“CD&A”). Based on the Board’s review of the CD&A and the Board’s discussions of the CD&A with management, the Board approved including the CD&A in this proxy statement, and the Company’s 2012 Annual Report on Form 10-K for filing with the Commission.
The Board of Directors:
James M. Seneff, Jr. Thomas K. Sittema Dr. Bruce Douglas Michael P. Haggerty J. Douglas Holladay J. Chandler Martin |
Compensation Discussion and Analysis
The Company has no employees and all of its executive officers are officers of the Advisor and/or one or more of the Advisor’s affiliates and are compensated by those entities, in part, for their service rendered to the Company. The Company does not separately compensate its executive officers for their service as officers. The Company did not pay any annual salary or bonus or long-term compensation to its executive officers for services rendered in all capacities to the Company during the year ended December 31, 2012. See “Certain Relationships and Related Transactions” for a description of the fees paid and expenses reimbursed to the Advisor and its affiliates.
If the Company determines to compensate named executive officers in the future, the Board will review all forms of compensation and approve all stock option grants, warrants, stock appreciation rights and other current or deferred compensation payable with respect to the current or future value of the Company’s shares.
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The following table sets forth as of April 1, 2013, the number and percentage of outstanding shares beneficially owned by all persons known by the Company to own beneficially more than 5% of its common stock, by each director and nominee, by each executive officer and by all executive officers and directors as a group, based upon information furnished by such stockholders, directors and officers. Fractional shares are rounded to the nearest whole number. Except as noted below, the address of the named officers and directors is CNL Center at City Commons, 450 South Orange Avenue, Orlando, Florida 32801.
Name of Beneficial Owner | Number of Shares Beneficially Owned | Percent of Shares | ||
James M. Seneff, Jr. | 23,183(1) | * | ||
Bruce Douglas(2) | 11,592 | * | ||
Dennis N. Folken(3) | — | — | ||
Michael P. Haggerty | — | — | ||
J. Douglas Holladay | — | — | ||
J. Chandler Martin | — | — | ||
Robert J. Woody(4) | — | — | ||
Thomas K. Sittema | — | — | ||
Steven H. Mauldin | — | — | ||
Joseph T. Johnson | — | — | ||
Ixchell C. Duarte | — | — | ||
Holly J. Greer | — | — | ||
|
| |||
All directors and executive officers as a group (12 persons) | 34,775 | * | ||
* Represents less than 1% of the outstanding shares of the Company’s common stock.
| (1) | Represents shares attributed to Mr. Seneff as a result of his control of CNL Financial Group, Inc. which owns 23,011 shares of the Company’s common stock. |
| (2) | Dr. Douglas served as an Independent Director of the Company from its inception through June 27, 2013. |
| (3) | Mr. Folken served as an Independent Director of the Company from its inception until his death on May 28, 2012. |
| (4) | Mr. Woody served as an Independent Director of the Company from its inception until his resignation effective April 13, 2012. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors, certain officers and persons who own more than 10% of the Company’s equity securities that are registered under the Exchange Act, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Commission (such persons hereinafter referred to as “Reporting Persons”). Reporting Persons are required by the Commission’s regulations to furnish the Company with copies of all Forms 3, 4 and 5 that they file. The Company filed a Form 8-A with the Commission on April 30, 2012, which filing served to register its common stock under the Exchange Act pursuant to Section 12(g) thereof making the Reporting Persons subject to their reporting obligations under the Exchange Act at that time.
The Company does not have any stockholders who own more than 10% of the Company’s outstanding common stock. The Company believes, based upon a review of Company records and reports filed with the Commission with respect to 2012, that the Company’s Reporting Persons complied with all Section 16(a) filing requirements during 2012.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is externally advised and has no direct employees. All of the Company’s executive officers are executive officers of, or are on the board of managers of the Advisor. In addition, certain directors and officers hold similar positions with CNL Securities Corp., the managing dealer of the Company’s public offering of its common stock and a wholly owned subsidiary of CNL (the “Managing Dealer”). In connection with services provided to the Company, affiliates are entitled to the following fees:
Managing Dealer – The Managing Dealer receives selling commissions and marketing support fees of up to 7% and 3%, respectively, of gross offering proceeds for shares sold, excluding shares sold pursuant to the Company’s distribution reinvestment plan, all or a portion of which may be paid to participating broker dealers by the Managing Dealer.
Advisor –Pursuant to the advisory agreement as amended on March 20, 2013 (the “Advisory Agreement”), the Advisor and certain affiliates are entitled to receive fees and compensation in connection with the acquisition, management and sale of the Company’s assets, as well as the refinancing of debt obligations of the Company or its subsidiaries. In addition, the Advisor and its affiliates are entitled to reimbursement of actual costs incurred on behalf of the Company in connection with the Company’s organizational, offering, acquisition and operating activities. Pursuant to the Advisory Agreement, the Advisor receives investment services fees equal to 1.85% of the purchase price of properties for services rendered in connection with the selection, evaluation, structure and purchase of assets. For development properties, the Company pays the investment services fee to the Advisor based upon the estimated budget for the development project. Upon completion of the project, the Company reconciles and adjusts the investment services fee based upon actual amounts spent.
In addition, the Advisor is entitled to receive a monthly asset management fee of 0.08334% equal to (i) the monthly average sum of the daily real estate asset value (as defined in the Advisory Agreement) of the Company’s and the Company’s operating partnership, plus (a) the outstanding value of any loans made, plus (b) the amount invested in permitted investments (as defined in the Advisory Agreement); and (ii) 0.1042% of the monthly average on the daily book value of real-estate related securities and other securities.
The Advisor will also receive a financing coordination fee for services rendered with respect to refinancing of any debt obligations of the Company or its subsidiaries equal to 1.0% of the gross amount of the refinancing.
The Company will pay the Advisor a disposition fee in an amount equal to (i) in the case of the sale of real property, the lesser of (a) one-half of a competitive real estate commission, or (b) 1% of the sales price of such property, and (ii) in the case of the sale of any asset other than real property or securities, 1% of the sales price of such asset, if the Advisor, its affiliates or related parties provide a substantial amount of services, as determined by the Company’s Independent Directors, in connection with the sale of one or more assets (including a sale of all of its assets or the sale of it or a portion thereof). The Company will not pay the Advisor a disposition fee in connection with the sale of investments that are securities; however, a disposition fee in the form of a usual and customary brokerage fee may be paid to an affiliate or related party of the Advisor if, such affiliate is properly licensed.
Under the Advisory Agreement and the Charter, the Advisor will be entitled to receive certain subordinated incentive fees upon (i) sales of assets and/or (ii) a listing on a national securities exchange (which would also include the receipt by the Company’s stockholders of securities that are approved for trading on a national securities exchange in exchange for shares of the Company’s common stock as a result of a merger, share acquisition or similar transaction). However, once a listing occurs, the Advisor will not be entitled to receive an incentive fee on subsequent sales of assets. The incentive fees are calculated pursuant to formulas set forth in both the Advisory Agreement and the Charter. All incentive fees payable to the Advisor are subordinated to the return to investors of their invested capital plus a 6% cumulative, non-compounded annual return on their invested capital. Upon termination or non-renewal of the advisory agreement by the Advisor for good reason (as defined in the Advisory Agreement) or by the Company other than for cause (as defined in The Advisory Agreement), a listing or sale of assets after such termination or non-renewal will entitle the Advisor to receive a pro-rated portion of the applicable subordinated incentive fee.
Pursuant to the Advisory Agreement, the Company’s subsidiaries are permitted to enter into contracts for certain real estate services directly with the Advisor’s sub-advisors.
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In addition, the Advisor or its affiliates may be entitled to receive fees that are usual and customary for comparable services in connection with the financing, development, construction or renovation of a property, subject to approval of the Company’s Board, including a majority of its Independent Directors.
In March 2013, the Company entered into an expense support and restricted stock agreement with the Advisor (the “Expense Support Agreement”), pursuant to which the Advisor will accept payment in the form of restricted common stock of the Company (the “Restricted Stock”) in lieu of cash for services rendered and applicable asset management fees and property management fees and other fees and specified expenses owed by the Company to the Advisor for services rendered under the Advisory Agreement. The amount of such expense support will be equal to the positive excess of (i) aggregate stockholder cash distributions declared in the applicable quarter over (ii) the Company’s aggregate modified funds from operations for such quarter as such amount is calculated in accordance with the definition set forth in the Company’s 2012 Annual Report on Form 10-K (the “Expense Support Amount”). The number of shares of Restricted Stock granted by the Company to the Advisor in lieu of payment of fees in cash will be determined by dividing the Expense Support Amount for the applicable quarter by the then-current sale price per share of the common stock. The Restricted Stock will vest immediately prior to or upon the occurrence of the Company’s liquidity event in which the Company’s stockholders receive, or will receive, a certain level of distributions and return on investment, but will be forfeited upon the occurrence of certain events.
Property Manager –In June 2012, the Company entered into the amended and restated property management and leasing agreement (the “Property Management Agreement”) with CNL Healthcare Manager Corp., LLC (the “Property Manager”) pursuant to which the Company or its subsidiary property owner, pays the Company’s Property Manager a property management fee of (i) 2% of annual gross rental revenues from the Company’s single tenant properties; and (ii) 4% of annual gross rental revenues from the Company’s multi-tenant properties. In the event that the Company contracts directly with a third-party property manager in respect of a property, we may pay the Property Manager an oversight fee of up to 1% of annual gross operating revenues of the property managed; however, in no event will the Company pay both a property management fee and an oversight fee to the Property Manager with respect to the same property. The Company or its subsidiary property owners also will pay to the Property Manager a construction management fee of up to 5% of hard and soft costs associated with the initial construction or renovation of a property, or with the management and oversight of expansion projects and other capital improvements, in those cases in which the value of the construction, renovation, expansion or improvements exceeds (i) 10% of the initial purchase price of the property, and (ii) $1.0 million, which fee will be due and payable upon completion of such projects. The Company reimburses the Property Manager for the costs and expenses incurred by the Property Manager on the Company’s behalf in connection with the management of a property. Such costs and expenses will include legal, travel and other out-of-pocket expense that are directly related to the management of specific properties. The Company’s Property Manager is responsible for all costs and expenses relating to the wages, salaries, and other employee-related expenses of its employees and its subcontractors.
CNL Capital Markets Corp. –Pursuant to the Capital Markets Service Agreement between the Company and, CNL Capital Markets Corp. (“CCM”), an affiliate of CNL (the “Service Agreement”), the Company pays CCM a sliding flat annual rate (payable monthly) based on the average number of investor accounts that open over the term of the agreement. CCM provides certain administrative services related to the ownership of the Company’s shares. For the years ended December 31, 2012 and 2011, the Company incurred $125,000 and $25,000 in such fees. On March 20, 2013, the Board approved the renewal of the Service Agreement for consecutive one year periods. The initial term of the Service Agreement was from June 8, 2011 until December 31, 2011 and the current renewal term will expire on December 31, 2013.
For the years ended December 31, 2012 and 2011, the Company incurred the following fees due to the Managing Dealer in connection with its offering:
| Year Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
Selling commissions | $ | 7,070,190 | $ | 915,780 | ||||
Marketing support fees | 4,956,925 | 392,477 | ||||||
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| $ | 12,027,115 | $ | 1,308,257 | |||||
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For the years ended December 31, 2012 and 2011, the Company incurred the following fees and reimbursable expenses due to the Advisor and its affiliates:
| Year Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
Reimbursable expenses: | ||||||||
Offering costs | $ | 6,866,904 | $ | 664,130 | ||||
Operating expenses | 1,775,251 | 1,761,404 | ||||||
|
|
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| |||||
| 8,642,155 | 2,425,534 | |||||||
Investment services fees (1) | 7,672,401 | – | ||||||
Financing coordination fee | 551,910 | – | ||||||
Property management fees (2) | 452,131 | – | ||||||
Asset management fees (2) | 1,380,468 | – | ||||||
|
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| |||||
| $ | 18,699,065 | $ | 2,425,534 | |||||
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FOOTNOTE:
| (1) | For the year ended December 31, 2012, the Company incurred investment services fees totaling approximately $0.6 million related to the Company’s development property which has been capitalized and included in real estate under development, and approximately $2.9 million related to the Company’s investment in unconsolidated entities. |
| (2) | For the year ended December 31, 2012, the Company incurred approximately $0.7 million in construction management fees and $0.01 million in asset management fess which have been capitalized and included in real estate under development. |
Amounts due to related parties for fees and reimbursable costs and expenses described above were as follows as of December 31:
| 2012 | 2011 | |||||||
Due to Managing Dealer: | ||||||||
Selling commissions | $ | 102,656 | $ | 57,516 | ||||
Marketing support fees | 136,337 | 24,650 | ||||||
|
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| |||||
| 238,993 | 82,166 | |||||||
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Due to Property Manager: | ||||||||
Property management fees | 452,131 | – | ||||||
|
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| |||||
| 452,131 | – | |||||||
|
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Due to the Advisor and its affiliates: | ||||||||
Reimbursable offering costs | 356,463 | 41,416 | ||||||
Reimbursable operating expenses | 242,293 | 69,173 | ||||||
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| |||||
| 598,756 | 110,589 | |||||||
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| |||||
| $ | 1,289,880 | $ | 192,755 | |||||
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The Company incurs operating expenses which, in general, are expenses relating to administration of the Company on an ongoing basis. Pursuant to the Advisory Agreement, the Advisor shall reimburse the Company the amount by which the Total Operating Expenses paid or incurred by the Company exceed, in any four consecutive fiscal quarters (an “Expense Year”) commencing with the Expense Year ending June 30, 2013, the greater of 2% of average invested assets or 25% of net income (as defined in the advisory agreement) (the “Limitation”), unless a majority of the Company’s Independent Directors determines that such excess expenses are justified based on unusual and non-recurring factors.
Organizational and offering costs become a liability to the Company only to the extent selling commissions, the marketing support fees and other organizational and offering costs do not exceed 15% of the gross proceeds of the offering. As of December 31, 2012, there were no organizational and offering costs in excess of the 15% limitation that have been billed to the Company.
The Company maintains an account at a bank in which the Company’s chairman and vice chairman serve as directors. The Company had deposits at that bank in the amount of approximately $0.1 million and $0.2 million as of December 31, 2012, and 2011 of which $165 and $1,071, respectively, relates to interest income earned on the deposits.
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The Company paid certain amounts on behalf of its co-venture partner, Windsor Manor, and recorded a receivable of approximately $0.1 million during the year ended December 31, 2012
During 2012 and 2011, the Company received subscriptions of $168.3 million and $13.3 million, respectively, and incurred stock issuance costs of $23.4 million and $2.0 million, respectively, representing stock issuance costs to subscriptions received was 1:7 for both 2012 and 2011. Stock issuance costs consist of selling commissions, marketing support fees, due diligence expense reimbursements, and other offering costs.
During 2012, the Company’s Total Operating Expenses incurred represented approximately 4.17% of Average Invested Assets, as each term is defined in the Charter. During 2012 and 2011, the Company’s Total Operating Expenses incurred represented approximately 4.27% and 188.9% of Net Loss, respectively, as each term is defined in the Charter.
Policies Regarding Transactions with Certain Affiliates
Item 404 of the Commission’s Regulation S-K requires disclosure by the Company of any transaction between the Company and any related persons the amount of which exceeds $120,000 in which any related person had or will have a direct or indirect material interest. Related parties include any executive officers, directors, director nominees, beneficial owners of more than 5% of the Company’s voting securities, immediate family members of any of the foregoing persons, and any firm, corporation or other entity in which any of the foregoing persons is employed and in which such person has 10% or greater beneficial ownership interest.
In order to reduce or eliminate certain potential conflicts of interest, the Charter contains, and/or the Board has adopted written restrictions relating to (i) transactions between the Company and its Advisor or its affiliates, (ii) certain future offerings, and (iii) allocation of properties and loans among certain affiliated entities. These restrictions include the following:
Provision of goods and services - No goods or services will be provided by the Advisor or its affiliates to the Company except for transactions in which the Advisor or its affiliates provide those goods or services in accordance with the Charter, or if a majority of the Company’s directors (including a majority of the Independent Directors) not otherwise interested in such transactions approve such transactions as fair and reasonable and on terms and conditions to the Company than those available from unaffiliated third parties.
Purchase or lease of properties - The Company will not purchase or lease properties in which the Company’s sponsor, CNL Financial Group, LLC (the “Sponsor”), the Advisor, the directors or any affiliate has an interest without the determination by a majority of the directors (including a majority of the Independent Directors) not otherwise interested in such transaction that such transaction is fair and reasonable to the Company and at a price no greater than the cost of the asset to the Sponsor, Advisor director or affiliate unless there is substantial justification for any amount that exceeds such cost and such excess amount is determined to be reasonable. In no event shall the Company acquire any such asset at an amount in excess of its current appraised value. Further, the Company will not sell or lease properties to the Advisor, the Sponsor, a director or any affiliates thereof unless a majority of the directors (including a majority of the Independent Directors) not otherwise interested in such transaction determine the transaction is fair and reasonable to the Company.
Loans to affiliates - The Company will not make loans to the Sponsor, the Advisor, the directors or any affiliate thereof, except (i) mortgage loans subject to the restrictions governing mortgage loans in the Charter or (ii) to its wholly-owned subsidiaries or to ventures or partnerships in which the Company holds an interest. Any loans to the Company by its sponsor, the Advisor, the directors or any affiliates thereof must be approved by a majority of the directors (including a majority of the Independent Directors) not otherwise interested in such transaction as fair, competitive, commercially reasonable, and no less favorable to the Company than comparable loans between unaffiliated parties.
Borrowing from affiliates – The Company will not borrow money from the Sponsor, the Advisor, the directors or any affiliate thereof, unless a majority of the directors (including a majority of the Independent Directors) not otherwise interested in the transaction conclude that the transaction is fair, competitive, commercially reasonable and no less favorable to the Company than loans between unaffiliated parties under the same circumstances.
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Voting of shares - With respect to shares owned by the Advisor, the directors or any affiliate thereof, neither the Advisor, nor the Company’s directors, nor any of their affiliates may vote or consent on matters submitted to the Company’s stockholders regarding the removal of the Advisor, the directors, or any affiliate thereof or any transaction between the Company and any of them. In determining the requisite percentage in interest of shares necessary to approve a matter on which the Advisor, the directors, and any affiliate thereof may not vote or consent, any shares owned by any of them shall not be included.
Suitable investment opportunities – Certain of the Company’s directors and executive officers also serve as directors and executive officers of CNL Lifestyle Properties, Inc., a REIT sponsored by CNL Financial Group, LLC. Although the Company has different investment objectives than CNL Lifestyle Properties, Inc., an investment opportunity may be suitable for both the Company and CNL Lifestyle Properties, Inc. The Company’s Board and the Advisor have agreed that, in the event an investment opportunity is presented to both the Company’s Advisor’s Investment Committee and the investment committee of the advisor for CNL Lifestyle Properties, Inc. and it is determined that the opportunity may be suitable for both the Company and CNL Lifestyle Properties, Inc., and for which both entities have sufficient uninvested funds, the investment opportunity will be offered to the entities on an alternating basis as follows:
| — | The first investment opportunity that meets this criteria will be first offered to the Company; |
| — | The second opportunity that meets this criteria will be first offered to CNL Lifestyle Properties, Inc. (whether or not the Company passed on the first investment opportunity, and whether or not CNL Lifestyle Properties, Inc. accepted an investment in the first investment opportunity); and |
| — | Thereafter, each offer of any investment opportunities will alternate on the foregoing basis. It shall be the duty of the Board, including the Independent Directors, to ensure that these policies are applied fairly to the Company. |
This policy will continue in effect until such time as the Company’s sponsor, CNL Financial Group, LLC, no longer owns or controls the Company’s Advisor and the advisor of CNL Lifestyle Properties, Inc.
Certain public or private entities affiliated with the Company’s sponsor, CNL Financial Group, LLC, and/or CNL are bound by conflict resolution procedures that may impact the investments that are available to the Company. In particular, certain of these public and private entities affiliated with the Company’s sponsor or CNL, some of which invest in assets similar to those in which the Company may invest, require that if an investment opportunity becomes available which is suitable for such sponsor- and/or CNL-affiliated entities, then the entity which has had the longest period of time elapse since it was offered an investment opportunity will first be offered the investment opportunity. For purposes of this conflict resolution procedure for these other entities, an investment opportunity will be considered “offered” when the opportunity is presented to the applicable board of directors for its consideration. In addition to various other factors, the determination as to whether or not an investment opportunity is suitable for more than one program will be determined based on the effect of the acquisition both on diversification of each program’s investments by types of properties and geographic area, and on diversification of the tenants of the properties, the anticipated cash flow of each program, the size of the investment, the amount of funds available to each program, and the length of time such funds have been available for investment. A subsequent development regarding the investment opportunity, such as a delay in the closing of a property or a delay in the construction of a property, may cause any such investment to be more appropriate for an entity other than the entity which committed to make the investment. Although neither the Company nor its Advisor are bound by these conflict resolution procedures, the Company and its Advisor may be restricted by such procedures.
APPROVAL OF PROPOSED AMENDMENT AND
RESTATEMENT OF THE CHARTER
The Board has declared an amendment and restatement of the Charter advisable and directed that the proposal to amend and restate the Charter be submitted for consideration at the 2013 Annual Meeting. Please see attached hereto asExhibit Aa form of Articles of Amendment and Restatement which has been marked to show the proposed changes from our existing Charter. The summary of the provisions of the Articles of Amendment and Restatement included below is qualified in its entirety by reference toExhibit A, which you should read in its entirety.
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Each of the proposals to amend the Charter requires the affirmative vote of a majority of the outstanding shares entitled to vote at the 2013 Annual Meeting. Abstentions and broker non-votes will have the same effect as votes against each proposal.
If the proposals to amend the Charter are approved by the stockholders (regardless of whether the stockholders approve the amendment and restatement of the Bylaws described in Proposal III), the Articles of Amendment and Restatement will be filed with the State Department of Assessments and Taxation of Maryland (the “SDAT”) and the amendment and restatement as described above will be effective upon the acceptance for record of the Articles of Amendment and Restatement by the SDAT. If the stockholders approve one or more but not all of the proposed amendments to the Charter, the Company will file Articles of Amendment and Restatement containing only the amendments that were approved.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO STOCKHOLDER VOTE FOR ELECTION OF DIRECTORS
Section 8.1 of the Charter provides that directors may be elected by the affirmative vote of the holders of a majority of the shares of common stock of the Company present in person or by proxy at an annual meeting at which a quorum is present. As a result, abstentions and broker non-votes have the effect of being a vote against the election of a director. The Board has proposed that in order to limit the impact of abstentions and broker non-votes on the election of directors, Section 8.1 of the Charter be revised so the vote necessary for the election of directors is a majority of the votes actually cast at the annual meeting. With this revision, abstentions and broker non-votes would have no effect on the election of directors.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-A above.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO THE BOARD OF DIRECTORS
In addition to the foregoing change, certain other revisions to the Charter will be made with respect to the Board, which reflect recent developments in corporate governance and are consistent with the charters of other publicly registered companies incorporated in Maryland. These changes include:
| — | The deletion of the provision in Section 2.1 capping the number of directors at 11; |
| — | The deletion of the list of specific powers of the Board in Section 3.2, as the Maryland General Corporation Law (the “MGCL”) already grants the Board extensive powers with respect to the management of the Company’s business and affairs; |
| — | The addition of provisions in current Section 3.3 (new Section 3.4) clarifying the Board’s power to make binding determinations with respect to certain matters; and |
| — | Revisions to Section 9.2 clarifying that no preliminary determination by the Board, the stockholders or independent counsel of an indemnitee’s ultimate entitlement to indemnification is required before the advancement of expenses to such indemnitee. |
The foregoing proposed amendments to the Charter also contain certain ministerial changes as set forth in the form of Articles of Amendment and Restatement.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-B above.
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APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO BUSINESS COMBINATIONS
The Board has proposed several revisions to the Charter with respect to extraordinary transactions, which resolve certain inconsistencies between the Charter and Maryland law and provide the Board with additional flexibility to discourage certain transactions that may not be in the best interests of the Company and its stockholders.
The Board proposes the deletion of current Section 2.7 opting out of the Maryland Business Combination Act. Instead, the Board intends to adopt a resolution exempting business combinations between the Company and any person from the Maryland Business Combination Act, which resolution may be altered or repealed at any time by the Board.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-C above.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO EXTRAORDINARY TRANSACTIONS
The Board has proposed several revisions to the Charter with respect to extraordinary transactions, which resolve certain inconsistencies between the Charter and Maryland law and provide the Board with additional flexibility to consummate certain transactions that may be in the best interests of the Company and its stockholders. These changes, which are consistent with the charters of other publicly registered companies incorporated in Maryland, include:
| — | The addition of a provision in Section 8.4 pursuant to which, notwithstanding any greater vote that may otherwise be required, extraordinary actions are subject only to the affirmative vote of a majority of all the votes entitled to be cast on the matter; |
| — | The deletion of the provisions in current Section 10.2 relating to reorganizations, which are largely redundant of current Section 10.3 relating to mergers, consolidations or asset sales; |
| — | The addition of language in current Section 10.3 permitting certain mergers or transfers of all or substantially all of the Company’s assets (e.g., (i) mergers with a 90% or more owned subsidiary in which the Charter is not amended and stockholder contract rights do not change, (ii) mergers in which the Company is the successor entity and the terms of its stock do not change, the Charter is not otherwise amended and the number of shares of stock of any class or series outstanding immediately after the effective time of the merger does not increase by more than 20% of the number of shares of the class or series outstanding immediately before the merger becomes effective and (iii) transfers of all or substantially all of the Company’s assets to a wholly owned subsidiary or by mortgage or pledge) without a stockholder vote; and |
| — | The deletion of the provision in Section 11.2 permitting stockholders to dissolve the Company without the necessity for concurrence by the Board, which conflicts with Maryland law. |
The foregoing proposed amendments to the Charter also contain certain ministerial changes as set forth in the form of Articles of Amendment and Restatement.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-D above.
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APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO STOCK
The Board has proposed several revisions to the Charter with respect to stock, which reflect recent developments in corporate governance and are consistent with the charters of other publicly registered companies incorporated in Maryland. These changes include:
| — | The deletion of current Section 2.8 opting out of the Maryland Control Share Acquisition Act. Instead, as further discussed in Proposal III below, the Board recommends that the Bylaws be amended to exempt any acquisition of the Company’s stock from the Maryland Control Share Acquisition Act, which exemption may not be altered or repealed prior to the listing of the Company’s stock on a national securities exchange without the approval of stockholders but may be altered or repealed after listing by the Board without any action by the stockholders; |
| — | The addition of provisions in Section 7.1 clarifying (i) the effect of the classification or reclassification of shares on the total number of shares and (ii) the procedures necessary for classifying or reclassifying shares and setting the terms of such classified or reclassified shares; and |
| — | The modernization of the restrictions on ownership and transfer of stock in Sections 7.7 and 7.8 to (i) eliminate the unnecessary requirement that shares of stock owned or transferred in violation of the restrictions on ownership and transfer first convert to excess shares before being transferred to a charitable trust (in this regard, the authorization of 300,000,000 excess shares in Section 7.1 is also deleted), (ii) expressly permit the Board to grant exemptions from the share ownership limitations prospectively or retroactively and (iii) authorize the Board to increase the share ownership limitations for one or more persons and decrease the share ownership limitations for all other persons from time to time. |
The foregoing proposed amendments to the Charter also contain certain ministerial changes as set forth in the form of Articles of Amendment and Restatement.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-E above.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO STOCKHOLDERS’ RIGHTS
The Board has proposed various revisions to the Charter with respect to the rights of stockholders, which reflect recent developments in corporate governance or resolve inconsistencies between the Charter and Maryland law, are consistent with the charters of other publicly registered companies incorporated in Maryland and generally provide greater flexibility to the Board in operating the Company.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO NUMBER OF DIRECTORS
The Board proposes the deletion of the provision in Section 2.1 permitting stockholders to increase or decrease the number of directors.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-F-1 above.
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APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO AMENDMENTS TO BYLAWS
The Board proposes the deletion of the prohibition in Section 3.2(xxii) on amendments of the Company’s Bylaws without a stockholder vote to the extent such amendments adversely affect the rights, preferences and privileges of stockholders (although as further discussed in Proposal III below, the Bylaws will continue to require such stockholder vote until listing of its shares on a national stock exchange).
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-F-2 above.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO CLASSES OF STOCK AND APPRAISAL RIGHTS
The Board proposes the deletion of the requirement in Section 7.3 that all shares of a particular class of common stock have equal dividend, distribution, liquidation and other rights and have no preference, cumulative, preemptive, appraisal, conversion or exchange rights and, in connection with this change, the addition of a provision in Section 7.5 providing that no stockholders of any class are entitled to exercise appraisal rights unless the Board determines that appraisal rights apply, with respect to all or any classes or series of stock or to one or more transactions occurring after the date of determination in connection with which stockholders would otherwise be entitled to exercise appraisal rights.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-F-3 above.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO STOCK CERTIFICATES
The Board proposes the deletion of the requirement in Section 7.6 that the Company issue share certificates to stockholders who make a written request.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-F-4 above.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO STOCKHOLDER AMENDMENTS TO THE CHARTER
The Board proposes the deletion of the provisions in Sections 8.2 and 10.1 permitting stockholders to amend the Charter without the necessity for concurrence by the Board, which conflict with Maryland law.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-F-5 above.
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APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO STOCKHOLDER ACTION BY WRITTEN CONSENT
The Board proposes the deletion of the provision in Section 8.4 prohibiting stockholders from acting by written consent in lieu of a meeting, which conflicts with the MGCL provision permitting stockholders to act by unanimous written consent.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-F-6 above.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO STOCKHOLDER INSPECTION OF RECORDS
The Board proposes the addition of language in Section 8.5 clarifying that stockholders are permitted to inspect only such records to which they are entitled under applicable law.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-F-7 above.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO CERTAIN CORPORATE ELECTIONS
The Board proposes the deletion of the provision in Section 8.12 prohibiting the Company from making certain elections under Title 3, Subtitle 8 of the MGCL which are otherwise available to companies with a class of registered securities and at least three independent directors.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-F-8 above.
APPROVAL OF PROPOSED AMENDMENTS TO THE CHARTER
RELATING TO STOCKHOLDERS’ RIGHTS SUBJECT TO CHARTER AND BYLAWS
The Board proposes the addition of a new Section 8.12 clarifying that the rights of all stockholders and the terms of all stock are subject to the Charter and Bylaws.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposal II-F-9 above.
The foregoing proposed amendments to the Charter also contain certain ministerial changes as set forth in the form of Articles of Amendment and Restatement.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Charter set forth in Proposals II-F-1 through II-F-9 above.
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APPROVAL OF PROPOSED AMENDMENT AND RESTATEMENT OF THE BYLAWS
The Board has declared an amendment and restatement of the Bylaws advisable and directed that the proposal to amend and restate the Bylaws be submitted for consideration at the 2013 Annual Meeting. Please see attached hereto asExhibit Ba form of Amended and Restated Bylaws which has been marked to show the proposed changes from our existing Bylaws. The summary of the provisions of the Amended and Restated Bylaws included below is qualified in its entirety by reference toExhibit B, which you should read in its entirety.
APPROVAL OF PROPOSED AMENDMENTS TO THE BYLAWS RELATING
TO THE BOARD OF DIRECTORS
In order to be consistent with the proposed changes to the Charter and to more closely conform the Company’s governance structure to that of other public companies, the Board proposes the following changes to the Bylaws relating to the board of directors:
| — | The addition of a provision in Section 7 of Article II clarifying that, with respect to the election of directors, a “majority of the votes cast” means that a nominee for director receives the affirmative vote of a majority of the total votes cast for and against or affirmatively withheld as to such nominee. |
| — | The revision of Section 11 of Article III to reflect the directors’ current compensation; and |
| — | The addition of a provision in Section 1 of Article XIII giving the Board the exclusive power to adopt, alter or repeal the Bylaws and to make new Bylaws after a listing of the Company’s stock on a national securities exchange. |
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Bylaws set forth in Proposal III-A above.
APPROVAL OF PROPOSED AMENDMENTS TO THE BYLAWS RELATING
TO THE STOCKHOLDERS’ RIGHTS
In order to be consistent with the proposed changes to the Charter, the Board proposes the deletion of the provision in Section 14 of Article II prohibiting stockholders from acting by written consent in lieu of a meeting, which conflicts with the MGCL provision permitting stockholders to act by unanimous written consent.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Bylaws set forth in Proposal III-B above.
APPROVAL OF PROPOSED AMENDMENTS TO THE BYLAWS RELATING TO
EXTRAORDINARY TRANSACTIONS
As further discussed in Proposal II above, and in order to be consistent with the proposed changes to the Charter, the Board proposes the addition of a provision exempting any acquisition of the Company’s stock from the Maryland Control Share Acquisition Act, which exemption may not be altered or repealed prior to the listing of the Company’s stock on a national securities exchange without the approval of stockholders but may be altered or repealed after listing by the Board without any action by the stockholders.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Bylaws set forth in Proposal III-C above.
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Certain ministerial changes will also be made to the Bylaws as set forth in the form of Amended and Restated Bylaws.
If the stockholders do not approve the amendment and restatement of the Charter described in Proposal II, the Amended and Restated Bylaws will not include the changes described in the Proposals III-A, III- B and III-C above.
The proposal to amend and restate the Bylaws requires the affirmative vote of a majority of the outstanding shares entitled to vote at the 2013 Annual Meeting. Abstentions and broker non-votes will have the same effect as votes against the proposal.
The Board unanimously recommends a vote “FOR” approval
of the proposed amendment and restatement of the Bylaws set forth in Proposals III-A though III-C above.
RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers acted as the Company’s independent registered certified public accounting firm to audit the Company’s books and records for the fiscal year ended December 31, 2012. PricewaterhouseCoopers reports directly to the Company’s Audit Committee. The Audit Committee has recommended to the Board of Directors that PricewaterhouseCoopers be appointed as the Company’s independent registered certified public accounting firm for the fiscal year ended December 31, 2013. Upon the recommendation of the Audit Committee, the Board has approved the appointment of PricewaterhouseCoopers as the Company’s independent registered certified public accounting firm for the fiscal year ending December 31, 2012.
Stockholder ratification of the appointment of auditors requires the affirmative vote of a majority of the votes cast. Any shares not voted by abstention, broker non-vote or by not submitting a proxy, have no impact on the outcome of the proposal.
Although not required by law or the Company’s governance documents, the Company believes ratification of this appointment is good corporate practice because the audit of the Company’s books and records is a matter of importance to the Company’s stockholders. If the Company’s stockholders do not ratify the appointment, the Company’s Audit Committee will reconsider the appointment of PricewaterhouseCoopers, but still may elect to retain them. Even if the appointment is ratified, the Audit Committee, in its discretion, may change the appointment at any time if it determines that such a change would be in the Company’s best interest and the best interest of the Company’s stockholders.
Representatives of PricewaterhouseCoopers are expected to be present at the 2013 Annual Meeting. They will have the opportunity to make a statement if they desire to do so and will be available to respond to questions from the Company’s stockholders.
The Board unanimously recommends a vote “FOR” ratification
of the appointment of PricewaterhouseCoopers as the Company’s independent
registered certified public accounting firm for the fiscal year ending December 31, 2013.
PricewaterhouseCoopers serves as the Company’s principal accounting firm and audited the Company’s consolidated financial statements for the years ended December 31, 2012 and 2011.
The following table sets forth the aggregate fees billed by PricewaterhouseCoopers for 2012 and 2011 for audit and non-audit services (as well as all “out-of-pocket” costs incurred in connection with these services) and are categorized as Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees. The nature of the services provided in each such category is described following the table:
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| Year Ended December 31 | ||||||||
| 2012 | 2011 | |||||||
Audit fees | $ | 380,600 | $ | 287,000 | ||||
Audit-related fees | 171,175 | 72,723 | ||||||
Tax fees | 88,889 | 75,149 | ||||||
All other fees | – | – | ||||||
|
|
|
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Total fees | $ | 640,664 | $ | 434,872 | ||||
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Audit Fees – Consists of professional services rendered in connection with the annual audit of the Company’s consolidated financial statements included in the Company’s annual report on Form 10-K and quarterly reviews of the Company’s interim financial statements included in the Company’s quarterly reports on Form 10-Q. Audit fees also include fees for services performed by PricewaterhouseCoopers that are closely related to the audit and in many cases could only be provided by the Company’s independent auditors. Such services include the issuance of comfort letters and consents related to the Company’s registration statements, assistance with, and review of, other documents filed with the Commission and accounting advice on completed transactions.
Audit-Related Fees –Consists of services related to audits of properties acquired, due diligence services related to contemplated property acquisitions and accounting consultations.
Tax Fees –Consists of services related to corporate tax compliance, including review of corporate tax returns, review of the tax treatments for certain expenses and tax due diligence relating to acquisitions.
All Other Fees– Consists of services related to other fees of properties acquired, due diligence services related to contemplated property acquisitions and accounting consultations. There were $86,363 and $0 professional services rendered by PricewaterhouseCoopers that would be classified as other fees during the years ended December 31, 2012 and 2011, respectively.
Pre-Approval of Audit and Non-Audit Services
Under the Company’s Audit Committee Charter, the Audit Committee must pre-approve all audit and non-audit services provided by the independent auditors in order to assure that the provisions of such services do not impair the auditor’s independence. The policy, as described below and set forth in the Audit Committee Charter sets forth conditions and procedures for such pre-approval of services to be performed by the independent auditor and utilizes both a framework of general pre-approval for certain specified services and specific pre-approval for all other services.
The annual audit services, as well as all audit-related services (assurance and related services that are reasonably related to the performance of the auditor’s review of the financial statements or that are traditionally performed by the independent auditor), requires the specific pre-approval of the Audit Committee. The Audit Committee may, however, grant general pre-approval for other audit services, which are those services that only the independent auditor reasonably can provide (such as comfort letters or consents). The Audit Committee has pre-approved all tax services and may grant general pre-approval for those permissible non-audit services that it has classified as “all other services” because it believes such services are routine and recurring services, and would not impair the independence of the auditor.
The fee amounts for all services to be provided by the independent auditor are established annually by the Audit Committee, and any proposed service fees exceeding approved levels will require specific pre-approval by the Audit Committee. Requests to provide services that require specific approval by the Audit Committee are submitted to the Audit Committee by the independent auditor, the chief financial officer and the chief executive officer, and must include a joint statement as to whether, in their view, the request is consistent with the Commission’s rules on auditor independence.
The Board does not know of any matters to be presented at the 2013 Annual Meeting other than those stated herein. If any other business should come before the 2013 Annual Meeting, the person(s) named in the enclosed proxy will vote thereon in their discretion.
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PROPOSALS FOR THE 2014 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder proposal to be considered for inclusion in the Company’s proxy statement and form of proxy for the annual meeting of stockholders to be held in 2014 (the “2014 Annual Meeting”) must be received at the Company’s offices at 450 South Orange Avenue, Orlando, Florida 32801 no later than December 30, 2013.
Notwithstanding the aforementioned deadline, under the Bylaws, a stockholder must follow certain other procedures to nominate persons for election as directors or to propose other business to be considered at the 2014 Annual Meeting. These procedures provide that stockholders desiring to make nominations for directors and/or to bring a proper subject before a meeting must do so by notice timely received by Holly J. Greer, Secretary of the Company. With respect to proposals for the 2014 Annual Meeting, the Secretary of the Company must receive notice of any such proposal no earlier than January 28, 2014 and no later than February 27, 2014.
ALL STOCKHOLDERS ARE URGED TO AUTHORIZE YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE WHETHER OR NOT YOU EXPECT TO ATTEND THE 2013 ANNUAL MEETING AND VOTE IN PERSON. If you attend the 2013 Annual Meeting and vote in person, your proxy will not be used.
| By Order of the Board of Directors, | ||
| Holly J. Greer | ||
| Secretary | ||
April 29, 2013
Orlando, Florida
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EXHIBIT A
COMPOSITE CHARTERARTICLES OF AMENDMENT AND RESTATEMENT
OF
CNL HEALTHCARE PROPERTIES, INC.
CNL Healthcare Properties, Inc., a Maryland corporation having its principal office at 351 West Camden Street, Baltimore, Maryland 21201 (hereinafter, the “Company”), hereby certifies to the State Department of Assessments and Taxation of Maryland, that:
FIRST: The Company desires to amend and restate its charter as currently in effect.
SECOND: The provisions of the charter as now in effect and as amended hereby, in accordance with the Maryland General Corporation Law, are as follows.
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ARTICLE 1
THE COMPANY; DEFINITIONS
SECTION 1.1Name. The name of the corporation (the “Company”) is:
CNL Healthcare Properties, Inc.
So far as may be practicable, the business of the Company shall be conducted and transacted under that name, which name (and the word “Company” wherever used inthese Articles of Amendment and Restatementthe charter of CNL Healthcare Properties, Inc. (thesethe “Articles of Incorporation”), except where the context otherwise requires) shall refer to theDirectors collectively but not individually or personally and shall not refer to the Stockholders or to any officers, employees or agents of the Company or of such DirectorsCompany.
Under circumstances in which the Directors determine that the use of the name “CNL Healthcare Properties, Inc.” is not practicable, they may use any other designation or name for the Company.
SECTION 1.2Resident Agent. The name and address of the resident agentfor service of processof the Company in the State of Marylandisare National Registered Agents, Inc. of MD, 351 West Camden Street, Baltimore, Maryland 21201. TheCompany may have suchaddress of the principal officewithinof the Company in the State of Marylandas the Directors may from time to time determine.is c/o National Registered Agents, Inc. of MD, 351 West Camden Street, Baltimore, Maryland 21201.
The Company may also have such other offices or places of business within or without the State of Maryland as the Directors may from time to time determine.
SECTION 1.3Nature of Company. The Company is a Maryland corporation within the meaning of the MGCL.
SECTION 1.4Purposes. The purposes for which the Company is formed are to conduct any business for which corporations may be organized under the laws of the State of Maryland including, but not limited to, the following: (i) to acquire, hold, own, develop, construct, improve, maintain,operate,sell, lease, transfer, encumber, convey, exchange and otherwise dispose of, deal with or invest in real and personal property; (ii) to engage in the business of offering financing including mortgage financing secured by Real Property; and (iii) to enter into any partnership, joint venture or other similar arrangement to engage in any of the foregoing.
SECTION 1.5Definitions. As used inthesethe Articles of Incorporation, the following terms shall have the following meanings unless the context otherwise requires (certain other terms used in Article VII hereof are defined in Section 7.7(i) hereof):
“Acquisition Expenses” means any and all expenses, exclusive of Acquisition Fees, incurred by the Company, the Operating Partnership, the Advisor, or any of their Affiliates in connection with the selection, acquisition, development or construction of any investment, including any Real Property, Real Estate Related Securities, Loans or Permitted Investments, whether or not acquired, including, without limitation, legal fees and
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expenses, travel and communications expenses, costs of appraisals, nonrefundable option payments or deposits on property not acquired, accounting fees and expenses, title insurance premiums, and the costs of performing due diligence.
“Acquisition Fees” means any and all fees and commissions, exclusive of Acquisition Expenses, paid by any Person to any other Person (including any fees or commissions paid by or to any Affiliate of the Company, the Operating Partnership or the Advisor) in connection with the selection, evaluation, structure, purchase, development, construction or renovation of Real Property or with making or investing in Loans, Real Estate Related Securities or Permitted Investments, including real estate commissions, selection fees, investment services fees, Development Fees, Construction Fees, nonrecurring management fees, loan fees, points or any other fees of a similar nature. Excluded shall be Development Fees and Construction Fees paid to any Person not affiliated with the Advisor in connection with the actual development and construction of a project.
“Advisor” or “Advisors” means the Person or Persons, if any, appointed, employed or contracted with by the Company pursuant to Section 4.1 hereof and responsible for directing or performing the day-to-day business affairs of the Company, including any Person to whom the Advisor subcontracts substantially all such functions.
“Advisory Agreement” means that certain agreement among the Company, the Advisor and the Operating Partnership pursuant to which the Advisor will act as the advisor to the Company and provide specified services to the Company.
“Affiliate” or “Affiliated” or any derivation thereof means with respect to any Person, (i) any Person directly or indirectly owning, controlling or holding, with the power to vote, ten percent (10%) or more of the outstanding voting securities of such other Person; (ii) any Person ten percent (10%) or more of whose outstanding voting securities are directly or indirectly owned, controlled or held, with the power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by or under common control with such other Person; (iv) any executive officer, director, trustee or general partner of such other Person; or (v) any legal entity for which such Person acts as an executive officer, director, trustee or general partner.
“Articles of Incorporation”means these Articles of Amendment and Restatement of CNL Healthcare Properties, Inchas the meaning set forth in Section 1.1 hereof.
“Asset” means any Real Property, Real Estate Related Security, Loan, Permitted Investment or other investment (other than investments in bank accounts or money market funds) owned by the Company, directly or indirectly through one or more of its Joint Ventures or Subsidiaries, and any other investment made by the Company, directly or indirectly through one or more of its Joint Ventures or Subsidiaries.
“Asset Management Fee” has the meaning set forth in Section 4.13 hereof.
“Average Invested Assets” means, for a specified period, the average of the aggregate book value of the Assets before deducting depreciation, bad debts or other non-cash reserves, computed by taking the average of such values at the end of each month during such period.
“Bylaws” means the bylaws of the Company, as the same are in effect and may be amended from time to time.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.
“Commission” means the U.S. Securities and Exchange Commission.
“Common Shares” means the common stock, par value $0.01 per share, of the Company that may be issued from time to time in accordance with the terms ofthesethe Articles of Incorporation and applicable law, as described in Section 7.3(ii) hereof.
“Company Property” means any and all property, real, personal or otherwise, tangible or intangible, which is transferred or conveyed to the Company, the Operating Partnership, any Subsidiary or any Joint Venture of any of the foregoing (including all rents, income, profits and gains therefrom), and which is owned or held by, or for the account of, the Company, the Operating Partnership, any Subsidiary or any Joint Venture of any of the foregoing.
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“Competitive Real Estate Commission” means a real estate or brokerage commission for the purchase or sale of property which is reasonable, customary, and competitive in light of the size, type, and location of the property.
“Contract Purchase Price” means the amount actually paid in respect of the purchase of a Real Property, and the amount budgeted in respect of the development, construction or improvement of a Real Property, the amount of funds advanced with respect to a Loan or the amount actually paid with respect to the purchase of other Real Estate Related Securities or Permitted Investments, in each case exclusive of Acquisition Fees and Acquisition Expenses.
“Construction Fee” means a fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or provide major repairs or rehabilitation of a Company Property.
“Development Fee” means a fee for the packaging of a Company Property, including negotiating and approving plans and assisting in obtaining zoning and necessary variances and financing for a specific Company Property to be developed or under development, either initially or at a later date.
“Directors,” “Board of Directors” or “Board” means, collectively, the individuals named in Section 2.5 ofthesethe Articles of Incorporation so long as they continue in office and all other individuals who have been duly elected and qualify as Directors of the Company hereunder.
“Disposition Fee” means the fee payable to the Advisor under Section 4.6 hereof.
“Distributions” means any distributions (as such term is defined in Section 2-301 of the MGCL) of money or other property, pursuant to Section 7.2 hereof, by the Company to owners of Equity Shares, including distributions that may constitute a return of capital for federal income tax purposes.
“Equity Shares” means transferable shares of stock of the Company of any class or series, including Common Shares or Preferred Shares. The use of the term “Equity Shares” or any term defined by reference to the term “Equity Shares” shall refer to the particular class or series of capital stock of the Company which is appropriate under the context.
“Excess Shares” meansthe excess shares, par value $0.01 per share, exchanged for shares of Common Stock or Preferred Stock, as the case may be, transferred or proposed to be transferred in excess of the Ownership Limit or which would otherwise jeopardize the Company’s status as a REIT under the Code. Equity Shares treated as provided in Section 7.8 hereof.
“Expense Year” means four consecutive fiscal quarters.
“FINRA” means the Financial Industry Regulatory Authority.
“GAAP” means generally accepted accounting principles as in effect in the United States of America from time to time or such other accounting basis mandated by the Commission.
“Gross Proceeds” means the purchase price of all Equity Shares sold for the account of the Company through all Offerings, without deduction for Organizational and Offering Expenses or volume or other discounts. For the purpose of computing Gross Proceeds, the purchase price of any Equity Share for which reduced or no Selling Commissions or Marketing Support Fees are paid to the Managing Dealer or a Participating Broker shall be deemed to be the full amount of the Offering price per Equity Share pursuant to the Prospectus for such Offering, with the exception of Equity Shares purchased pursuant to the Company’s Reinvestment Plan, which will be factored into the calculation using their actual purchase price.
“Incentive Fees” means the Subordinated Share of Net Sales Proceeds, the Subordinated Incentive Fee and the Performance Fee.
“Indemnitee” has the meaning set forth in Section 9.2(iii) hereof.
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“Independent Appraiser” means a Person with no material current or prior business or personal relationship with the Advisor or the Directors and who is engaged to a substantial extent in the business of rendering opinions regarding the value of Real Property and/or other Assets of the type held by the Company. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers or the Society of Real Estate Appraisers shall be conclusive evidence of being engaged to a substantial extent in the business of rendering opinions regarding the value of Real Property.
“Independent Director” means a Director who is not, and within the last two years has not been, directly or indirectly associated with the Sponsor or Advisor by virtue of (i) ownership of an interest in the Sponsor, Advisor or any of their Affiliates, (ii) employment by the Sponsor, Advisor or any of their Affiliates, (iii) service as an officer or director of the Sponsor, Advisor or any of their Affiliates, (iv) performance of services, other than as a Director, for the Company, (v) service as a director or trustee of more than three REITs sponsored by the Sponsor or advised by the Advisor, or (vi) maintenance of a material business or professional relationship with the Sponsor, Advisor or any of their Affiliates. A business or professional relationship is considered material if the gross revenue derived by the Director from the Sponsor, Advisor and their Affiliates exceeds five percent (5%) of either the Director’s annual gross revenue during either of the last two years or the Director’s net worth on a fair market value basis. An indirect relationship shall include circumstances in which a Director’s spouse, parents, children, siblings, mothers- or fathers-in-law, sons- or daughters-in-law, or brothers- or sisters-in-law is or has been associated with the Sponsor, Advisor, any of their Affiliates, or the Company.
“Initial Effective Date” has the meaning set forth in Section 4.9 hereof.
“Initial Public Offering” means the Company’s first public offering of Equity Shares pursuant to an effective registration statement filed under the Securities Act.
“Invested Capital” means the amount calculated by multiplying the total number of Common Shares issued and outstanding by the Offering price per share, without deduction for volume or other discounts or Organizational and Offering Expenses (which price per Common Share, in the case of Common Shares purchased pursuant to the Reinvestment Plan, shall be deemed to be the actual purchase price), reduced by the amount paid to redeem Common Shares pursuant to the Company’s redemption plan.
“Joint Venture” or “Joint Ventures” means those joint venture or partnership arrangements in which the Company, the Operating Partnership or any of its subsidiaries is a co-venturer or partner and which are established to acquire Real Properties, Real Estate Related Securities, Loans or Permitted Investments.
“Leverage” means the aggregate amount of indebtedness of the Company for money borrowed (including purchase money mortgage loans and excluding accounts payable) outstanding at any time, both secured and unsecured.
“Liquidity Event” means a Listing or any merger, reorganization, business combination, share exchange, acquisition by any Person or related group of Persons of beneficial ownership of all or substantially all of the Equity Shares in one or more related transactions, or similar transaction involving the Company or the Operating Partnership pursuant to which the Stockholders receive for their Equity Shares, as full or partial consideration, cash, Listed or non-Listed equity Securities or combination thereof.
“Listing” or “Listed” means the listing of the Common Shares of the Company (or any successor thereof) on a national securities exchange or the receipt by the Company’s Stockholders of securities that are approved for trading on a national securities exchange in exchange for the Company’s Common Shares. With regard to the Company’s Common Shares, upon commencement of trading of the Common Shares of the Company on a national securities exchange, the Company’s Common Shares shall be deemed Listed.
“Loans” means Mortgage Loans and other types of debt financing provided by or held by the Company from time to time.
“Managing Dealer” means CNL Securities Corp., an Affiliate of the Advisor, or such other Person or entity selected by the Board of Directors to act as the managing dealer for a securities offering by the Company. CNL Securities Corp. is a member of FINRA.
“Marketing Support Fee” means the fees payable to the Managing Dealer in connection with the sale of Equity Shares for marketing support.
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“Market Value” means the value of the Company measured in connection with an applicable Liquidity Event determined as follows: (i) in the case of the Listing of the Common Shares of the Company on a national securities exchange, by taking the average closing price or average of bid and asked price thereof, as the case may be, over a period of 30 days during which the Common Shares are traded, with such period beginning 180 days after Listing of the Company’s Common Shares, (ii) in the case of the receipt by Stockholders of securities of another entity that are approved for trading on a national securities exchange in connection with the consummation of such Liquidity Event, by taking the average closing price or average of bid and asked price thereof, as the case may be, over a period of 30 days during which such securities are traded, with such period beginning 180 days after the commencement of trading of such securities or (iii) in the case of the receipt by Stockholders of securities of another entity that are trading on a national securities exchange prior to the consummation of the Liquidity Event, by taking the average closing price or average of bid and asked price thereof, as the case may be, over a period of 30 days ending on the effective date of the Liquidity Event. Any cash consideration received by the Stockholders in connection with any Liquidity Event shall be added to the Market Value determined in accordance with clause (i), (ii) or (iii). In the event that the Stockholders receive non-Listed equity Securities as full or partial consideration with respect to any Liquidity Event, no value shall be attributed to such non-Listed equity Securities and the Market Value in any such Liquidity Event shall be solely with respect to Listed securities and/or cash received in such Liquidity Event, if any, as determined above.
“MGCL” meansthose provisions oftheCode ofMarylandrelating to “Corporations and Associations.”General Corporation Law.
“Mortgage Loans” means, in connection with mortgage financing provided by or held by the Company, notes or other evidences of indebtedness or obligations that are secured or collateralized by Real Property owned by the borrowers.
“Mortgages” means mortgages, deeds of trust or other security interests on or applicable to Real Property.
“NASAA REIT Guidelines” means the Statement of Policy Regarding Real Estate Investment Trusts adopted by the North American Securities Administrators Association on May 7, 2007.
“Net Assets” means the total assets of the Company (other than intangibles), at cost, before deducting depreciation or other non-cash reserves, less total liabilities, calculated quarterly by the Company on a basis consistently applied.
“Net Income” means, for any period, the Company’s total revenues determined in accordance with GAAP applicable to such period, less the total expenses determined in accordance with GAAP applicable to such period other than additions to reserves for depreciation, bad debts or other similar non-cash reserves and Acquisition Expenses and Acquisition Fees to the extent not capitalized, excluding any gain from the sale of Assets.
“Net Sales Proceeds” means in the case of a transaction described in clause (i) of the definition of Sale, the proceeds of any such transaction less the amount of all selling expenses incurred by or on behalf of the Company or the Operating Partnership, including all real estate commissions, closing costs and legal fees and expenses. In the case of a transaction described in clause (ii) of such definition, Net Sales Proceeds means the proceeds of any such transaction less the amount of selling expenses incurred by or on behalf of the Company or the Operating Partnership, including any legal fees and expenses and other selling expenses incurred in connection with such transaction. In the case of a transaction described in clause (iii) of such definition, Net Sales Proceeds means the Company’s or the Operating Partnership’s pro rata share of the proceeds of any such transaction received by the Joint Venture, less the Company’s or the Operating Partnership’s pro rata share of the amount of any selling expenses incurred by or on behalf of the Joint Venture, less the amount of any selling expenses, including legal fees and expenses, incurred by or on behalf of the Company or the Operating Partnership. In the case of a transaction or series of transactions described in clause (iv) of the definition of Sale, Net Sales Proceeds means the proceeds of any such transaction (including the aggregate of all payments under a Mortgage on or in satisfaction thereof other than regularly scheduled interest payments) less the amount of selling expenses incurred by or on behalf of the Company, the Operating Partnership or any Joint Venture, including all commissions, closing costs and legal fees and expenses. In the case of a transaction described in clause (v) of such definition, Net Sales Proceeds means the proceeds of any such transaction received by the Company or the Operating Partnership less the amount of selling expenses incurred in connection with such transaction. With respect to each of the transactions or series of transactions described above in this definition, Net Sales Proceeds means the proceeds of such transaction or series of transactions less the amount of any real estate commissions, closing costs, and legal fees and expenses and other
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selling expenses incurred by or allocated to the Company, the Operating Partnership or any Joint Venture in connection with such transaction or series of transactions. Net Sales Proceeds shall also include any amounts that the Company determines, in its discretion, to be economically equivalent to proceeds of a Sale. The repayment of debt shall be deducted from the proceeds of a transaction for the purpose of calculating Net Sales Proceeds.
“Non-Compliant Tender Offer” has the meaning set forth in Section 8.10 hereof.
“Offering” means the public offering of Equity Shares pursuant to a Prospectus.
“Operating Partnership” meansCNL Properties TrustCHP Partners, LP, a Delaware limited partnership.
“Organizational and Offering Expenses” means any and all costs and expenses, including Selling Commissions and the Marketing Support Fee incurred by the Company or any of its Affiliates in connection with the formation, qualification and registration of the Company and the marketing and distribution of Equity Shares in an Offering, including, without limitation, the following: legal, accounting and escrow fees; due diligence expenses; printing, amending, supplementing, mailing and distributing costs; personnel costs associated with processing investor subscriptions and the preparation and dissemination of organizational and offering documents and sales materials; telecopy and telephone costs; charges of transfer agents, registrars, trustees, depositories, and experts; and fees, expenses and taxes related to the filing, registration and qualification of the Equity Shares under federal and state laws.
“Participating Broker” means a broker-dealer who is a member of FINRA or who is exempt from broker-dealer registration, and who, in either case, has executed a participating broker or other agreement with the Managing Dealer to sell Equity Shares.
“Performance Fee” means the fee payable to the Advisor under Section 4.9 hereof.
“Permitted Investments” means all investments that are permitted to be made by a REIT under the Code.
“Person” means an individual, corporation, partnership, trust, joint venture, limited liability company or other entity or association.
“Preferred Shares” means any class or series of preferred stock, par value $0.01 per share, of the Company that may be issued from time to time in accordance with the terms ofthesethe Articles of Incorporation and applicable law, as described in Section 7.4 hereof.
“Priority Return” means, as of any date, an aggregate amount equal to a 6% cumulative, non-compounded, annual return on Invested Capital, prorated for any partial year. For purposes of calculating the Priority Return for any calendar year or portion thereof, the Company will use the daily weighted average amount of Invested Capital for such period.
“Prospectus” means the most recent final prospectus of the Company relating to the Common Shares as filed with the Commission pursuant to Rule 424(b) under the Securities Act.
“Real Estate Related Securities” means the real estate related securities investments, or such investments the Board of Directors and the Advisor mutually designate as Real Estate Related Securities to the extent such investments could be classified as either Real Estate Related Securities or Real Property, which are owned from time to time by the Company, the Operating Partnership, Subsidiaries or Joint Ventures.
“Real Property” means (i) land (including, without limitation, interests deriving from fee simple ownership, as tenant pursuant to a ground lease, or as permittee pursuant to a United States Forest Service Permit), including the buildings located thereon, (ii) land only, including, without limitation, interests deriving from fee simple ownership, as tenant pursuant to a ground lease, or as permittee pursuant to a United States Forest Service Permit, and/or (iii) the buildings only, which are owned from time to time by the Company or the Operating Partnership, in each instance with respect to the foregoing items (i)-(iii) whether acquired directly or through subsidiaries, joint venture arrangements or other partnerships, or (iv) such investments the Board of Directors and the Advisor mutually designate as Real Property to the extent such investments could be classified as either Real Property or Real Estate Related Securities, and including, with respect to each of the above-referenced items (i)-(iv), all tangible personal property used or usable in connection with the operation of any business on or about the applicable property. Properties sold by the Company, the Operating Partnership or any of their Subsidiaries to tenancy-in-common investors shall be deemed Real Property for the purposes of this definition so long as (a) such properties are being leased by the Company, the Operating Partnership or any of their Subsidiaries from the tenancy-in-common investors, and (b) such properties are reflected as assets of the Company in accordance with GAAP.
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“Reinvestment Plan” means any reinvestment plan pursuant to which Stockholders may elect to have the full amount of their cash Distributions from the Company reinvested in additional Equity Shares of the Company.
“REIT” means a “real estate investment trust” as defined pursuant to sections 856 through 860 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.
“Roll-Up Entity” means a partnership, REIT, corporation, trust or similar entity that would be created or that would survive after the successful completion of a proposed Roll-Up Transaction.
“Roll-Up Transaction” means a transaction involving the acquisition, merger, conversion, or consolidation, directly or indirectly, of the Company and the issuance of securities of a Roll-Up Entity. Such term does not include (i) a transaction involving securities of theCompanyRoll-Up Entity that have been listed on a national securities exchange for at least twelve (12) months; or (ii) a transaction involving the conversion to corporate, trust, or association form of only the Company if, as a consequence of the transaction, there will be no significant adverse change in Stockholder voting rights, the term of existence of the Company, compensation to the Advisor or the investment objectives of the Company.
“Sale” or “Sales” means any transaction or series of transactions whereby: (i) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any Real Property, or portion thereof, and including any event with respect to any Real Property which gives rise to a significant amount of insurance proceeds or condemnation awards; (ii) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Operating Partnership in any Joint Venture in which it is a co-venturer or partner; (iii) any Joint Venture directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any Real Property or portion thereof, including any event with respect to any Real Property which gives rise to insurance claims or condemnation awards; (iv) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, conveys or relinquishes its interest in any Mortgage or portion thereof (including with respect to any Mortgage, all payments thereunder or in satisfaction thereof other than regularly scheduled interest payments) of amounts owed pursuant to such Mortgage and any event which gives rise to a significant amount of insurance proceeds or similar awards; or (v) the Company, the Operating Partnership or any Joint Venture directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any or all of the Company’s (i) Assets, or (ii) other asset or assets not previously described in this definition or any portion thereof.
“Securities” means Equity Shares, any other 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 participations in, temporary or interim certificates for, receipts for, guarantees of, or warrants, options or rights to subscribe to, purchase or acquire, any of the foregoing, if and only if any such item is treated as a “security” under the Securities Exchange Act of 1934 or applicable state securities laws, and to the extent that such item has not otherwise been designated as Real Property by the Board of Directors and the Advisor as contemplated herein.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Selling Commissions” means any and all commissions payable to underwriters, managing dealers, or other broker-dealers in connection with the sale of Equity Shares, through Offerings, including, without limitation, selling commissions payable to the Managing Dealer.
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“Sponsor” means, for purposes of the obligations imposed under the NASAA REIT Guidelines, any Person directly or indirectly instrumental in organizing, wholly or in part, the Company or any Person who will control, manage or participate in the management of the Company, and any Affiliate of such Person. Not included is any Person whose only relationship with the Company is as that of an independent property manager of the Assets, and whose only compensation is as such. “Sponsor” does not include wholly independent third parties, such as attorneys, accountants and underwriters, whose only compensation is for professional services. A Person may also be deemed a sponsor of the Company by (i) taking the initiative, directly or indirectly, in founding or organizing the business or enterprise of the Company, either alone or in conjunction with one or more other Persons, (ii) receiving a material participation in the Company in connection with the founding or organizing of the business of the Company, in consideration of services or property, or both services and property, (iii) having a substantial number of relationships and contacts with the Company, (iv) possessing significant rights to control Company properties, (v) receiving fees for providing services to the Company which are paid on a basis that is not customary in the industry, or (vi) providing goods or services to the Company on a basis which was not negotiated at arm’s length with the Company.
“Stock Option Plan” means a plan that provides for the matters set forth in Rule 260.140.41 of Section 25140 of the Corporations Code of California, as in effect as of the date ofthesethe Articles of Incorporation.
“Stockholder List” shall have the meaning as provided in Section 8.6 hereof.
“Stockholders” means the registered holders of the Company’s Equity Shares.
“Subordinated Incentive Fee” means the fee payable to the Advisor under Section 4.8 hereof.
“Subordinated Share of Net Sales Proceeds” means the fee payable to the Advisor under Section 4.7 hereof.
“Subsidiary” means any corporation, limited liability company, partnership, business trust or other entity of which the Company, directly or indirectly, owns or controls at least fifty percent (50%) of the voting securities or economic interests.
“Tendered Shares” has the meaning set forth in Section 8.10 hereof.
“Termination Date” means the date of termination of the Advisory Agreement.
“Total Operating Expenses” means all costs and expenses paid or incurred by the Company, as determined under GAAP, that relate in any way to the operation of the Company or to corporate business, including Asset Management Fees and other fees paid to the Advisor, but excluding (i) the expenses of raising capital such as Organizational and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and tax incurred in connection with the issuance, distribution, transfer, registration and Listing of Equity Shares, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad debt reserves, (v) the Performance Fee, the Subordinated Incentive Fee, the Subordinated Share of Net Sales Proceeds and any other incentive fees paid in compliance with the NASAA REIT Guidelines, (vi) Acquisition Fees and Acquisition Expenses, (vii) real estate commissions on the Sale of Real Property, (viii) Disposition Fees (however any Disposition Fee paid to an Affiliate or related party of the Advisor in connection with the disposition of Securities as provided in Section 4.6 shall not be so excluded), (ix) property management fees and leasing commissions or other amounts incurred pursuant to the property management agreement, (x) property or investment direct operating expenses, and (xi) other fees and expenses connected with the acquisition, disposition, management and ownership of real estate interests, mortgage loans or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair, and improvement of property). The definition of Total Operating Expenses set forth above is intended to encompass only those expenses which are required to be treated as Total Operating Expenses under the NASAA REIT Guidelines. As a result, and notwithstanding the definition set forth above, any expense of the Company which is not part of Total Operating Expenses under the NASAA REIT Guidelines shall not be treated as part of Total Operating Expenses for purposes hereof.
“Unimproved Real Property” means property in which the Company or the Operating Partnership has a direct or indirect equity interest that is not acquired for the purpose of producing rental or other operating income, that has no development or construction in process and for which no development or construction is planned, in good faith, to commence within one year.
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ARTICLE 2
BOARD OF DIRECTORS
SECTION 2.1Number. Until such time as the Company is subject to the NASAA REIT Guidelines, the number of Directors shall be at least (2) and not more than eleven (11). Thereafter, theThe total number of Directors shall benot less than three (3) and not more than eleven (11), subject to the Bylaws andfive (5), which number may be increased or decreased from time to time by resolution of the Directors then in office, subject to any express rights of any holders of any series of Preferred Shares to elect additional Directors under specified circumstances. Such number may be increased or decreased from time to time by resolution of the Directors then in office or by an affirmative vote of the holders of a majority of the Equity Shares outstanding and entitled to vote; provided, however, that the total number of Directors shall not be fewer than three (3). A majority of the Board of Directors will be Independent Directors upon such time as the Company is subject to the NASAA REIT Guidelines, except for a period of ninety (90) days after the death, removal or resignation of an Independent Director. Independent Directors shall nominate replacements for vacancies in the Independent Director positions. No reduction in the number of Directors shall cause the removal of any Director from office prior to the expiration of his or her term. Any vacancy created by an increase in the number of Directors will be filled, at any regular meeting or at any special meeting of the Directors called for that purpose, by a majority of the entire Board of Directors. Any other vacancy will be filled at any regular meeting or at any special meeting of the Directors called for that purpose, by a majority of the remaining Directors, whether or not sufficient to constitute a quorum. For the purposes of voting for Directors, at any annual meeting or at any special meeting of the Stockholders called for that purpose, each Equity Share of stockentitled to vote generally in the election of Directorsmay be voted for as many individuals as there are Directors to be elected and for whose electionthesuch Equity Share is entitled to be voted, or as may otherwise be required by the MGCL or other applicable law as in effect from time to time.
SECTION 2.2Experience. A Director shall have had at least three (3) years of relevant experience demonstrating the knowledge and experience required to successfully acquire and manage the type of assets being acquired by the Company. At least one of the Independent Directors shall have three (3) years of relevant real estate experience.
SECTION 2.3Committees. Subject to the MGCL, the Directors may establish such committees as they deem appropriate, in their discretion, provided that the majority of the members of each committee are Independent Directors.
SECTION 2.4Initial initialcurrent Directors are James M. Seneff, Jr. and Robert A. Bourne, Bruce, Thomas K. Sittema, Michael P. Haggerty, Douglas, Dennis N. Folken J. Holladay andRobertJ.WoodyChandler Martin. Each Director shall hold office for one (1) year from the date of his or her election, until the next annual meeting of Stockholders and until his or her successor shall have been duly elected and shall have qualified. Directors may be elected to an unlimited number of successive terms.
SECTION 2.5Approval by Independent Directors. Upon such time as the Company is subject to the NASAA REIT Guidelines, aA majority of the Independent Directors must approve all matters which are specified in sections II.A, II.C, II.F, II.G, IV.A, IV.B, IV.C, IV.D, IV.E, IV.F, IV.G, V.E, V.H, V.J, VI.A, VI.B.4 and VI.G. of the NASAA REIT Guidelines.
SECTION 2.6Resignation, Removal or Death. Any Director may resign by written notice to the Board of Directors, effective upon execution and delivery to the Company of such written notice or upon any future date specified in the notice. A Director may be removed from office with or without cause only at a meeting of the Stockholders called for that purpose, by the affirmative vote of the holders of not less than a majority of the Equity Shares then outstanding and entitled to vote, without the necessity for concurrence by the Directors, subject to the rights of any Preferred Shares to vote for such Directors. The notice of such meeting shall indicate that the purpose, or one of the purposes, of such meeting is to determine if a Director should be removed.
SECTION 2.7 Business Combination Statute. Notwithstanding any other provision of these Articles of Incorporation or any contrary provision of law, the Maryland Business Combination Statute, found in Title 3, subtitle 6 of the MGCL, as amended from time to time, or any successor statute thereto, shall not apply to any “business combination” (as defined in Section 3-601(e) of the MGCL, as amended from time to time, or any successor statute thereto) of the Company and any Person.
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SECTION 2.8 Control Share Acquisition Statute. Notwithstanding any other provision of these Articles of Incorporation or any contrary provision of law, the Maryland Control Share Acquisition Statute, found in Title 3, subtitle 7 of the MGCL, as amended from time to time, or any successor statute thereto shall not apply to any acquisition of Securities of the Company by any Person.
ARTICLE 3
POWERS OF DIRECTORS
SECTION 3.1General. The Directors shall have fiduciary duties to the Company and to the stockholders in accordance with the MGCL. Subject to the express limitations herein or in the Bylaws and to the general standard of care required of directors under the MGCL and other applicable law, (i) the business and affairs of the Company shall be managed under the direction of the Board of Directors and (ii) the Directors shall have full, exclusive and absolute power, control and authority over the Company Property and over the business of the Company as if they, in their own right, were the sole owners thereof, except as otherwise limited bythesethe Articles of Incorporation. The Directors have established the written policies on investments and borrowing set forth in this Article III and Article V hereof and shall monitor the administrative procedures, investment operations and performance of the Company and the Advisor to assure that such policies are carried out. The Directors may take any actions that, in their sole judgment and discretion, are necessary or desirable to conduct the business of the Company. Any construction ofthesethe Articles of Incorporation or determination made in good faith by the Directors concerning their powers and authority hereunder shall be conclusive. The enumeration and definition of particular powers of the Directors included in this Article III shall in no way be limited or restricted by reference to or inference from the terms of this or any other provision ofthesethe Articles of Incorporation or construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Directors under the general laws of the State of Maryland as now or hereafter in force.
SECTION 3.2Specific Powers and Authority. Subject only to the express limitations herein, and in addition to all other powers and authority conferred by these Articles of Incorporation or by law, the Board of Directors, without any vote, action or consent by the Stockholders, shall have and may exercise, at any time or times, in the name of the Company or on its behalf the following powers and authorities:
(i) Investments. Subject to Article V and Section 9.5 hereof, to invest in, purchase or otherwise acquire and to hold Company Property of any kind wherever located, or rights or interests therein or in connection therewith, all without regard to whether such Company Property, interests or rights are authorized by law for the investment of funds held by trustees or other fiduciaries, or whether obligations the Company acquires have a term greater or lesser than the term of office of the Directors or the possible termination of the Company, for such consideration as the Directors may deem proper (including cash, property of any kind or Securities of the Company); provided, however, that the Directors shall take such actions as they deem necessary and desirable to comply with any requirements of the MGCL relating to the types of Assets held by the Company.
(ii) REIT Qualification
SECTION 3.3 Issuance of Securities. The Board of Directorsshall use its best efforts to cause the Company to qualify for U.S. federal income tax treatment in accordance with the provisions of the Code applicable to REITs (as those terms are defined in Section 1.5 hereof). In furtherance of the foregoing, the Board of Directors shall use its best efforts to take such actions as are necessary, and may take such actions as it deems desirable (in its sole discretion) to preserve the status of the Company as a REIT until such time as the Board of Directors determines that it no longer is in the best interests of the Company to qualify as a REIT.
(iii) Sale, Disposition and Use of Company Property. Subject to Article V and Sections 9.5 and 10.3 hereof, the Board of Directors shall have the authority to sell, rent, lease, hire, exchange, release, partition, assign, mortgage, grant security interests in, encumber, negotiate, dedicate, grant easements in and options with
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respect to, convey, transfer (including transfers to entities wholly or partially owned by the Company, the Directors, the Advisor or their Affiliates) or otherwise dispose of any or all of the Company Property by deeds (including deeds in lieu of foreclosure with or without consideration), trust deeds, assignments, bills of sale, transfers, leases, mortgages, financing statements, security agreements and other instruments for any of such purposes executed and delivered for and on behalf of the Company or the Directors by one or more of the Directors or by a duly authorized officer, employee, agent or nominee of the Company, on such terms as they deem appropriate; to give consents and make contracts relating to the Company Property and its use or other property or matters; to develop, improve, manage, use, alter or otherwise deal with the Company Property; and to rent, lease or hire from others property of any kind; provided, however, that the Company may not use or apply land for any purposes not permitted by applicable law.
(iv) Financings. To borrow or, in any other manner, raise money for the purposes and on the terms they determine, which terms may (a) include evidencing the same by issuance of Securities of the Company and (b) may have such provisions as the Directors determine; to guarantee, indemnify or act as surety with respect to payment or performance of obligations of any Person; to mortgage, pledge, assign, grant security interests in or otherwise encumber the Company Property to secure any such Securities of the Company, contracts or obligations (including guarantees, indemnifications and suretyships); and to renew, modify, release, compromise, extend, consolidate or cancel, in whole or in part, any obligation to or of the Company or participate in any reorganization of obligors to the Company; provided, however, that the Company’s Leverage may not exceed three hundred percent (300%) of Net Assets except as provided in the following sentence. Any excess in borrowing over such three hundred percent (300%) level shall be approved by a majority of the Independent Directors and disclosed to Stockholders in the next quarterly report of the REIT, along with justification for such excess.
(v) Lending. Subject to the provisions of Sections 5.6(vii) and 9.5 hereof, to lend money or other Company Property on such terms, for such purposes and to such Persons as they may determine.
(vi) Issuance of Securities. Subject to the provisions of Article VII hereof, to create and authorize and direct the issuance (on either a pro rata or a non-pro rata basis) by the Company, in shares, units or amounts of one or more types, series or classes, of Securities of the Company, which may have such voting rights, dividend or interest rates, preferences, subordinations, conversion or redemption prices or rights, maturity dates, distribution, exchange, or liquidation rights or other rights as the Directors may determine, without vote of or other action by the Stockholders, to such Persons for such consideration, at such time or times and in such manner and on such terms as the Directors determine; to list any of the Securities of the Company on any securities exchange; to purchase or otherwise acquire, hold, cancel, reissue, sell and transfer any Securities of the Company; and to acquire Excess Shares from the Excess Shares Trust pursuant to Section 7.8(x).
(vii) Expenses and Taxes. To pay any charges, expenses or liabilities necessary or desirable, in the sole discretion of the Directors, for carrying out the purposes of these Articles of Incorporation and conducting business of the Company, including compensation or fees to Directors, officers, employees and agents of the Company, and to Persons contracting with the Company (including the Advisor and other Affiliates), and any taxes, levies, charges and assessments of any kind imposed upon or chargeable against the Company, the Company Property or the Directors in connection therewith; and to prepare and file any tax returns, reports or other documents and take any other appropriate action relating to the payment of any such charges, expenses or liabilities.
(viii) Collection and Enforcement. To collect, sue for and receive money or other property due to the Company; to consent to extensions of the time for payment, or to the renewal, of any Securities or obligations; to engage or to intervene in, prosecute, defend, compound, enforce, compromise, release, abandon or adjust any actions, suits, proceedings, disputes, claims, demands, security interests or things relating to the Company, the Company Property or the Company’s affairs; and to exercise any rights and enter into any agreements and take any other action necessary or desirable in connection with the foregoing.
(ix) Deposits. To deposit funds or Securities constituting part of the Company Property in banks, trust companies, savings and loan associations, financial institutions and other depositories, whether or not such deposits will draw interest, subject to withdrawal on such terms and in such manner as the Directors determine.
(x) Allocation; Accounts. To determine whether moneys, profits or other Assets of the Company shall be charged or credited to, or allocated between, income and capital, including whether or not to amortize any premium or discount and to determine in what manner any expenses or disbursements are to be borne as between income and capital (regardless of how such items would normally or otherwise be charged to or
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allocated between income and capital without such determination); to treat any dividend or other distribution on any investment as, or apportion it between, income and capital; in their discretion to provide reserves for depreciation, amortization, obsolescence or other purposes in respect of any Company Property in such amounts and by such methods as they determine; to determine what constitutes net earnings, profits or surplus; to determine the method or form in which the accounts and records of the Company shall be maintained; and to allocate to the Stockholders’ equity account less than all of the consideration paid for Securities and to allocate the balance to paid-in capital or capital surplus.
(xi) Valuation of Property. To determine the value of all or any part of the Company Property and of any services, Securities, or other consideration to be furnished to or acquired by the Company, and to revalue all or any part of the Company Property, all in accordance with such appraisals or other information as are reasonable, in their sole judgment.
(xii) Ownership and Voting Powers. To exercise all of the rights, powers, options and privileges as the general partner of the Operating Partnership and pertaining to the ownership of any Mortgages, Securities, Real Estate Related Securities and other Company Property to the same extent that an individual owner might, including without limitation to vote or give any consent, request or notice or waive any notice, either in person or by proxy or power of attorney, which proxies and powers of attorney may be for any general or special meetings or action, and may include the exercise of discretionary powers.
(xiii) Officers, Etc.; Delegation of Powers. To elect, appoint or employ such officers for the Company and such committees of the Board of Directors with such powers and duties as the Directors may determine, the Company’s Bylaws provide or the MGCL requires; to engage, employ or contract with and pay compensation to any Person (including subject to Section 9.5 hereof, the Advisor or any Director and Person who is an Affiliate of any Director or the Advisor) as agent, representative, Advisor, member of an advisory board, employee or independent contractor (including advisors, consultants, transfer agents, registrars, underwriters, accountants, attorneys-at-law, real estate agents, property and other managers, appraisers, brokers, architects, engineers, construction managers, general contractors or otherwise) in one or more capacities, to perform such services on such terms as the Directors may determine; to delegate to one or more Directors, officers or other Persons engaged or employed as aforesaid or to committees of Directors or to the Advisor, the performance of acts or other things (including granting of consents), the making of decisions and the execution of such deeds, contracts, leases or other instruments, either in the names of the Company, the Board of Directors or as its attorneys or otherwise, as the Directors may determine; and to establish such committees as they deem appropriate.
(xiv) Associations. Subject to Section 9.5 hereof, to cause the Company to enter into joint ventures, general or limited partnerships, participation or agency arrangements or any other lawful combinations, relationships or associations of any kind.
(xv) Reorganizations, Etc. Subject to Sections 10.2 and 10.3 hereof, to cause to be organized or assist in organizing any Person under the laws of any jurisdiction to acquire all or any part of the Company Property, carry on any business in which the Company shall have an interest or otherwise exercise the powers the Directors deem necessary, useful or desirable to carry on the business of the Company or to carry out the provisions of these Articles of Incorporation; to merge or consolidate the Company with any Person; to sell, rent, lease, hire, convey, negotiate, assign, exchange or transfer all or any part of the Company Property to or with any Person in exchange for Securities of such Person or otherwise; and to lend money to, subscribe for and purchase the Securities of, and enter into any contracts with, any Person in which the Company holds, or is about to acquire, Securities or any other interests.
(xvi) Insurance. To purchase and pay for out of Company Property insurance policies insuring the Stockholders, the Company and the Company Property against any and all risks, and insuring the officers, Directors, Advisors and Affiliates of the Company individually (each an “Insured”) against all claims and liabilities of every nature arising by reason of holding or having held any such status, office or position or by reason of any action alleged to have been taken or omitted by the Insured in such capacity. Nothing contained herein shall preclude the Company from purchasing and paying for such types of insurance, including extended coverage liability and casualty and workers’ compensation, as would be customary for any Person owning comparable assets and engaged in a similar business, or from naming the Insured as an additional insured party thereunder.
(xvii) Distributions. To authorize the Company to declare and pay dividends or other Distributions to Stockholders, subject to the provisions of Section 7.2 hereof.
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(xviii) Discontinue Operations; Bankruptcy. To discontinue the operations of the Company (subject to Section 10.2 hereof); to petition or apply for relief under any provision of federal or state bankruptcy, insolvency or reorganization laws or similar laws for the relief of debtors; to permit any Company Property to be foreclosed upon without raising any legal or equitable defenses that may be available to the Company or the Directors or otherwise defending or responding to such foreclosure; or to take such other action with respect to indebtedness or other obligations of the Directors, the Company Property or the Company as the Directors, in such capacity, and in their discretion may determine.
(xix) Termination of Status. To terminate the status of the Company as a real estate investment trust under the REIT Provisions of the Code.
(xx) Fiscal Year. Subject to the Code, to adopt, and from time to time change, a fiscal year for the Company.
(xxi) Seal. To adopt and use a seal, but the use of a seal shall not be required for the execution of instruments or obligations of the Company.
(xxii) Bylaws. To adopt, implement and from time to time alter, amend or repeal the Bylaws of the Company relating to the business and organization of the Company, provided that such amendments are not inconsistent with the provisions of these Articles of Incorporation, and further provided that the Directors may not amend the Bylaws, without the affirmative vote of a majority of the Equity Shares, to the extent that such amendments adversely affect the rights, preferences and privileges of Stockholders.
(xxiii) Listing of Common Shares. To cause the Listing at any time after completion or termination of the Initial Public Offering.
(xxiv) may authorize the issuance from time to time of Equity Shares of any class or series, whether now or hereafter authorized, or securities or rights convertible into Equity Shares of any class or series, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable (including as compensation for the Independent Directors or without consideration in the case of a stock split or stock dividend), subject to such restrictions or limitations, if any, as may be set forth in the Articles of Incorporation or the Bylaws.Further Powers. To do all other acts and things and execute and deliver all instruments incident to the foregoing powers, and to exercise all powers which they deem necessary, useful or desirable to carry on the business of the Company or to carry out the provisions of these Articles of Incorporation, even if such powers are not specifically provided hereby.
SECTION3.3 3.4 Determinations by Board. The determination as to any of the following matters, made in good faith by or pursuant to the direction of theBoard ofDirectorsDetermination of Best Interest of Company consistent with these Articles of Incorporation, shall be final and conclusive and shall be binding upon theCompanyCorporation and everyStockholderholder of Equity Shares: (i) the amount of the Net Income of the Company for any period and the amount of assets at any time legally available for the payment of dividends, redemption of its capital stock or the payment of other Distributions; (ii) the amount of paid-in surplus, net assets, other surplus, annual or other cash flow, funds from operation, net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; (iii) the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged); (iv) any interpretationor resolution of any ambiguity with respect to any provisionof theprovisions of theseArticles of Incorporation,(including the terms, preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to dividends ordistributionsother Distributions, qualifications or terms or conditions of redemption of any class or series ofsharesEquity Shares) or the Bylaws; (v) the fair value, or any sale, bid or ask price to be applied in determining the fair value, of any asset owned or held by the Company or the Operating Partnership or of any Equity Shares; (vi) the number of shares of any class; (vii) any matter relating to the acquisition, holding and disposition of any Assets by the Company or the Operating Partnership; (viii) any matter relating to the qualification of the Company as a REIT or election of a different tax status for the Company; or (ix) anyinterpretation of the terms and conditions of one or more agreements with any person, corporation, association, company, trust, partnership (limited or general) or other organization; or (x) anyother matter relating to the business and affairs of the Company orthe Operating Partnership orrequired or permitted by applicable law, the Articles of Incorporation, the or Bylaws or otherwise to be determined by theDirectors.Board of Directors; provided, however, that any determination by the Board of Directors as to any of the preceding matters shall not render invalid or improper any action taken or omitted prior to such determination and no Director shall be liable for making or failing to make such a determination.
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ARTICLE 4
ADVISOR
SECTION 4.1Appointment and Initial Investment of Advisor. The Directors are responsible for setting the general policies of the Company and for the general supervision of its business conducted by officers, agents, employees, advisors or independent contractors of the Company. However, the Directors are not required personally to conduct the business of the Company, and they may (but need not) appoint, employ or contract with any Person (including a Person Affiliated with the Company or any Director) as an Advisor and may grant or delegate such authority to the Advisor as the Directors may, in their sole discretion, deem necessary or desirable. The term of retention of any Advisor shall not exceed one year, although there is no limit to the number of times that a particular Advisor may be retained. Notwithstanding the foregoing, a Person hired or retained by the Company or the Advisor to perform the property or other asset management and related services for the Company or the Operating Partnership that is not hired or retained to perform substantially all of the functions of the Advisor with respect to the Company or the Operating Partnership as a whole shall not be deemed to be an Advisor.
SECTION 4.2Supervision of Advisor. The Directors shall evaluate the performance of the Advisor before entering into or renewing an Advisory Agreement, and the criteria used in such evaluation shall be reflected in the minutes of the meetings of the Board. The Directors may exercise broad discretion in allowing the Advisor to administer and regulate the operations of the Company, to act as agent for the Company, to execute documents on behalf of the Company and to make executive decisions that conform to general policies and principles established by the Directors. The Directors shall establish written policies on investments and borrowings and shall monitor the Advisor to assure that the administrative procedures, operations and programs of the Company are in the best interests of the Stockholders and are fulfilled. The Independent Directors are responsible for reviewing the fees and expenses of the Company at least annually or with sufficient frequency to determine that the expenses incurred are reasonable in light of the investment performance of the Company, its Net Assets, its Net Income and the fees and expenses of other comparable unaffiliated REITs. Each such determination shall be reflected in the minutes of the meetings of the Board. The Independent Directors also will be responsible for reviewing, from time to time and at least annually, the performance of the Advisor and determining that compensation to be paid to the Advisor is reasonable in relation to the nature and quality of services performed and the investment performance of the Company and that the provisions of the Advisory Agreement are being carried out. Specifically, the Independent Directors will consider factors such as (i) the amount of the fees paid to the Advisor in relation to the size, composition and performance of the Assets, (ii) the success of the Advisor in generating opportunities that meet the investment objectives of the Company, (iii) rates charged to other REITs and to investors other than REITs by advisors performing the same or similar services, (iv) additional revenues realized by the Advisor and its Affiliates through their relationship with the Company, including loan administration, underwriting or broker commissions, servicing, engineering, inspection and other fees, whether paid by the Company or by others with whom the Company does business, (v) the quality and extent of service and advice furnished by the Advisor, (vi) the performance of the Assets, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations, and (vii) the quality of the Assets relative to the investments generated by the Advisor for its own account. The Independent Directors may also consider all other factors that it deems relevant, and the findings of the Independent Directors on each of the factors considered shall be recorded in the minutes of the Board. The Directors shall determine whether any successor Advisor possesses sufficient qualifications to perform the advisory function for the Company and whether the compensation provided for in its contract with the Company is justified.
SECTION 4.3Fiduciary Obligations. The Advisor shall have a fiduciary responsibility and duty to the Company and to the Stockholders.
SECTION 4.4Affiliation and Functions. The Directors, by resolution or in the Bylaws, may provide guidelines, provisions or requirements concerning the affiliation and functions of the Advisor.
SECTION 4.5Termination. Either a majority of the Independent Directors or the Advisor may terminate the Advisory Agreement on sixty (60) days’ written notice without cause or penalty, and, in such event, the Advisor will cooperate with the Company and the Directors in making an orderly transition of the advisory function.
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SECTION 4.6Disposition Fee. If the Advisor, its Affiliates or related parties provide a substantial amount of the services (as determined in good faith by a majority of the Independent Directors) in connection with either a Liquidity Event or the Sale or transfer of one or more Assets of the Company, the Advisor, Affiliate or related party shall receive a disposition fee (the “Disposition Fee”) in an amount equal to (a) one percent (1%) of the total market capitalization of the Company upon the occurrence of a Listing, or one percent (1%) of the gross consideration paid to the Company or its Stockholders upon the occurrence of any other Liquidity Event (including the Sale or transfer of the Company or a portion thereof), or (b) one percent (1%) of the gross sales price upon the Sale or transfer of one or more Assets (including a Sale of all of the Assets). When a real estate or brokerage commission is payable in connection with a particular transaction, the total Disposition Fee paid by the Company to all Persons, as applicable, when added to the sum of all real estate and brokerage fees and commissions paid to unaffiliated parties, shall not exceed the lesser of (x) a Competitive Real Estate Commission or (y) six percent (6%) of the gross sales price. Notwithstanding the foregoing, upon the occurrence of a Liquidity Event or the Sale of all of the Company’s Assets, in no event shall the Disposition Fee payable to the Advisor exceed one percent (1%) of the gross market capitalization or the gross sales price, respectively. Any such Disposition Fee deemed to be earned by the Advisor, Affiliate or related party shall be paid by the Company or the Operating Partnership to the Advisor, Affiliate or related party upon the closing of the transaction. In the event of a Sale of all the Company’s Assets, or the Sale or transfer of the Company or a portion thereof, the Company shall have the option to pay the Disposition Fee in cash, Listed equity Securities received by Stockholders in connection with Sale of all of the Company’s Assets or the Sale or transfer of the Company, if applicable, or non-Listed equity Securities received by Stockholders in connection with the Sale of all of the Company’s Assets or the Sale or transfer of the Company, if applicable. Notwithstanding the foregoing, no Disposition Fee will be paid to the Advisor in connection with the Sale by the Company or the Operating Partnership of Real Estate Related Securities that are Securities, Permitted Investments that are Securities, or Loans that are Securities, but only to the extent that the foregoing items are held by the Company as investments;provided,however, a Disposition Fee in the form of a usual and customary brokerage fee may be paid by the Company or the Operating Partnership to an Affiliate or related party of the Advisor in connection with the disposition of Securities, if, at the time of such payment, such Affiliate or related party is a properly registered and licensed broker dealer (or equivalent) in the jurisdiction in which the Securities are being sold and has provided substantial services in connection with the disposition of the Securities. Any such Disposition Fee deemed to be earned by such Affiliate or related party shall be paid by the Company or the Operating Partnership to such Affiliate or related party upon the closing of the Sale of the Securities. Any Disposition Fee paid to an Affiliate or related party of the Advisor in connection with the Sale of Securities shall be included in Total Operating Expenses for purposes of calculating conformance with the 2%/25% Guidelines.
SECTION 4.7Subordinated Share of Net Sales Proceeds. The Subordinated Share of Net Sales Proceeds (the “Subordinated Share of Net Sales Proceeds”) shall be payable to the Advisor in an amount equal to fifteen percent (15%) of the amount by which (i) the sum of (A) Net Sales Proceeds from Sales, and (B) the total Distributions paid to holders of Common Shares from the Company’s inception through the measurement date, and (C) the total of any Incentive Fees paid from inception through the measurement date exceeds (ii) the sum of (A) one hundred percent (100%) of Invested Capital and (B) the total Distributions required to pay the holders of Common Shares a Priority Return from the Company’s inception until the measurement date, including those paid prior to the date of payment. Such amount shall be calculated on the sooner of (X) the day that the Sale generating Net Sales Proceeds closes, or (Y) as applicable, the date of the determination of Market Value (to the extent that the Company elects to pay the Subordinated Share of Net Sales Proceeds in Listed equity Securities as contemplated herein) and shall be paid no later than 30 days thereafter; provided that any amount that may be payable shall be reduced by all prior Incentive Fees paid. Following Listing, no Subordinated Share of Net Sales Proceeds will be paid to the Advisor. The Company shall have the option to pay the Subordinated Share of Net Sales Proceeds in the form of cash, Listed equity Securities received by Stockholders in connection with the Sale generating Net Sales Proceeds priced at Market Value (exclusive of the amount of any cash consideration included in the calculation thereof), if applicable, or non-Listed equity Securities received by Stockholders in connection with the Sale generating Net Sales Proceeds, if applicable.
SECTION 4.8Subordinated Incentive Fee. Following a Liquidity Event, and within thirty (30) days following the calculation of Market Value as set forth herein, the Subordinated Incentive Fee shall be calculated and paid to the Advisor in an amount equal to 15% of the amount by which (i) the sum of (A) the Market Value, and (B) the total Distributions declared (and payable with respect to a record date prior to the effective date of the applicable Liquidity Event and a payment date after the date of such Liquidity Event) or paid to holders of Common Shares from the Company’s inception until the effective date of the Liquidity Event, and (C) the total of any Incentive Fees paid from inception through the effective date of the Liquidity Event exceeds (ii) the sum of (A) 100% of Invested
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Capital and (B) the total Distributions required to pay the holders of Common Shares a Priority Return from the Company’s inception through the effective date of the Liquidity Event, including those paid prior to such date of determination. Such amount shall be reduced by all prior Incentive Fees paid. The Company shall have the option to pay such fee in the form of cash or Listed Equity Shares (subject to reasonable and customary lock-up provisions) or any combination of the foregoing.
SECTION 4.9Performance Fee. Upon termination of the Advisory Agreement other than for Cause (as defined in the Advisory Agreement), the Advisor shall be entitled to receive a Performance Fee (the “Performance Fee”). The Performance Fee shall be calculated upon a Liquidity Event or Sale following the termination of the Advisory Agreement and (A) in the event of a Liquidity Event, the Performance Fee shall be calculated and paid in the same manner as the Subordinated Incentive Fee described in Section 4.8 above and (B) in the case of one or more Sales, the Performance Fee shall be calculated and paid in the same manner as the Subordinated Share of Net Sales Proceeds as described in Section 4.7 above; provided, however, that the amount of the Performance Fee paid to the Advisor shall be equal to the amount as calculated above multiplied by the quotient of (1) the number of days elapsed from the initial effective date of the Advisory Agreement (the “Initial Effective Date”) to the effective date of the Termination Event, divided by (2) the number of days elapsed from the Initial Effective Date through the date of the Liquidity Event or the Sale, as applicable. The Company shall have the option to pay the Performance Fee in cash, Listed Equity Shares priced at the Market Value (exclusive of the amount of any cash consideration included in the calculation thereof) or Listed equity Securities received by Stockholders in exchange for their Common Shares priced at Market Value (exclusive of the amount of any cash consideration included in the calculation thereof), such fee to be payable within thirty (30) days following final determination of the Performance Fee. If the Subordinated Incentive Fee or the Subordinated Share of Net Sales Proceeds is payable to the Advisor in connection with a Liquidity Event or Sale, then the Advisor shall not also receive a Performance Fee under this Section 4.9.
SECTION 4.10Limitation on Organizational and Offering Expenses. The total Organizational and Offering Expenses paid by the Company shall be reasonable and shall not exceed fifteen percent (15%) of the Gross Proceeds from the Company’s Offerings.
SECTION 4.11Limitation on Acquisition Fees and Expenses. The total of all Acquisition Fees and Acquisition Expenses paid in connection with the acquisition of an Asset by the Company shall be reasonable, and shall in no event exceed in the aggregate, in the case of an Asset other than a Loan, an amount equal to six percent (6%) of the Contract Purchase Price of any Asset acquired or, in the case of a Loan, six percent (6%) of the funds advanced; provided, however, that a majority of the Directors (including the majority of the Independent Directors) not otherwise interested in the transaction may approve fees and expenses exceeding these limits if they determine the transaction to be commercially competitive, fair and reasonable to the Company.
SECTION 4.12Limitation on Total Operating Expenses. In any Expense Year commencing with the expiration of the fourth full fiscal quarter following the effective date of the Company’s Initial Public Offering, Total Operating Expenses shall not exceed the greater of two percent (2%) of Average Invested Assets or twenty-five percent (25%) of Net Income for that Expense Year unless approved by the Board of Directors as described in this Section 4.12. The Independent Directors shall have the fiduciary responsibility of limiting Total Operating Expenses to amounts that do not exceed the limitations described above unless the Independent Directors have made a finding that, based on such unusual and non-recurring factors which they deem sufficient, a higher level of Total Operating Expenses is justified for a particular period. Any such finding by the Independent Directors, and the reasons in support thereof, shall be recorded in the minutes of a meeting of the Board of Directors. The Company shall send written notice to each record holder of Equity Shares within sixty (60) days after the end of any fiscal quarter if Total Operating Expenses (for the twelve (12) months then ended) exceed two percent (2%) of Average Invested Assets or twenty-five percent (25%) of Net Income, whichever is greater, and the Independent Directors determine that the Company’s payment of such higher Total Operating Expenses is justified. In such cases, the notice must also contain an explanation of the factors the Independent Directors considered in arriving at the conclusion that such higher Total Operating Expenses are justified. If Total Operating Expenses exceed the limits described above, and if the Independent Directors are unable to conclude that the excess was justified then, within sixty (60) days after the end of the Company’s applicable Expense Year, the Advisor shall reimburse the Company the amount by which the aggregate Total Operating Expenses paid or incurred by the Company exceed the greater of the limitations set forth in this Section 4.12.
SECTION 4.13Asset Management Fee. The Company may pay the Advisor an Asset Management Fee as approved by the Board of Directors (the “Asset Management Fee”). The Asset Management Fee shall be reasonable in relation to the nature and quality of services performed by the Advisor. All or any portion of the Asset Management Fee not paid in any fiscal year shall be deferred without interest and may be paid in the succeeding fiscal year(s).
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ARTICLE 5
INVESTMENT OBJECTIVES AND LIMITATIONS
SECTION 5.1Investment Objectives. The Company’s primary investment objectives are to invest in a diversified portfolio of assets that will allow the Company to: (i) pay attractive and steady cash distributions; (ii) preserve, protect and grow the Invested Capital; and (iii) explore liquidity options in the future, including the sale of either the Company or the Company’s Assets, potential merger opportunities, or the Listing of the Common Shares.
SECTION 5.2Minimum Capital. Prior to the effectiveness of the Company’s Initial Public Offering, the Sponsor or any Affiliate shall contribute to the Company an amount no less than the lesser of: (i) ten percent (10%) of the Net Assets upon completion of the Offering; or (ii) $200,000 as an initial investment. The Sponsor or any Affiliate may not sell this initial investment while the Sponsor remains a Sponsor, but may transfer Equity Shares to other Affiliates.
SECTION 5.3Review of Objectives. The Board, including the Independent Directors, shall review the investment policies of the Company with sufficient frequency and at least annually to determine that the policies being followed by the Company are in the best interests of its Stockholders. Each such determination and the basis therefor shall be set forth in the minutes of the meetings of the Directors.
SECTION 5.4Appraisal of Real Property. The consideration paid for Real Property acquired by the Company shall ordinarily be based on the fair market value of the Real Property as determined by a majority of the Directors. In cases in which a majority of the Independent Directors so determine, and in all cases in which Assets are acquired from the Advisor, Directors, Sponsor, or Affiliates thereof, such fair market value shall be determined by an Independent Appraiser selected by the Independent Directors.
SECTION 5.5Certain Permitted Investments. Other than investments prohibited by Section 5.6 hereof, the Company may make investments which it may lawfully make under applicable law and which shall include without limitation:
(i) Assets, as defined in Article I hereof.
(ii) Joint Ventures with the Sponsor, Advisor, one or more Directors or any Affiliate, only if a majority of Directors (including a majority of Independent Directors) not otherwise interested in the transaction, approve such investment as being fair and reasonable to the Company and on substantially the same terms and conditions as those received by the other joint venturers.
(iii) bank accounts, money market funds or other current assets.
SECTION 5.6Investment Limitations. Until such time as the Common Shares are Listed, the Company may not:
(i) invest more than ten percent of its total assets in Unimproved Real Property or Mortgage Loans on Unimproved Real Property.
(ii) invest in commodities or commodity future contracts, except for futures contracts, when used solely for hedging purposes in connection with the Company’s ordinary business of investing in real estate assets and mortgages.
(iii) invest in or make any Mortgage Loan (excluding any investment in mortgage programs, commercial mortgage-backed securities or residential mortgage-backed securities) unless an appraisal is obtained concerning the underlying property except for those loans insured or guaranteed by a government or government agency. In cases in which a majority of Independent Directors so determine, and in all cases in which the transaction is with the Advisor, Sponsor, Directors, or any Affiliates thereof, such appraisal of the underlying property must be obtained from an Independent Appraiser. Such appraisal shall be maintained in the Company’s records for at least five years and shall be available for inspection and duplication by any Stockholder. In addition to the appraisal, a mortgagee’s or owner’s title insurance policy or commitment as to the priority of the mortgage or condition of the title must be obtained.
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(iv) make or invest in any Mortgage Loan (excluding any investment in mortgage programs, commercial mortgage-backed securities or residential mortgage-backed securities), including a construction loan, on any one property if the aggregate amount of all mortgage loans outstanding on the property, including the loans of the Company, would exceed an amount equal to eighty-five percent (85%) of the appraised value of the property as determined by appraisal unless the Board concludes that substantial justification exists because of the presence of other underwriting criteria. For purposes of this subsection, the “aggregate amount of all mortgage loans outstanding on the property, including the loans of the Company” will include all interest (excluding contingent participation in income and/or appreciation in value of the mortgaged property), the current payment of which may be deferred pursuant to the terms of such loans, to the extent that deferred interest on each loan exceeds five percent per annum of the principal balance of the loan.
(v) make or invest in any Mortgage Loan secured by a Mortgage on real property which is subordinate to the lien or other indebtedness of the Advisor, any Director, the Sponsor or any Affiliate of the Company.
(vi) issue (a) equity Securities redeemable solely at the option of the holder (except that Stockholders may offer their Common Shares to the Company pursuant to any repurchase plan adopted by the Board); (b) debt Securities unless the historical debt service coverage in the most recently completed fiscal year as adjusted for known changes is sufficient to properly service that higher level of debt; (c) equity Securities on a deferred payment basis or under similar arrangements; (d) non-voting or assessable equity Securities; or (e) options warrants or other similar evidences of a right to buy equity Securities (collectively, “Options”); provided, however, that Options may be issued: (1) to all of the Stockholders of the Company ratably, (2) as part of a financing arrangement, or (3) as part of a Stock Option Plan available to the Directors, executive officers or employees of the Company, or the Advisor or its Affiliates. Options or warrants may not be issued at exercise prices less than the fair market value of the underlying Securities on the date of grant and not for consideration (which may include services) that in the judgment of the Independent Directors has a market value less than the value of such option or warrant on the date of grant. Options or warrants issuable to the Advisor, Directors, Sponsor or any Affiliate thereof shall not exceed ten percent of the outstanding Shares on the date of grant. The voting rights per Common Share (other than any publicly held Share) sold in a private offering shall not exceed the voting rights which bear the same relationship to the voting rights of a publicly held Common Share as the consideration paid to the Company for each privately offered Common Share bears to the book value of each outstanding publicly held Common Share.
(vii) make loans to the Sponsor, Advisor, Directors, or any Affiliate thereof, except as otherwise provided for in this Section 5.6 or to wholly owned subsidiaries of the Company, Joint Ventures or partnerships in which the Company owns an interest.
(viii) borrow money from the Sponsor, Advisor, Directors or any Affiliate thereof, unless a majority of Directors (including a majority of Independent Directors) not otherwise interested in the transaction conclude that the transaction is fair, competitive and commercially reasonable and no less favorable to the Company than loans between unaffiliated parties under the same circumstances.
(ix) incur Leverage that is unreasonable in relation to the Net Assets and that exceeds three hundred percent (300%) of Net Assets, except as approved by a majority of the Independent Directors and disclosed to Stockholders in the next quarterly report of the Company following such borrowing, along with justification for the excess.
(x) invest in real estate contracts of sale unless such contracts of sale are in recordable form and appropriately recorded in the chain of title.
(xi) invest in equity Securities unless a majority of the Directors (including a majority of the Independent Directors) not otherwise interested in the transaction approve the transaction as being fair, competitive and commercially reasonable and determine that the transaction will not jeopardize the Company’s ability to qualify and remain qualified as a REIT; provided, however, that the requirements of this section shall not apply to the purchase by the Company of its own Securities pursuant to its redemption plan or, when traded on a secondary market or on a national securities exchange or inter-dealer quotation system, if a majority of the Directors (including a majority of the Independent Directors) determine the purchase to be in the best interests of the Company.
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(xii) invest in any Security of any entity holding investments or engaging in activities prohibited bythesethe Articles of Incorporation.
(xiii) operate so as to be classified as an “investment company” under the Investment Company Act of 1940, as amended.
(xiv) make any investment that the Company believes will be inconsistent with its objectives of qualifying and remaining qualified as a REIT.
(xv) invest in indebtedness (“Junior Debt”) collateralized by a Mortgage on Real Property that is subordinate to a lien or other indebtedness (“Senior Debt”), except where the amount of such Junior Debt, plus the outstanding amount of Senior Debt, does not exceed 90% of the appraised value of such Real Property, if after giving effect thereto, the value of all such investments (as shown on the books of the Company in accordance with GAAP after all reasonable reserves but before provision for depreciation) would not then exceed 25% of the tangible Assets of the Company. The value of all investments in Junior Debt that does not meet the foregoing requirements shall be limited to 10% of the tangible Assets of the Company (which is included within the foregoing 25% limitation).
(xvi) engage in any short sale, or borrow, on an unsecured basis, if such borrowing will result in “asset coverage” of less than 300%, except that such borrowing limitation shall not apply to a first mortgage trust. For purpose of this provision, “asset coverage” means the ratio that the value of the total Assets of the Company, less all liabilities and indebtedness except indebtedness for unsecured borrowings, bears to the aggregate amount of all unsecured borrowing of the Company.
(xvii) invest in any foreign currency or bullion or engage in short sales.
(xviii) engage in underwriting or the agency distribution of Securities issued by others or in trading (as compared to investment activities).
ARTICLE 6
CONFLICTS OF INTEREST
SECTION 6.1Sales and Leases to Company. The Company may purchase or lease an Asset or Assets from the Sponsor, the Advisor, a Director, or any Affiliate thereof only upon a finding by a majority of Directors (including a majority of Independent Directors) not otherwise interested in the transaction that such transaction is fair and reasonable to the Company and at a price to the Company no greater than the cost of the Asset to such Sponsor, Advisor, Director or Affiliate, or, if the price to the Company is in excess of such cost, that substantial justification for such excess exists and such excess is reasonable. In no event shall the purchase price of any such property to the Company exceed its current appraised value.
SECTION 6.2Sales and Leases to the Sponsor, Advisor, Directors or Affiliates. An Advisor, Sponsor, Director or Affiliate thereof may purchase or lease Assets from the Company only if a majority of Directors (including a majority of Independent Directors) not otherwise interested in the transaction determine that the transaction is fair and reasonable to the Company.
SECTION 6.3Other Transactions. No goods or services will be provided to the Company by the Advisor or its Affiliates except for transactions in which the Advisor or its Affiliates provide goods or services to the Company in accordance withthesethe Articles of Incorporation or a majority of the Directors (including a majority of the Independent Directors) not otherwise interested in such transactions approve such transactions as fair and reasonable to the Company and on terms and conditions not less favorable to the Company than those available from unaffiliated third parties.
ARTICLE 7
SHARES
SECTION 7.1Authorized Shares. The total number of shares of capital stock which the Company is authorized to issue is one billionsixthree hundred twenty million (1,620,000,0001,320,000,000) shares, consisting
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of one billion one hundred twenty million (1,120,000,000) Common Shares (as described in Section 7.3(ii) hereof), three hundred million (300,000,000) Excess Shares (as described in Section 7.8 hereof) and two hundred million (200,000,000) Preferred Shares (as described in Section 7.4 hereof).The aggregate par value of all authorized shares of stock having par value is $13,200,000.All such shares shall be fully paid and non-assessable when issued. Shares of capital stock of the Company may be issued for such consideration as the Directors determine, or if issued as a result of a stock dividend or stock split, without any consideration. TheBoard ofDirectors, with the approval of a majority of the entire Board and without action by the Stockholders, may amendthesethe Articles of Incorporation from time to time to increase or decrease the aggregate number of shares of capital stock of the Company or the number of shares of capital stock of any classor seriesthat the Company has the authority to issue.
If shares of one class of stock are classified or reclassified into shares of another class of stock pursuant to Section 7.3(ii) or 7.4 hereof or this Section 7.1, the number of authorized shares of the former class shall be automatically decreased and the number of shares of the latter class shall be automatically increased, in each case by the number of shares so classified or reclassified, so that the aggregate number of shares of stock of all classes that the Company has authority to issue shall not be more than the total number of shares of stock set forth in the first sentence of the preceding paragraph. Prior to issuance of classified or reclassified shares of any class or series, the Board of Directors by resolution shall: (i) designate that class or series to distinguish it from all other classes and series of stock of the Company; (ii) specify the number of shares to be included in the class or series; (iii) set or change, subject to the provisions of Section 7.7 hereof and subject to the express terms of any class or series of stock of the Company outstanding at the time, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each class or series; and (iv) cause the Company to file articles supplementary with the State Department of Assessments and Taxation of Maryland. Any of the terms of any class or series of stock set or changed pursuant to clause (iii) of this Section 7.1 may be made dependent upon facts or events ascertainable outside the Articles of Incorporation (including determinations by the Board of Directors or other facts or events within the control of the Company) and may vary among holders thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or series of stock is clearly and expressly set forth in the articles supplementary or other charter document.
SECTION 7.2Distribution Rights. The Directors from time to time mayauthorize, and the Company maydeclare and pay to Stockholders, such dividends or other Distributions in cash or other property as the Directors in their discretion shall determine. The Directors shall endeavor toauthorize, and the Company shall endeavor todeclare and pay, such dividends and other Distributions as shall be necessary for the Company to qualify as a real estate investment trust under the REIT Provisions of the Code; provided, however, Stockholders shall have no right to any dividend orotherDistribution unless and untilauthorized by the Directors anddeclared by theDirectorsCompany. The exercise of the powers and rights of the Directors pursuant to this section shall be subject to the provisions of any class or series of Equity Shares at the time outstanding. The receipt of cash or other property by any registered holder of Equity Shares (based on the Company’s records) or by such holder’s duly authorized agent shall be sufficient to discharge the Company’s obligations with respect to the dividend or Distribution of such cash or other property, and the Company shall have no liability to inquire further with respect to the application thereof. Distributions in kind shall not be permitted, except for distributions of readily marketable securities; distributions of beneficial interests in a liquidating trust established for the dissolution of the Company and the liquidation of its assets in accordance with the terms ofthesethe Articles of Incorporation; or distributions of in-kind property as long as the Directors: (i) advise each Stockholder of the risks associated with direct ownership of the property; (ii) offer each Stockholder the election of receiving in-kind property distributions; and (iii) distribute in-kind property only to those Stockholders who accept the Directors’ offer.
SECTION 7.3Common Shares.
(i)Common Shares Subject to Terms of Preferred Shares. The Common Shares shall be subject to the express terms of any series of Preferred Shares.
(ii)Description. Common Shares shall have a par value of $0.01 per share and, subject to the provisions of Section 7.7 hereof and except as may otherwise be specified in the Charter, shall entitle the holders to one (1) vote per share on all matters upon which Stockholders are entitled to vote pursuant to Section 8.2 hereof, and shares of a particular class of issued Common Shares shall have equal dividend, distribution, liquidation and other rights, and shall have no preference, cumulative, preemptive, appraisal, conversion or exchange rights. TheBoard ofDirectorsare hereby expressly authorized, from time to time, to classify ormay reclassifyand issueany unissued Common Sharesby setting or changing the number, designation, preferences, conversion or other rights, voting
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powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of any such Common Shares and, in such event, the Company shall file for record with the State Department of Assessments and Taxation of the State of Maryland amended articles in substance and form as prescribed by Title 2 of the MGCLfrom time to time into one or more classes or series of stock.
(iii)Rights Upon Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up, or any distribution of the assets of the Company in liquidation, the aggregate assets available for distribution to holders of the Common Shares shall be determined in accordance with applicable law. Subject to Section 7.8(vi) hereof, each holder of Common Shares shall be entitled to receive, ratably with each other holder of Common Shares, that portion of such aggregate assets available for distribution to the Common Shares as the number of the outstanding Common Shares held by such holder bears to the total number of outstanding Common Shares.
(iv)Voting Rights. Except as may be provided inthesethe Articles of Incorporation, and subject to the express terms of any series of Preferred Shares, the holders of the Common Shares shall have the exclusive right to vote on all matters (as to which a common Stockholder shall be entitled to vote pursuant to applicable law) at all meetings of the Stockholders of the Company, and shall be entitled to one (1) vote for each Common Share entitled to vote at such meeting.
SECTION 7.4Preferred Shares. TheDirectors are hereby expressly authorized, from time to time, to authorize and issue one or more series of Preferred Shares. Prior to the issuance of each such series, the Board of Directors, by resolution, shall fix the number of shares to be included in each series, and the terms, rights, restrictions and qualifications of the shares of each series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:Board of Directors may classify any unissued Preferred Shares and reclassify any previously classified but unissued Preferred Shares of any series from time to time into one or more classes or series of stock.
(i) The designation of the series, which may be by distinguishing number, letter or title.
(ii) The dividend rate on the shares of the series, if any, whether any dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of the series.
(iii) The redemption rights, including conditions and the price or prices, if any, for shares of the series.
(iv) The terms and amounts of any sinking fund for the purchase or redemption of shares of the series.
(v) The rights of the shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, and the relative rights of priority, if any, of payment of shares of the series.
(vi) Whether the shares of the series shall be convertible into shares of any other class or series, or any other security, of the Company or any other corporation or other entity, and, if so, the specification of such other class or series of such other security, the conversion price or prices or rate or rates, any adjustments thereof, the date or dates on which such shares shall be convertible and all other terms and conditions upon which such conversion may be made.
(vii) Restrictions on the issuance of shares of the same series or of any other class or series.
(viii) The voting rights of the holders of shares of the series subject to the limitations contained in this Section 7.4.
(ix) Any other relative rights, preferences and limitations on that series.
Subject to the express provisions of any other series of Preferred Shares then outstanding, and notwithstanding any other provision of these Articles of Incorporation, the Board of Directors may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares, or alter the designation or classify or reclassify any unissued shares of a particular series of Preferred Shares, by fixing or altering, in one or more respects, from time to time before issuing the shares, the terms, rights, restrictions and qualifications of the shares of any such series of Preferred Shares.
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SECTION 7.5General Nature of Equity Shares. All Equity Shares shall be personal property entitling the Stockholders only to those rights provided inthesethe Articles of Incorporation, the MGCL or in the resolution creating any class or series of such shares. The legal ownership of the Company Property and the right to conduct the business of the Company are vested exclusively in the Directors; the Stockholders shall have no interest therein other than the interest in the Company conferred by their Equity Shares and shall have no right to compel any partition, division, dividend or Distribution of the Company or any of the Company Property. The death of a Stockholder shall not terminate the Company or give his legal representative any rights against other Stockholders, the Directors or the Company Property, except the right, exercised in accordance with applicable provisions of the Bylaws, to require the Company to reflect on its books the change in ownership of the Equity Shares.Holders of Equity Shares shall notExcept as may be provided by the Board of Directors in setting the terms of classified or reclassified shares of stock pursuant to Sections 7.1, 7.3(ii) or 7.4, or as may otherwise be provided by a contract approved by the Board of Directors, no holder of Equity Shares shall have any preemptive or other right to purchase or subscribe for any class of securities of the Company which the Company may at any time issue or sell. Holders of Equity Shares shall not be entitled to exercise any rights of an objecting stockholder provided for under Title 3, Subtitle 2 of the MGCL or any successor statute unless the Board of Directors, upon the affirmative vote of a majority of the Board of Directors, shall determine that such rights apply, with respect to all or any classes or series of stock or to one or more transactions occurring after the date of such determination in connection with which holders of such shares would otherwise be entitled to exercise such rights.
SECTION 7.6No Issuance of Share Certificates. TheUnless otherwise determined by the Board of Directors, the Company shall not issue share certificates except to Stockholders who make a written request to the Company. A Stockholder’s investment shall be recorded on the books of the Company. To transfer his or her Equity Shares, a Stockholder shall submit an executed form to the Company, which form shall be provided by the Company upon request. Such transfer will also be recorded on the books of the Company.
SECTION 7.7Restrictions on Ownership and Transfer.
(i)Definitions. For purposes of Sections 7.7 and 7.8 and any other provision ofthesethe Articles of Incorporation, the following terms shall have the meanings set forth below:
“Acquire” shall mean the acquisition of Beneficial Ownership or Constructive Ownership of Equity Shares by any means, including, without limitation, the exercise of any rights under any option, warrant, convertible security, pledge or other security interest or similar right to acquire Equity Shares, but shall not include the acquisition of any such rights unless, as a result, the acquirer would be considered a Beneficial Owner or a Constructive Owner. The terms “Acquires” and “Acquisition” shall have correlative meanings.
“Articles Effective Date” shall mean the date upon which these Articles of Incorporation are accepted for record by the State Department of Assessments and Taxation of the State of Maryland.
“Beneficial Ownership” when used with respect to ownership of Equity Shares by any Person, shall mean ownership of Equity Shares which are (a) directly owned by such Person, (b) indirectly owned by such Person for purposes of Section 542(a)(2) of the Code, taking into account the constructive ownership rules of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code or (c) beneficially owned by such Person pursuant to Rule 13d-3 under the Exchange Act. Whenever a Person Beneficially Owns Equity Shares that are not actually outstanding (e.g., shares issuable upon the exercise of an option or convertible security) (“Option Shares”), then, wheneverthesethe Articles of Incorporation require a determination of the percentage of outstanding shares of a class of Equity Shares Beneficially Owned by that Person, the Option Shares Beneficially Owned by that Person shall also be deemed to be outstanding. The terms “Beneficial Owner,” “Beneficially Owns” and “Beneficially Owned” shall have correlative meanings.
“Beneficiary” shall mean, with respect to any Excess Shares Trust, one or more organizations described in each of Section 170(b)(1)(A) (other than clauses (vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named by the Company as the beneficiary or beneficiaries of such Excess Shares Trust, in accordance with the provisions of Section 7.8(iv).
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“Business Day” shall mean any weekday that is not an official holiday in the State of Florida.
“Constructive Ownership” shall mean ownership of Equity Shares by a Person who is or would be treated as a direct or indirect owner of such Equity Shares through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Own,” “Constructively Owns” and “Constructively Owned” shall have correlative meanings.
“Excepted Holder” shall mean a Stockholder of the Company for whom an Excepted Holder Limit is created by the Board of Directors of the Company pursuant to Section 7.7(iv)(b) hereof.
“Excepted Holder Limit” shall mean, provided that the affected Excepted Holder agrees to comply with the requirements established by the Board of Directors of the Company pursuant to Section 7.7(iv)(b), the ownership limit with respect to the Equity Shares of the Company established by the Board of Directors of the Company pursuant to Section 7.7(iv)(b) for or in respect of such holder.
“Excess Shares Trust” shall mean any separate trust created and administered in accordance with the terms of Section 7.8(iv) for the exclusive benefit of any Beneficiary.
“Individual” shall mean (a) an “individual” within the meaning of Section 542(a)(2) of the Code, as modified by Section 856(h)(3) of the Code and/or (b) any beneficiary of a “qualified trust” (as defined in Section 856(h)(3)(E) of the Code) which qualified trust is eligible for look-through treatment under Section 856(h)(3)(A) of the Code for purposes of determining whether a REIT is closely held under Section 856(a)(6) of the Code.
“Market Price” shall mean,until the Common Shares are Listed, the price per Common Share if Equity Shares have been sold during the prior quarter pursuant to a registration statement filed with the Commission and otherwise a price per Common Share determined on the basis of a quarterly valuation of the Company’s assets. Upon Listing, market price shall mean the average of the Closing Prices for the ten (10) consecutive Trading Days immediately preceding such day (or those days during such ten (10)-day period for which Closing Prices are available)with respect to any class or series of outstanding Equity Shares, the Closing Price for such Equity Shares on such date. The “Closing Price” on any date shall mean(a) where there exists a public market for the Company’s Common Shares,the last sale price for such Equity 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 Equity Shares,in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on theNew York Stock ExchangeNYSE or, ifthe Commonsuch Equity Shares are not listed or admitted to trading on theNew York Stock ExchangeNYSE, as reportedinon the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on whichthe Commonsuch Equity Shares are listed or admitted to trading or, ifthe Commonsuch Equity 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 OTC Bulletin Board (the “ the principalOTCBB”) or, if such system is no longer in use,otherautomated quotation system that may then be in use or (b) if no public market for the Common Shares exists, the Closing Price will be determined by a single, independent appraiser, if such Equity Shares are not quoted by any such system, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such Equity Shares selected by the Board of Directorsof the Company which appraiser shall appraise the Market Price for such Common Shares within such guidelines as shall beor, in the event that no trading price is available for such Equity Shares, the fair market value of Shares, as determinedin good faithby the Board of Directors of the Company.
“Non-Transfer Event” shall mean an event other than a purported Transfer that would cause any Person to Beneficially Own or Constructively Own a greater number of Equity Shares than such Person Beneficially Owned or Constructively Owned immediately prior to such event. Non-Transfer Events include, but are not limited to, (a) the granting of any option or entering into any agreement for the sale, transfer or other disposition of shares (or of Beneficial Ownership of shares) of Equity Shares or (b) the sale, transfer, assignment or other disposition of interests in any Person or of any securities or rights convertible into or exchangeable for Equity Shares or for interests in any Person that directly or indirectly results in changes in Beneficial Ownership or Constructive Ownership of Equity Shares.
“NYSE” shall mean the New York Stock Exchange.
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“Ownership Limit” shall mean, with respect to each class or series of Equity Shares, 9.8% (by number or value) of the outstanding shares of such Equity Shares.
“Permitted Transferee” shall mean any Person designated as a Permitted Transferee in accordance with the provisions of Section 7.8(viii).
“Prohibited Owner” shall mean, with respect to any purported Transfer or Non-Transfer Event, any Person who is prevented from becoming or remaining the owner of record title to Equity Shares by the provisions of Section 7.8(i).
“Restriction Termination Date” shall mean the first day on which the Board of Directors of the Company determines that it is no longer in the best interests of the Company to attempt to, or continue to, qualify under the Code as a REIT.
“Subsidiary” shall mean any direct or indirect subsidiary, whether a corporation, partnership, limited liability company or other entity, of the Company.
“Trading Day” shall mean a day on which the principal national securities exchange on which any of the Common Shares are listed or admitted to trading is open for the transaction of business or, if none of the Common Shares are listed or admitted to trading on any national securities exchange, any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.
“Transfer” (as a noun) shall mean any sale, transfer, gift, assignment, devise or other disposition of shares (or of Beneficial Ownership of shares) of Equity Shares (including but not limited to the initial issuance of Common Shares by the Company), whether voluntary or involuntary, whether of record, constructively or beneficially and whether by operation of law or otherwise. “Transfer” (as a verb) shall have the correlative meaning.
“Trustee” shall mean any Person or entity, unaffiliated with both the Company and any Prohibited Owner (and, if different than the Prohibited Owner, the Person who would have had Beneficial Ownership of the Equity Shares that would have been owned of record by the Prohibited Owner), designated by the Company to act as trustee of any Excess Shares Trust, or any successor trustee thereof.
(ii) Restriction on Ownership and Transfer.
(a) Except as provided in Section 7.7(iv)(a),from and after the Articles Effective Date anduntil the Restriction Termination Date, any Transfer of Equity Shares that, if effective, would cause the Company to Constructively Own a ten percent (10%) or greater ownership interest in a tenant of the Company or any direct or indirect Subsidiary of the Company within the meaning of Section 856(d)(2)(B) of the Code (other than a tenant that is a “taxable REIT subsidiary” (within the meaning of Section 856(l) of the Code) of the Company that satisfies one or more of the exceptions set forth in Section 856(d)(8) of the Code), shall be voidab initio as to the Transfer of that number of Equity Shares that would cause the Company to Constructively Own a ten percent (10%) or greater ownership interest in a tenant of the Company or a Subsidiary within the meaning of Section 856(d)(2)(B) of the Code (other than a tenant that is a “taxable REIT subsidiary” (within the meaning of Section 856(l) of the Code) of the Company that satisfies one or more of the exceptions set forth in Section 856(d)(8) of the Code), and the intended transferee shall acquire no rights in such Equity Shares.
(b) (1) Except as provided in Section 7.7(iv)(b),from and after the Articles Effective Date anduntil the Restriction Termination Date, no Person (other than an Excepted Holder) shall Beneficially Own shares of any class or series of Equity Shares in excess of the Ownership Limit and no Excepted Holder shall Beneficially Own shares of any class or series of Equity Shares in excess of the Excepted Holder Limit for such Excepted Holder.
(2) Except as provided in Section 7.7(iv)(b),from and after the Articles Effective Date anduntil the Restriction Termination Date, any purported Transfer that, if effective, would result in any Person (other than an Excepted Holder) Beneficially Owning shares of any class or series of Equity Shares in excess of the Ownership Limit shall be voidab initio as to the Transfer of that number of Equity 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 Equity Shares.
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(3) Except as provided in Section 7.7(iv)(b),from and after the Articles Effective Date anduntil the Restriction Termination Date, any purported Transfer that, if effective, would result in any Excepted Holder Beneficially Owning shares of any class or series of Equity Shares in excess of the applicable Excepted Holder Limit shall be voidab initio as to the Transfer of that number of Equity Shares which would be otherwise Beneficially Owned by such Excepted Holder in excess of the applicable Excepted Holder Limit established for such Excepted Holder by the Board of Directors of the Company pursuant to Section 7.7(iv)(b), and the intended transferee shall acquire no rights in such Equity Shares.
(4) Notwithstanding anything to the contrary set forth herein, the provisions of this Section 7.7(ii)(b) shall be applied only insofar as may be necessary to accomplish the intents and purposes of the foregoing.
(c)From and after the Articles Effective Date and untilUntil the Restriction Termination Date, any purported Transfer of Equity Shares that, if effective, would result in the Company being “closely held” within the meaning of Section 856(h) of the Code shall be voidab initio as to the Transfer of that number of Equity Shares that would cause the Company to be “closely held” within the meaning of Section 856(h) of the Code, and the intended transferee shall acquire no rights in such Equity Shares.
(d)From and after the Articles Effective Date and untilUntil the Restriction Termination Date, any purported Transfer that, if effective, would result in Equity Shares being beneficially owned by fewer than 100 persons for purposes of Section 856(a)(5) of the Code shall be voidabinitio and the intended transferee shall acquire no rights in such Equity Shares.
(e) Except as provided in Section 7.7(iv)(a),from and after the Articles Effective Date anduntil the Restriction Termination Date, any purported Transfer that, if effective, would (1) cause any Person (other than a “taxable REIT subsidiary” (within the meaning of Section 856(l) of the Code) of the Company) who renders or furnishes services to one or more tenants of the Company or a Subsidiary which are not “related” to the Company within the meaning of Section 856(d)(2)(B)(i) of the Code (determined without regard to the provisions of Section 856(d)(8) of the Code), to be other than an “independent contractor” for purposes of Section 856(d)(3) of the Code, or (2) cause any Person who renders or furnishes services to a “taxable REIT subsidiary” of the Company which leases directly or indirectly from the Company a “qualified lodging facility” or a “qualified health care property” (each within the meaning of Section 856(d)(8)(B) of the Code) to be other than an “eligible independent contractor” within the meaning of Section 856(d)(9) of the Code, shall be voidab initio as to the Transfer of that number of Equity Shares that would cause such Person to be other than an “independent contractor” for purposes of Section 856(d)(3) of the Code or an “eligible independent contractor” within the meaning of Section 856(d)(9) of the Code, as applicable, and the intended transferee shall acquire no rights in such Equity Shares.
(iii)Owners Required to Provide Information.
Until the Restriction Termination Date:
(a) Every record owner of more than five percent (5%), or such lower percentages as is then required pursuant to regulations under the Code, of the outstanding shares of any class or series of Equity Shares of the Company shall, no later than January 30 of each year, provide to the Company a written statement or affidavit stating the name and address of such record owner, the number of Equity Shares owned by such record owner, and a description of how such shares are held. Each such record owner shall provide to the Company such additional information as the Company may request in order to determine the effect, if any, of such ownership on the Company’s status as a REIT and to ensure compliance with the Ownership Limit.
(b) Each Person who is a Beneficial Owner of Equity Shares and each Person (including the stockholder of record) who is holding Equity Shares for a Beneficial Owner shall, within thirty (30) days of receiving written request from the Company therefor, provide to the Company a written statement or affidavit stating the name and address of such Beneficial Owner, the number of Equity Shares Beneficially Owned by such Beneficial Owner, a description of how such shares are held, and such other information as the Company may request in order to determine the Company’s status as a REIT and to ensure compliance with the Ownership Limit.
(iv)Exceptions.
(a) The Board of Directors of the Company, upon receipt of a ruling from the Internal Revenue Service or an opinion of counsel or other evidence or undertakings acceptable to the Board of Directors of the
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Company, may (prospectively or retroactively), in its sole discretion, waive the application of Section 7.7(ii)(a) or Section 7.7(ii)(e) to a Person subject, as the case may be, to any such limitations on Transfer, provided that (1) the Board of Directors of the Company obtains such representations and undertakings from such Person as are reasonably necessary (as determined by the Board of Directors of the Company), if any, to ascertain that such Person’s Beneficial Ownership or Constructive Ownership of Equity Shares will not now or in the future result in the Company failing to satisfy the gross income limitations provided for in Sections 856(c)(2) and (3) of the Code and (2) insofar as required by the Board of Directors of the Company, such Person agrees in writing that any violation or attempted violation of (A) such other limitation as the Board of Directors of the Company may establish at the time of such waiver with respect to such Person or (B) such other restrictions and conditions as the Board of Directors of the Company may in its sole discretion impose at the time of such waiver with respect to such Person, will result, as of the time of such violation even if discovered after such violation, in the designation of such shares in excess of the original limit applicable to such Personas Excess Sharesbeing subject to the treatment provided in Section 7.8(i).
(b) The Board of Directors of the Company, upon receipt of a ruling from the Internal Revenue Service or an opinion of counsel or other evidence or undertakings acceptable to the Board of Directors of the Company, may (prospectively or retroactively), in its sole discretion, waive the application of the Ownership Limit to a Person otherwise subject to any such limit, provided that (1) the Board of Directors of the Company obtains such representations and undertakings from such Person as are reasonably necessary (as determined by the Board of Directors of the Company), if any, to ascertain that such Person’s Beneficial Ownership or Constructive Ownership of Equity Shares will not now or in the future (A) result in the Company being “closely held” within the meaning of Section 856(h) of the Code, (B) cause the Company to Constructively Own a ten percent (10%) or greater ownership interest in a tenant of the Company or a Subsidiary within the meaning of Section 856(d)(2)(B) of the Code (other than a “taxable REIT subsidiary” (within the meaning of Section 856(l) of the Code) of the Company that satisfies one or more of the exceptions set forth in Section 856(d)(8) of the Code) and to fail either the seventy-five percent (75%) gross income test of Section 856(c)(3) of the Code or the ninety-five percent (95%) gross income test of Section 856(c)(2) of the Code, (C) result in the Equity Shares of the Company being beneficially owned by fewer than 100 persons within the meaning of Section 856(a)(5) of the Code, or (D) cause the Company to receive “impermissible tenant service income” within the meaning of Section 856(d)(7) of the Code, and (2) such Person provides to the Board of Directors of the Company such representations and undertakings, if any, as the Board of Directors of the Company, may in its sole and absolute discretion, require (including, without limitation, an agreement as to a reduced Ownership Limit or Excepted Holder Limit for such Person with respect to the Beneficial Ownership of one or more other classes of Equity Shares not subject to the exception), and, insofar as required by the Board of Directors of the Company, such Person agrees in writing that any violation or attempted violation of (A) such other limitation as the Board of Directors of the Company may establish at the time of such waiver with respect to such Person or (B) such other restrictions and conditions as the Board of Directors of the Company may in its sole discretion impose at the time of such waiver with respect to such Person, will result, as of the time of such violation even if discovered after such violation, in the designation of such shares in excess of the original limit applicable to such Personas Excess Sharesbeing subject to the treatment provided in Section 7.8(i).
(c) The Board of Directors of the Company may only reduce the Excepted Holder Limit for an Excepted Holder (1) with the written consent of such Excepted Holder at any time or (2) pursuant to the terms and conditions of the agreements and undertakings entered into with such Excepted Holder in connection with the establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted Holder Limit shall be reduced to a percentage that is less than the Ownership Limit. Notwithstanding the foregoing, nothing in this Section 7.7(iv)(c) is intended to limit or modify the restrictions on ownership contained in Section 7.7(ii)(b) and the authority of the Board of Directors of the Company under Section 7.7(iv)(a).
(d) Subject to Section 7.7(2)(c), the Board of Directors may from time to time increase the Ownership Limit for one or more Persons and decrease the Ownership Limit for all other Persons; provided, however, that the decreased Ownership Limit will not be effective for any Person whose percentage ownership in Equity Shares is in excess of such decreased Ownership Limit until such time as such Person’s percentage of Equity Shares equals or falls below the decreased Ownership Limit, but any further acquisition of Equity Shares in excess of such percentage ownership of Equity Shares will be in violation of the Ownership Limit and, provided further, that the new Ownership Limit would not allow five or fewer Persons to Beneficially Own more than 49.9% in value of the outstanding Equity Shares.
(v)Public Market. Notwithstanding any provision contained herein to the contrary, nothing inthesethe Articles of Incorporation shall preclude the settlement of any transaction entered into through the facilities of any
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national securities exchange or any automated quotation system. In no event, however, shall the existence or application of the preceding sentence have the effect of deterring or preventing thedesignationtransfer of Equity Sharesasto the Excess Shares Trust as contemplated herein.
(vi)Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Section 7.7, including any definition contained in Section 7.7(i) above, the Board of Directors of the Company shall have the power and authority, in its sole discretion, to determine the application of the provisions of this Section 7.7 with respect to any situation based on the facts known to it.
(vii)Remedies Not Limited. Except as set forth in Section 7.7(v) above, nothing contained in this Section 7.7 or Section 7.8 shall limit the authority of the Company to take such other action as it deems necessary or advisable to protect the Company and the interests of its stockholders by preservation of the Company’s status as a REIT and to ensure compliance with the Ownership Limit or the Excepted Holder Limit.
(viii)Notice to Stockholders Upon Issuance or Transfer. Upon issuance or transfer of Equity Shares, the Company shall provide the recipient with a notice containing information about the shares purchased or otherwise transferred, in lieu of issuance of a share certificate, in a form substantially similar to the following:
“The securities issued or transferred are subject to restrictions on transfer and ownership for the purpose of maintenance of the Company’s status as a real estate investment trust (a “REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). Except as otherwise provided pursuant to the Articles of Incorporation of the Company, no Person may (a) Beneficially or Constructively Own Common Shares of the Company in excess of 9.8% (or such greater percent as may be determined by the Board of Directors of the Company) of the outstanding Common Shares; (b) Beneficially or Constructively Own shares of any class or series of Preferred Shares of the Company in excess of 9.8% (or such greater percent as may be determined by the Board of Directors of the Company) of the outstanding shares of such series of Preferred Shares; (c) Beneficially or Constructively Own Common Shares or Preferred Shares (of any class or series) which would result in the Company being “closely held” under Section 856(h) of the Code or which otherwise would cause the Company to fail to qualify as a REIT; or (d) Transfer Common Shares or Preferred Shares if the Transfer (if effective) would result in Equity Shares being beneficially owned by fewer than 100 persons for purposes of Section 856(a)(5) of the Code. Any Person who has Beneficial or Constructive Ownership, or who Acquires or attempts to Acquire Beneficial or Constructive Ownership, of Common Shares and/or Preferred Shares in excess of the above limitations must immediately notify the Company in writing or, in the event of a proposed or attempted Transfer or Acquisition or purported change in Beneficial or Constructive Ownership, must give written notice to the Company at least 15 days prior to the proposed or attempted Transfer, transaction or other event. Any purported Transfer of Common Shares and/or Preferred Shares which results in violation of the ownership or transfer limitations set forth in the Company’s Articles of Incorporation shall be voidab initio and the intended transferee shall not have or acquire any rights in such Common Shares and/or Preferred Shares. If the transfer and ownership limitations referred to herein are violated, the Common Shares or Preferred Shares represented hereby will be automatically transferred to an Excess Shares Trust, all as provided by the Articles of Incorporation of the Company. All defined terms used in this legend have the meanings identified in the Company’s Articles of Incorporation, as the same may be amended from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each Stockholder who so requests.”
“The securities issued or transferred are subject to restrictions on transfer and ownership for the purpose of maintenance of the Company’s status as a real estate investment trust (a “REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). Except as otherwise provided pursuant to the Articles of Incorporation of the Company, no Person may (a) Beneficially or Constructively Own Common Shares of the Company in excess of 9.8% (or such greater percent as may be determined by the Board of Directors of the Company) of the outstanding Common Shares; (b) Beneficially or Constructively Own shares of any series of Preferred Shares of the Company in excess of 9.8% (or such greater percent as may be determined by the Board of Directors of the Company) of the outstanding shares of such series of Preferred Shares; or (c) Beneficially or Constructively Own Common Shares or Preferred Shares (of any class or series) which would result in the Company being “closely held” under
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Section 856(h) of the Code or which otherwise would cause the Company to fail to qualify as a REIT. Any Person who has Beneficial or Constructive Ownership, or who Acquires or attempts to Acquire Beneficial or Constructive Ownership, of Common Shares and/or Preferred Shares in excess of the above limitations must immediately notify the Company in writing or, in the event of a proposed or attempted Transfer or Acquisition or purported change in Beneficial or Constructive Ownership, must give written notice to the Company at least 15 days prior to the proposed or attempted Transfer, transaction or other event. Any purported Transfer of Common Shares and/or Preferred Shares which results in violation of the ownership or transfer limitations set forth in the Company’s Articles of Incorporation shall be voidab initio and the intended transferee shall not have or acquire any rights in such Common Shares and/or Preferred Shares. If the transfer and ownership limitations referred to herein are violated, the Common Shares or Preferred Shares represented hereby will constitute Excess Shares to the extent of violation of such limitations, and such Excess Shares will be automatically transferred to an Excess Shares Trust, all as provided by the Articles of Incorporation of the Company. All defined terms used in this legend have the meanings identified in the Company’s Articles of Incorporation, as the same may be amended from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each Stockholder who so requests.”
SECTION 7.8Excess Shares.
(i)Excess Shares.
(a) If, notwithstanding the other provisions contained in the Articles of Incorporation,from and after the Articles Effective Date andprior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event such that any Person (other than an Excepted Holder) would Beneficially Own shares of any class or series of Equity Shares in excess of the Ownership Limit, or such that any Person that is an Excepted Holder would Beneficially Own shares of any class or series of Equity Shares in excess of the applicable Excepted Holder Limit, then, except as otherwise provided in Section 7.7(iv), (1) the purported transferee shall be deemed to be a Prohibited Owner except as otherwise provided in this Section 7.8 and shall acquire no right or interest (or, in the case of a Non-Transfer Event, the Person holding record title to the Equity Shares Beneficially Owned by such Beneficial Owner shall cease to own any right or interest) in such number of Equity Shares the ownership of which by a Beneficial Owner would cause (A) a Person to Beneficially Own shares of any class or series of Equity Shares in excess of the Ownership Limit or (B) an Excepted Holder to Beneficially Own shares of any class or series of Equity Shares in excess of the applicable Excepted Holder Limit, as the case may be, (2) such number of Equity Shares in excess of the Ownership Limit or the applicable Excepted Holder Limit, as the case may be (rounded up to the nearest whole share),shall automatically be exchanged for “Excess Shares” andshall be treated as provided in this Section 7.8 and (3) the Prohibited Owner shall submit the certificates, if any, representing such number of Equity Shares to the Company, accompanied by all requisite and duly executed assignments of transfer thereof, for registration in the name of the Trustee of the Excess Shares Trust. Such designation and treatment shall be effective as of the close of trading on the Business Day prior to the date of the purported Transfer or Non-Transfer Event, as the case may be, even though the certificates, if any, representing such Equity Shares may be submitted to the Company at a later date.
(b) If, notwithstanding the other provisions contained in the Articles of Incorporation, (1) from and after the Articles Effective Date and prior to the Restriction Termination Date there is a purported Transfer or Non-Transfer Event that, if effective, would result in the Company being “closely held” within the meaning of Section 856(h) of the Code, (2) from and after the Articles Effective Date and prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event that, if effective, would cause the Company to Constructively Own a ten percent (10%) or greater ownership interest in a tenant of the Company or a Subsidiary for purposes of Section 856(d)(2)(B) of the Code (other than a tenant that is a “taxable REIT Subsidiary” (within the meaning of Section 856(l) of the Code) of the Company that satisfies one or more of the exceptions set forth in Section 856(d)(8) of the Code), (3) from and after the Articles Effective Date and prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event, that, if effective, would result in the Equity Shares being beneficially owned by fewer than 100 persons for purposes of Section 856(a)(5) of the Code, or (4) from and after the Articles Effective Date and prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event that, if effective, would (A) cause any Person (other than a “taxable REIT subsidiary” (within the meaning of Section 856(l) of the Code) of the Company) who renders or furnishes services
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to one or more tenants of the Company or a Subsidiary which are not “related” to the Company within the meaning of Section 856(d)(2)(B)(i) of the Code (determined without regard to the provisions of Section 856(d)(8) of the Code), to be other than an “independent contractor” for purposes of Section 856(d)(3) of the Code, or (B) cause any Person who renders or furnishes services to a “taxable REIT subsidiary” of the Company which leases, directly or indirectly from the Company, a “qualified lodging facility” or a “qualified health care property” within the meaning of Section 856(d)(8)(B) of the Code, to be other than an “eligible independent contractor” within the meaning of Section 856(d)(9) of the Code, then, except to the extent a waiver was obtained with respect to such restriction pursuant to Section 7.7(iv), (X) the purported transferee shall be deemed to be a Prohibited Owner and except as otherwise provided in this Section 7.8 shall acquire no right or interest (or, in the case of a Non-Transfer Event, the Person holding record title of the Equity Shares with respect to which such Non-Transfer Event occurred shall cease to own any right or interest) in such number of Equity Shares, the ownership of which by such purported transferee or record holder would (AA) result in the Company being “closely held” within the meaning of Section 856(h) of the Code, (BB) cause the Company to Constructively Own a ten percent (10%) or greater ownership interest in a tenant of the Company or a Subsidiary for purposes of Section 856(d)(2)(B) of the Code (other than a “taxable REIT Subsidiary” (within the meaning of Section 856(l) of the Code) of the Company that satisfies one or more of the exceptions set forth in Section 856(d)(8) of the Code), (CC) result in the Equity Shares being beneficially owned by fewer than 100 persons for purposes of Section 856(a)(5) of the Code, or (DD)(i) cause any Person (other than a “taxable REIT subsidiary” (within the meaning of Section 856(l) of the Code) of the Company) who renders or furnishes services to one or more tenants of the Company or a Subsidiary which are not “related” to the Company within the meaning of Section 856(d)(2)(B)(i) of the Code (determined without regard to the provisions of Section 856(d)(8) of the Code), to be other than an “independent contractor” for purposes of Section 856(d)(3) of the Code, or (ii) cause any Person who renders or furnishes services to a “taxable REIT subsidiary” of the Company which leases from the Company, directly or indirectly, a “qualified lodging facility” or a “qualified health care property” within the meaning of Section 856(d)(8)(B) of the Code, to be other than an “eligible independent contractor” within the meaning of Section 856(d)(9) of the Code, (Y) such number of Equity Shares (rounded up to the nearest whole share) shall constitute “Excess Shares” and shall be treated as provided in this Section 7.8 and (Z) the Prohibited Owner shall submit certificates, if any, representing such number of Equity Shares to the Company, accompanied by all requisite and duly executed assignments of transfer thereof, for registration in the name of the Trustee of the Excess Shares Trust. Such designation and treatment shall be effective as of the close business on the Business Day prior to the date of the purported Transfer or Non-Transfer Event, as the case may be, even though the certificates, if any, representing such Equity Shares may be submitted to the Company at a later date.
(ii)Remedies for Breach. If the Company, or its designees, shall at any time determine in good faith that a Transfer has taken place in violation of Section 7.7(ii) or that a Person intends to Acquire or has attempted to Acquire Beneficial Ownership or Constructive Ownership of any Equity Shares in violation of Section 7.7(ii), the Company shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or Acquisition, including, but not limited to, refusing to give effect to such Transfer on the stock transfer books of the Company or instituting proceedings to enjoin such Transfer or Acquisition, but the failure to take any such action shall not affect the automaticdesignationtransfer of Equity Shares as Excess Shares and their transfer to an Excess Shares Trust in accordance with Section 7.8(i) and Section 7.8(iv).
(iii)Notice of Restricted Transfer. Any Person who Acquires or attempts to Acquire Equity Shares in violation of Section 7.6(ii), or any Person whose Equity Shares were designated as Excess Shares and transferred to an Excess Shares Trust pursuant to Sections 7.8(i) and 7.8(iv), shall immediately give written notice to the Company, or, in the event of a proposed or attempted Transfer, Acquisition or purported change in Beneficial Ownership or Constructive Ownership, shall give at least fifteen (15) days prior written notice to the Company, of such event and shall provide to the Company such other information as the Company, in its sole discretion, may request in order to determine the effect, if any, of such Transfer, Acquisition, or Non-Transfer Event, as the case may be, on the Company’s status as a REIT.
(iv)Ownership in Excess Shares Trust. Upon any purported Transfer, Acquisition, or Non-Transfer Event that results in Excess Shares pursuant to Section 7.8(i), such Excess Shares shall be automatically and by operation of law transferred to one or more Trustees as trustee of one or more Excess Shares Trusts to be held for the exclusive benefit of one or more Beneficiaries. Anydesignationtransfer of Equity Shares as Excess Shares and transfer to an Excess Shares Trust shall be effective as of the close of business on the Business Day prior to the date of the purported Transfer, Acquisition or Non-Transfer Event that results in the conversion. Excess Shares so held in trust shall remain issued and outstanding shares of capital stock of the Company.
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(v)Dividend Rights. Each Excess Share shall be entitled to the same dividends andotherdistributions (as to both timing and amount) as may bedeclaredauthorized by the Board of Directorsofand declared by the Company with respect to shares of the same class and series as the Equity Shares that were designated as Excess Shares. The Trustee, as record holder of the Excess Shares, shall be entitled to receive all dividends andotherdistributions and shall hold all such dividends andotherdistributions in trust for the benefit of the Beneficiary. The Prohibited Owner with respect to such Excess Shares shall repay to the Excess Shares Trust the amount of any dividends orotherdistributions received by it (a) that are attributable to any Equity Shares that havebeen designated astransferred to the Excess Shares Trust and (b) which were distributed by the Company to stockholders of record on a record date which was on or after the date that such shares weredesignated astransferred to the Excess SharesTrust. The Company shall have the right to take all measures that it determines reasonably necessary to recover the amount of any such dividend or other distribution paid to a Prohibited Owner, including, if necessary, withholding any portion of future dividends or other distributions payable on Equity Shares Beneficially Owned by the Person who, but for the provisions of Sections 7.7 and 7.8, would Constructively Own or Beneficially Own the Equity Shares that weredesignated astransferred to the Excess Shares Trust; and, as soon as reasonably practicable following the Company’s receipt or withholding thereof, shall pay over to the Excess Shares Trust for the benefit of the Beneficiary the dividends so received or withheld, as the case may be.
(vi)Rights upon Liquidation. In the event of any voluntary or involuntary liquidation of, or winding up of, or any distribution of the assets of, the Company, each holder of Excess Shares shall be entitled to receive, ratably with eachotherholder of Equity Shares ofthe same class and series as the sharessuch class or series, including other Equity Shares of such class or series which weredesignated astransferred to the Excess Sharesand other holders of such Excess SharesTrust, that portion of the assets of the Company that is available for distribution to the holders of such Equity Shares. The Excess Shares Trust shall distribute to the Prohibited Owner the amounts received upon such liquidation, dissolution, winding up or distribution; provided, however, that the Prohibited Owner shall not be entitled to receive amounts in excess of, in the case of a purported Transfer or Acquisition in which the Prohibited Owner gave value for Equity Shares and which Transfer or Acquisition resulted in Excess Shares, the product of (a) the price per share, if any, such Prohibited Owner paid for the Equity Shares and (b) the number of Equity Shares which were sodesignated as Excess Shares and held bytransferred to the Excess Shares Trust, and, in the case of a Non-Transfer Event or purported Transfer or Acquisition in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or purported Transfer or Acquisition, as the case may be, resulted in Excess Shares, the product of (1) the price per share equal to the Market Price for the shares that were sodesignated as suchtransferred to the Excess Shares Trust on the date of such Non-Transfer Event or purported Transfer or Acquisition and (2) the number of Equity Shares which were sodesignated astransferred to the Excess Shares Trust. Any remaining amount in such Excess Shares Trust shall be distributed to the Beneficiary;provided,however, that in the event of any voluntary or involuntary liquidation of, or winding up of, or any distribution of the Assets of, the Company that occurs during the period in which the Company has the right to accept the offer to purchase Excess Shares under Section 7.8(x) hereof (but with respect to which the Company has not yet accepted such offer), then (A) the Company shall be deemed to have accepted such offer immediately prior to the time at which the liquidating distribution is to be determined for the holders of Equity Shares ofthe samesuch classandor series as the shares which were designated as Excess Shares (or such earlier time as is necessary to permit such offer to be accepted) and to have simultaneously purchased such shares at the price per share set forth in Section 7.8(x), (B) the Prohibited Owner with respect to such Excess Shares shall receive in connection with such deemed purchase the compensation amount set forth Section 7.8(ix) (as if such shares were purchased by the Company directly from the Excess Shares Trust), (C) the amount, if any, by which the deemed purchase price exceeds such compensation amount shall be distributed to the Beneficiary and (D) accordingly, any amounts that would have been distributed with respect to such Excess Shares in such liquidation, winding-up or distribution (if such deemed purchase had not occurred) in excess of the deemed purchase price shall be distributed to the holders of the Equity Shares and holders of Excess Shares resulting from such Equity Shares entitled to such distribution.
(vii)Voting Rights. The holders of Excess Shares shall not be entitled to voting rights with respect to such shares. Any vote by a Prohibited Owner as a purported holder of Equity Shares prior to the discovery by the Company that such Equity Shares have beendesignated astransferred to the Excess Shares Trust shall, subject to applicable law, be rescinded and shall be voidab initio with respect to such Excess Shares;provided,however, that if the Company has already taken irreversible corporate action, then the Trustee shall not have the authority to rescind such vote.
(viii)Designation of Permitted Transferee.
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(a) As soon as practicable after the Trustee acquires Excess Shares, but in an orderly fashion so as not to materially adversely affect the price of Equity Shares, the Trustee shall designate one or more Persons as Permitted Transferees and sell to such Permitted Transferees any Excess Shares held by the Trustee;provided,however, that (1) any Permitted Transferee so designated purchases for valuable consideration (whether in a public or private sale) the Excess Shares and (2) any Permitted Transferee so designated may acquire such Excess Shares without violating any of the restrictions set forth in Section 7.7(ii) (assuming for this purpose the automatic re-designation of such Excess Shares into Equity Shares pursuant to clause (b) below) and without such acquisition resulting in the re-designationtransfer of the Equity Shares underlying the Excess Shares so acquiredas Excess Shares and the transfer of such shares to anto the Excess Shares Trust pursuant to Sections 7.8(i) and 7.8(iv). The Trustee shall have the exclusive and absolute right to designate Permitted Transferees of any and all Excess Shares. Prior to any transfer by the Trustee of Excess Shares to a Permitted Transferee, the Trustee shall give not less than five (5) Business Days’ prior written notice to the Company of such intended transfer to enable the Company to determine whether to exercise or waive its purchase rights under Section 7.8(x). No such transfer by the Trustee of Excess Shares to a Permitted Transferee shall be consummated unless the Trustee has received a written waiver of the Company’s purchase rights under Section 7.8(x).
(b) Upon the designation by the Trustee of a Permitted Transferee and compliance with the provisions of this Section 7.8(viii), the Trustee shall cause to be transferred to the Permitted Transferee the Excess Shares acquired by the Trustee pursuant to Section 7.8(iv). Upon such transfer of Excess Shares to the Permitted Transferee, such Excess Shares shall no longer constitute Excess Shares. The Trustee shall (1) cause to be recorded on the stock transfer books of the Company that the Permitted Transferee is the holder of record of such number of Equity Shares, and (2) distribute to the Beneficiary any and all amounts held with respect to such Excess Shares after making payment to the Prohibited Owner pursuant to Section 7.8(ix).
(c) If the Transfer of Excess Shares to a purported Permitted Transferee would or does violate any of the transfer restrictions set forth in Section 7.7(ii) (assuming for this purpose that such Excess Shares shall no longer constitute Excess Shares pursuant to clause (b) above), such Transfer shall be void ab initio as to that number of Excess Shares that cause the violation of any such restriction when such shares are not Excess Shares (as described in clause (b) above) and the purported Permitted Transferee shall be deemed to be a Prohibited Owner and shall acquire no rights in such Excess Shares and such shares shall be automatically re-designated as Excess Shares andtransferred to the Excess Shares Trust from which they were originally Transferred. Such designation and transfer to the Excess Shares Trust shall be effective as of the close of trading on the Business Day prior to the date of the Transfer to the purported Permitted Transferee and the provisions of this Section 7.8 shall apply to such shares, including, without limitation, the provisions of Sections 7.8(viii) through 7.8(x) with respect to any future Transfer of such shares by the Excess Shares Trust.
(ix)Compensation to Record Holder of Excess Shares. Any Prohibited Owner shall be entitled (following acquisition of the Excess Shares and subsequent designation of and sale of Excess Shares to a Permitted Transferee in accordance with Section 7.8(viii) or following the acceptance of the offer to purchase such shares in accordance with Section 7.8(x)) to receive from the Trustee following the sale or other disposition of such Excess Shares the lesser of (a)(1) in the case of a purported Transfer or Acquisition in which the Prohibited Owner gave value for Equity Shares and which Transfer or Acquisition resulted in the Excess Shares, the product of (A) the price per share, if any, such Prohibited Owner paid for the Equity Shares and (B) the number of Equity Shares which were sodesignated astransferred to the Excess Shares Trust and (2) in the case of a Non-Transfer Event or purported Transfer or Acquisition in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or purported Transfer or Acquisition, as the case may be, resulted in the Excess Shares, the product of (A) the price per share equal to the Market Price for the shares that weredesignated astransferred to the Excess SharesTruston the date of such Non-Transfer Event or purported Transfer or Acquisition and (B) the number of Equity Shares which were sodesignatedtransferred, (b) the proceeds received by the Trustee from the sale or other disposition of such Excess Shares in accordance with Section 7.8(viii) or Section 7.8(x) or (c) the pro-rata amount of such Prohibited Owner’s initial capital investment in the Company properly allocated to such Excess Shares (determined by multiplying the Prohibited Owner’s total initial capital investment in the Company by a fraction, the numerator of which is the number of shares of the Prohibited Owner’s Excess Shares and the denominator of which is the total number of Equity Shares held (or purported to be held) by the Prohibited Owner immediately prior tosuch designation asthe transfer of the Prohibited Owner’s Excess Shares to the Excess Shares Trust (including such Excess Shares)). Any amounts received by the Trustee in respect of such Excess Shares that is in excess of such amounts to be paid to the Prohibited Owner pursuant to this Section 7.8(ix) shall be distributed to the Beneficiary. Each Beneficiary and Prohibited Owner shall be deemed to have waived and,
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if requested, shall execute a written confirmation of the waiver of, any and all claims that it may have against the Trustee and the Excess Shares Trust arising out of the disposition of Excess Shares, except for claims arising out of the gross negligence or willful misconduct of such Trustee or any failure to make payments in accordance with this Section 7.8 by such Trustee.
(x)Purchase Right in Excess Shares. Excess Shares shall be deemed to have been offered for sale to the Company or its designee, at a price per share equal to the lesser of (a) the price per share of Equity Shares in the transaction that created such Excess Shares (or, in the case of a Non-Transfer Event, Transfer or Acquisition in which the Prohibited Owner did not give value for the shares (e.g., if the shares were received through a gift or devise), the Market Price for the shares that weredesignated astransferred to the Excess Shares Trust on the date of such Non-Transfer Event, Transfer or Acquisition or (b) the Market Price for the shares that weredesignated astransferred to the Excess Shares Trust on the date the Company, or its designee, accepts such offer. The Company shall have the right to accept such offer for a period of ninety (90) days following the later of (1) the date of the Acquisition, Non-Transfer Event or purported Transfer which results in such Excess Shares or (2) the first to occur of (A) the date the Board of Directors of the Company first determined that an Acquisition, Transfer or Non-Transfer Event resulting in Excess Shares has occurred and (B) the date that the Company received a notice of such Acquisition, Transfer or Non-Transfer Event pursuant to Section 7.8(iii).
(xi) Nothing in this Section 7.8 shall limit the authority of the Board of Directors of the Company to take such other action as it deems necessary or advisable to protect the Company and the interests of its Stockholders in preserving the Company’s status as a REIT.
SECTION 7.9Severability. If any provision of this Article VII 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 of this Article VII 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 7.10Waiver. The Company shall have authority at any time to waive the requirements that Equity Shares be designated and treated as Excess Shares or be deemed outstanding in accordance with the provisions of this Article VII if the Company determines, based on an opinion of nationally recognized tax counsel, that the designation and treatment of such shares as Excess Shares or the fact that such Excess Shares are deemed to be outstanding, would jeopardize the status of the Company as a REIT (as that term is defined in Section 1.5).
ARTICLE 8
STOCKHOLDERS
SECTION 8.1Meetings of Stockholders. There shall be an annual meeting of the Stockholders, to be held at such time and place as shall be determined by or in the manner prescribed in the Bylaws, at which the Directors shall be elected and any other proper business may be conducted. The annual meeting will be held at a location convenient to the Stockholders, on a date which is a reasonable period of time following the distribution of the Company’s annual report to Stockholders but not less than thirty (30) days after delivery of such report. The Directors, including the Independent Directors, shall be required to take reasonable steps to insure that this is accomplished. A majority of thevotes cast by the holders ofEquity Shares present in person or by proxy at an annual meeting at which a quorum is present,mayshall, without the necessity for concurrence by the Directors,be sufficient toelect the Directors. A quorum shall be fifty percent (50%) of the then outstanding Equity Shares entitled to vote. Special meetings of Stockholders may be called in the manner provided in the Bylaws, including at any time by the secretary of the Company upon the request of Stockholders holding, in the aggregate, not less than ten percent (10%) of the outstanding Equity Shares entitled tobe castvote on any issue proposed to be considered at any such special meeting. If there are no Directors, the officers of the Company shall promptly call a special meeting of the Stockholders entitled to vote for the election of successor Directors. Any meeting may be adjourned and reconvened as the Directors determine or as provided by the Bylaws.
SECTION 8.2Voting Rights of Stockholders. Subject to the provisions of any class or series of Equity Shares then outstanding and the mandatory provisions of any applicable laws or regulations, the Stockholders shall be entitled to vote only on the following matters: (i) election or removal of Directors as provided in Sections 2.6 and 8.1 hereof; (ii) amendment ofthesethe Articles of Incorporation as provided in Section 10.1 hereof, which amendment shall not require the concurrence by the Board of Directors; (iii) dissolution of the Company as provided inSection 11.2Article XI hereof; (iv) reorganization of the Company as provided in Section 10.2 hereof; (v) merger,
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consolidation or, sale or other disposition of all or substantially all of the Company Property or similar reorganization, as provided in Section 10.3 hereof; and (vi) modification or elimination of the Company’s investment limitations, as provided in Section 5.6 hereof. Notwithstanding the foregoing, for so long as the Company is subject to the NASAA REIT Guidelines, the investment limitations set forth in Section 5.6 hereof may not be modified or amended in any manner that would be inconsistent with section V.K. of the NASAA REIT Guidelines10.2 hereof; and (v) such other matters with respect to which the Board of Directors has adopted a resolution declaring that a proposed action is advisable and directing that the matter be submitted to the Stockholders for approval or ratification. Except with respect to the foregoing matters, no action taken by the Stockholders at any meeting shall in any way bind the Directors.
SECTION 8.3Voting Limitations on Equity Shares held by the Advisor, Directors and Affiliates. With respect to Equity Shares owned by the Advisor, the Directors, or any of their Affiliates, neither the Advisor, nor the Directors, nor any of their Affiliates may vote or consent on matters submitted to the Stockholders regarding the removal of the Advisor,theDirectors or any of their Affiliates or any transaction between the Company and any of them. In determining the requisite percentage in interest of Equity Shares necessary to approve a matter on which the Advisor, Directors and any of their Affiliates may not vote or consent, any Equity Shares owned by any of them shall not be included.
SECTION 8.4Intentionally Omitted. Extraordinary Actions. Notwithstanding any provision of law permitting or requiring any action to be taken or approved by the affirmative vote of the holders of Equity Shares entitled to cast a greater number of votes, any such action shall be effective and valid if taken or approved by the affirmative vote of holders of Equity Shares entitled to cast a majority of all the votes entitled to be cast on the matter.
SECTION 8.5Right of Inspection. Any Stockholder and any designated representative thereof shall be permitted access to all records of the Company to which it is entitled under applicable law at all reasonable times, and may inspect and copy any of them for a reasonable charge. Inspection of the Company books and records by the office or agency administering the securities laws of a jurisdiction shall be provided upon reasonable notice and during normal business hours.
SECTION 8.6Access to Stockholder List.
(a) An alphabetical list of the names, addresses and telephone numbers of the Stockholders of the Company, along with the number of Equity Shares held by each of them (the “Stockholder List”), shall be maintained as part of the books and records of the Company and shall be available for inspection by any Stockholder or the Stockholder’s designated agent at the home office of the Company upon the request of the Stockholder. The Stockholder List shall be updated at least quarterly to reflect changes in the information contained therein. A copy of such list shall be mailed to any Stockholder so requesting within ten (10) days of the request. The copy of the Stockholder List shall be printed in alphabetical order, on white paper, and in a readily readable type size (in no event smaller than 10-point type). The Company may impose a reasonable charge for expenses incurred in reproduction pursuant to the Stockholder request. A holder of Common Shares may request a copy of the Stockholder List in connection with matters relating to Stockholders’ voting rights, the exercise of Stockholder rights under federal proxy laws or for any other proper and legitimate purpose.
(b) If the Advisor or Directors neglect or refuse to exhibit, produce or mail a copy of the Stockholder List as requested, the Advisor and the Directors shall be liable to any Stockholder requesting the list for the costs, including attorneys’ fees, incurred by that Stockholder for compelling the production of the Stockholder List, and for actual damages suffered by any Stockholder by reason of such refusal or neglect. It shall be a defense that the actual purpose and reason for the requests for inspection or for a copy of the Stockholder List is to secure such list of Stockholders or other information for the purpose of selling such list or copies thereof, or of using the same for a commercial purpose other than in the interest of the applicant as a Stockholder relative to the affairs of the Company. The Company may require the Stockholder requesting the Stockholder List to represent that the list is not requested for a commercial purpose unrelated to the Stockholder’s interest in the Company. The remedies provided hereunder to Stockholders requesting copies of the Stockholder List are in addition, to and shall not in any way limit, other remedies available to Stockholders under federal law, or the laws of any state.
SECTION 8.7Reports. The Directors, including the Independent Directors, shall take reasonable steps to insure that the Company shall cause to be prepared and mailed or delivered to each Stockholder as of a record date after the end of the fiscal year and each holder of other publicly held securities of the Company within one hundred
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twenty (120) days after the end of the fiscal year to which it relates an annual report for each fiscal year ending after the Initial Public Offering of its securities which shall include: (i) financial statements prepared in accordance with GAAP which are audited and reported on by independent certified public accountants; (ii) the ratio of the costs of raising capital during the period to the capital raised; (iii) the aggregate amount of advisory fees and the aggregate amount of other fees paid to the Advisor and any Affiliate of the Advisor by the Company and including fees or changes paid to the Advisor and any Affiliate of the Advisor by third parties doing business with the Company; (iv) the Total Operating Expenses of the Company, stated as a percentage of Average Invested Assets and as a percentage of its Net Income; (v) a report from the Independent Directors that the policies being followed by the Company are in the best interests of its Stockholders and the basis for such determination; (vi) separately stated, full disclosure of all material terms, factors, and circumstances surrounding any and all transactions involving the Company, Directors, Advisors and any Affiliate thereof occurring in the year for which the annual report is made, and the Independent Directors shall be specifically charged with a duty to examine and comment in the report on the fairness of such transactions; and (vii) Distributions to the Stockholders for the period, identifying the source of such Distributions, and if such information is not available at the time of the distribution, a written explanation of the relevant circumstances will accompany the Distributions (with the statement as to the source of Distributions to be sent to Stockholders not later than sixty (60) days after the end of the fiscal year in which the distribution was made).
SECTION 8.8Suitability of Stockholders.
(ai)Income and Net Worth Standards. According to the NASAA REIT Guidelines, Stockholders shall have (a) a minimum annual gross income of $70,000 and a minimum net worth (not including home, home furnishings and automobiles) of $70,000, or (b) a minimum net worth (not including home, home furnishings and automobiles) of $250,000. Suitability standards may vary from state to state. In the case of sales to fiduciary accounts, these minimum standards shall be met by the beneficiary, the fiduciary account, or by the donor or grantor who directly or indirectly supplies the funds to purchase the shares if the donor or grantor is the fiduciary.
(ii)Determination of Suitability of Sale. The Sponsor and each Person selling Common Shares on behalf of the Sponsor or the Company shall make every reasonable effort to determine that the purchase of Common Shares is a suitable and appropriate investment for each Stockholder. In making this determination, the Sponsor or each Person selling Common Shares on behalf of the Sponsor or the Company shall ascertain that the prospective Stockholder: (a) meets the minimum income and net worth standards established for the Company; (b) can reasonably benefit from the Company based on the prospective Stockholder’s overall investment objectives and portfolio structure; (c) is able to bear the economic risk of the investment based on the prospective Stockholder’s overall financial situation; and (d) has apparent understanding of (1) the fundamental risks of the investment; (2) the risk that the Stockholder may lose the entire investment; (3) the lack of liquidity of the Common Shares; (4) the restrictions on transferability of the Common Shares; (5) the background and qualifications of the Sponsor or the Advisor; and (6) the tax consequences of the investment.
The Sponsor or each Person selling Common Shares on behalf of the Sponsor or the Company shall make this determination on the basis of information it has obtained from a prospective Stockholder. Relevant information for this purpose will include at least the age, investment objectives, investment experience, income, net worth, financial situation, and other investments of the prospective Stockholder, as well as any other pertinent factors.
The Sponsor or each Person selling Common Shares on behalf of the Sponsor or the Company shall cause to be maintained for at least six years records of the information used to determine that an investment in Shares is suitable and appropriate for a Stockholder.
The Sponsor and each Person selling Common Shares on behalf of the Sponsor or the Company may each rely, for satisfaction of all of its obligations under this Section 8.8(ii), upon (x) the Person directly selling such Shares if that Person is an Financial Industry Regulatory Authority member broker dealer which has entered into a selling agreement with the Sponsor or the Company or their Affiliates or (y) a registered investment adviser that has entered into an agreement with the Sponsor or the Company or their Affiliates to make suitability determinations with respect to the clients of the registered investment adviser who may purchase Shares.
(iii)Minimum Investment. Until the Common Shares are Listed, each issuance of Common Shares shall comply with the requirements regarding minimum initial and subsequent cash investment amounts set forth in the Company’s registration statements filed under the Securities Act for the Offerings of the Company as such registration statements have been amended or supplemented as of the date of such issuance.
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SECTION 8.9Reinvestment Plan. The Company may adopt a Reinvestment Plan, on the terms and conditions approved by the Directors.
(a) All material information regarding the Distributions reinvested and the effect of reinvesting such Distributions, including the tax consequences thereof, shall be provided to each Stockholder participating in any Reinvestment Plan at least annually.
(b) Each Stockholder participating in any Reinvestment Plan shall have a reasonable opportunity to withdraw from the Reinvestment Plan at least annually after receipt of the information required in subparagraph (i) above.
SECTION 8.10Tender Offers. If any Person makes a tender offer, including, without limitation, a “mini-tender” offer, such Person must comply with all of the provisions set forth in Regulation 14D of the Securities Exchange Act of 1934, as amended, including, without limitation, disclosure and notice requirements, that would be applicable if the tender offer was for more than five percent (5%) of the outstanding Securities of the Company, provided, however, that such documents are not required to be filed with the Commission. In addition, any such Person must provide notice to the Company at least ten (10) business days prior to initiating any such tender offer. If any Person initiates a tender offer without complying with the provisions set forth above (a “Non-Compliant Tender Offer”), the Company, in its sole discretion, shall have the right to redeem such non-compliant Person’s Equity Shares and any Equity Shares acquired in such tender offer (collectively, the “Tendered Shares”) at a per share price equal to the lowest of (i) the price then being paid per Common Share purchased in the Company’s latest Offering at full purchase price (not discounted for commission or other reductions nor for reductions in sale price permitted pursuant to the Reinvestment Plan), (ii) the fair market value of an Equity Share as determined by an independent valuation obtained by the Company or (iii) the lowest tender offer price offered in such Non-Compliant Tender Offer. The Company may purchase such Tendered Shares upon delivery of the purchase price to the Person initiating such Non-Compliant Tender Offer, and, upon such delivery, the Company may instruct any transfer agent to transfer such purchased shares to the Company. In addition, any Person who makes a Non-Compliant Tender Offer shall be responsible for all expenses incurred by the Company in connection with the enforcement of the provisions of this Section 8.10, including, without limitation, expenses incurred in connection with the review of all documents related to such tender offer and expenses incurred in connection with any purchase of Tendered Shares by the Company. The Company maintains the right to offset any such expenses against the dollar amount to be paid by the Company for the purchase of Tendered Shares pursuant to this Section 8.10. In addition to the remedies provided herein, the Company may seek injunctive relief, including, without limitation, a temporary or permanent restraining order, in connection with any Non-Compliant Tender Offer. This Section 8.10 shall be of no force or effect with respect to any Equity Shares that are then Listed.
SECTION 8.11Redemption Plan. The Company may adopt a Redemption Plan on the terms and conditions approved by the Directors. Any Redemption Plan shall allow the Company to repurchase shares if such repurchase does not impair the capital or operations of the Company. No fee may be paid to the Advisor, Sponsors, Directors or their Affiliates in connection with the repurchase of shares.
SECTION 8.12Voting Requirements. The Company may not take advantage of the following permissive provisions of Title 3, Subtitle 8 of the MGCL such that: (i) the Company may not elect to be subject to a two-thirds voting requirement for removing a director and (ii) the Company may not elect to be subject to a majority requirement for the calling of a special meeting of stockholders.
ARTICLE 9
LIABILITY OF STOCKHOLDERS, DIRECTORS, ADVISORS AND AFFILIATES; TRANSACTIONS
BETWEEN AFFILIATES AND THE COMPANY
SECTION 9.1Limitation of Stockholder Liability. No Stockholder shall be liable for any debt, claim, demand, judgment or obligation of any kind of, against or with respect to the Company by reason of his being a Stockholder, nor shall any Stockholder be subject to any personal liability whatsoever, in tort, contract or otherwise, to any Person in connection with the Company’s assets or the affairs of the Company by reason of his being a Stockholder.
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SECTION 9.2 Limitation of Director and Officer Liability; Indemnification.
(i) Subject to the conditions set forth under Maryland law or in paragraph (iii) or (iv) below, no Director or officer of the Company shall be liable to the Company or its Stockholders for money or other damages. Neither the amendment nor repeal of this Section 9.2(i), nor the adoption or amendment of any other provision of the Articles of Incorporation or Bylaws inconsistent with this Section 9.2(i), 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.
(ii) Subject to the conditions set forth under Maryland law or in paragraph (iii) or (iv) below, the Company shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former Director or officer of the Company and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity, (b) any individual who, while a Director or officer of the Company and at the request of the Company, serves or has served as a director, officer, partner or trustee of such corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or (c) the Advisor or any of its Affiliates or directors or employees of the foregoing acting as an agent of the Company. The Company may, with the approval of the Board of Directors or any duly authorized committee thereof, provide such indemnification and advance for expenses to a person who served a predecessor of the Company in any of the capacities described in (a) or (b) above and to any employee or agent of the Company or a predecessor of the Company. The Board may take such action as is necessary to carry out this Section 9.2(ii). No amendment of the Articles of Incorporation or repeal of any of its provisions shall limit or eliminate the right of indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal.
(iii) Notwithstanding anything to the contrary contained in paragraph (i) or (ii) above, the Company shall not provide for indemnification of an officer, a Director, the Advisor or any Affiliate of the Advisor (the “Indemnitee”) for any liability or loss suffered by any of them and the Company shall not provide that an Indemnitee be held harmless for any loss or liability suffered by the Company, unless all of the following conditions are met:
(a) The Indemnitee has determined, in good faith, that the course of conduct that caused the loss or liability was in the best interests of the Company.
(b) The Indemnitee was acting on behalf of or performing services for the Company.
(c) Such liability or loss was not the result of (1) negligence or misconduct, in the case that the Indemnitee is an officer, a Director (other than an Independent Director), the Advisor or an Affiliate of the Advisor or a director or employee of the foregoing acting as an agent of the Company or (2) gross negligence or willful misconduct, in the case that the Indemnitee is an Independent Director.
(d) Such indemnification or agreement to hold harmless is recoverable only out of Net Assets and not from the Stockholders.
(iv) Notwithstanding anything to the contrary contained in paragraph (i) or (ii) above, the Company shall not provide indemnification for any loss, liability or expense arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (a) there has been a successful adjudication on the merits of each count involving alleged material securities law violations as to the Indemnitee; (b) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the Indemnitee; or (c) a court of competent jurisdiction approves a settlement of the claims against the Indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Commission and of the published position of any state securities regulatory authority in which Securities were offered or sold as to indemnification for violations of securities laws.
SECTION 9.3Payment of Expenses. The Company shall pay or reimburse reasonable legal expenses and other costs incurred by an Indemnitee in advance of final disposition of a proceeding if all of the following are satisfied: (i) the proceeding relates to acts or omissions with respect to the performance of duties or services on behalf of the Company, (ii) the Indemnitee provides the Company with written affirmation of the Indemnitee’s good faith belief that the Indemnitee has met the standard of conduct necessary for indemnification by the Company as authorized by Section 9.2 hereof, (iii) the legal proceeding was initiated by a third party who is not a Stockholder or,
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if by a Stockholder of the Company acting in his or her capacity as such, a court of competent jurisdiction approves such advancement, and (iv) the Indemnitee provides the Company with a written agreement to repay the amount paid or reimbursed by the Company, together with the applicable legal rate of interest thereon, if it is ultimately determined that the Indemnitee did not comply with the requisite standard of conduct and is not entitled to indemnification.Any indemnification payment or reimbursement of expenses will be furnished in accordance with the procedures in Section 2-418(e) of the MGCL or any successor statute.
SECTION 9.4Express Exculpatory Clauses in Instruments. Neither the Stockholders nor the Directors, officers, employees or agents of the Company shall be liable under any written instrument creating an obligation of the Company by reason of their being Stockholders, Directors, officers, employees or agents of the Company, and all Persons shall look solely to the Company’s assets 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 Stockholder, Director, officer, employee or agent liable thereunder to any third party, nor shall the Directors or any officer, employee or agent of the Company be liable to anyone as a result of such omission.
SECTION 9.5Agreements with Affiliates. Any agreement between the Company and a Sponsor, the Advisor, a Director or an Affiliate thereof, the approval of which is not the subject of another provision ofthesethe Articles of Incorporation, may be effected only if a majority of the Directors (including a majority of the Independent Directors) not otherwise interested in such agreement approve such agreement as fair and reasonable to the Company and on terms and conditions not less favorable to the Company than those available from unaffiliated third parties.
ARTICLE 10
AMENDMENT; REORGANIZATION; MERGER, ETC.
SECTION 10.1Amendment. The Company reserves the right from time to time to make any amendment toitsthe Articles of Incorporation, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in the Articles of Incorporation, of any Equity Sharesof outstanding stock. All rights and powers conferred by the Articles of Incorporation on Stockholders, Directors and officers are granted subject to this reservation.Holders of a majority of the outstanding Common Shares may amend the Articles of Incorporation without the necessity for concurrence of the Board of Directors.Notwithstanding anything to the contrary contained herein, a majority of the entire Board (including a majority of the Independent Directors) without the vote or consent of the Stockholders may at any time amend the Articles of Incorporation (i) to increase or decrease the number of aggregate Equity Shares of the Company or the number of Equity Shares of any class or series that the Company has therightauthority to issue, (ii) to change the name of the Company, or (iii) to change thename or otherdesignationof classesor the par value of any class or series ofunissuedEquity Shares and the aggregate par value of the Equity Shares; provided, however, that an amendment of the Articles of Incorporation that adversely affects the rights, preferences and privileges of holders of Common Shares shall require the concurrence of the holders of a majority of the outstanding Common Shares.
SECTION 10.2Reorganization. Subject to the provisions of any class or series of Equity Shares at the time outstanding, the Directors shall have the power (i) to cause the organization of a corporation, association, trust or other organization to take over the Company Property and to carry on the affairs of the Company, or (ii) merge the Company into, or sell, convey and transfer the Company 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 Company, and upon the occurrence of (i) or (ii) above terminate the Company and deliver such Securities or beneficial interests ratably among the Stockholders according to the respective rights of the class or series of Equity Shares held by them; provided, however, that any such action shall have been approved, at a meeting of the Stockholders called for that purpose, by the affirmative vote of the holders of not less than a majority of the Equity Shares then outstanding and entitled to vote thereon. SECTION 10.3
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vote thereon. Any such transaction involving an Affiliate of the Company or the Advisor also must be approved by a majority of the Directors (including a majority of the Independent Directors) not otherwise interested in such transaction as fair and reasonable to the Company and on terms and conditions not less favorable to the Company than those available from unaffiliated third parties.
In connection with any proposed Roll-Up Transaction, which, in general terms, is any transaction involving the acquisition, merger, conversion, or consolidation, directly or indirectly, of the Company and the issuance of securities of a Roll-Up Entity that would be created or would survive after the successful completion of the Roll-Up Transaction, an appraisal of all Properties shall be obtained from an Independent Appraiser. The Properties shall be appraised on a consistent basis, and the appraisal shall be based on the evaluation of all relevant information and shall indicate the value of the Properties as of a date immediately prior to the announcement of the proposed Roll-Up Transaction. The appraisal shall assume an orderly liquidation of Properties over a twelve (12) month period. The terms of the engagement of the Independent Appraiser shall clearly state that the engagement is for the benefit of the Company and the Stockholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to Stockholders in connection with a proposed Roll-Up Transaction, and if the appraisal will be included in a prospectus used to offer the securities of a Roll-Up Entity, the appraisal shall be filed with the Securities and Exchange Commission and the states as an exhibit to the registration statement for the offering. In connection with a proposed Roll-Up Transaction, the person sponsoring the Roll-Up Transaction shall offer to Stockholders who vote against the proposed Roll-Up Transaction the choice of:
(a) accepting the securities of a Roll-Up Entity offered in the proposed Roll-Up Transaction; or
(b) one of the following:
(1) remaining Stockholders of the Company and preserving their interests therein on the same terms and conditions as existed previously; or
(2) receiving cash in an amount equal to the Stockholder’s pro rata share of the appraised value of the net assets of the Company.
The Company is prohibited from participating in any proposed Roll-Up Transaction:
(ca) which would result in the Stockholders having democracy rights in a Roll-Up Entity that are less than the rights provided for in Sections 8.1, 8.2, 8.4, 8.5, 8.6, 8.7 and 9.1 ofthesethe Articles of Incorporation;
(db) which includes provisions that would operate as a material impediment to, or frustration of, the accumulation of shares by any purchaser of the securities of the Roll-Up Entity (except to the minimum extent necessary to preserve the tax status of the Roll-Up Entity), or which would limit the ability of an investor to exercise the voting rights of its Securities of the Roll-Up Entity on the basis of the number of Equity Shares held by that investor;
(ec) in which investor’s rights to access of records of the Roll-Up Entity will be less than those described in Sections 8.5 and 8.6 hereof; or
(fd) in which any of the costs of the Roll-Up Transaction would be borne by the Company if the Roll-Up Transaction isnot approvedrejected by the Stockholders.
ARTICLE 11
DURATION OF COMPANY
SECTION 11.1 The Company shall continue perpetually unless terminated pursuant to the provisions contained herein or pursuant to any applicable provision of the MGCL.Duration.
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SECTION 11.2 Dissolution of the Company by Stockholder Vote. The Company may be dissolved at any time, without the necessity for concurrence by the Board of Directors, by the vote or written consent of a majority of the outstanding Equity Shares.
ARTICLE 12
MISCELLANEOUS
SECTION 12.1 Governing Law. These Articles of Incorporation are executed by the undersigned Directors 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 12.2 Reliance by Third Parties. Any certificate shall be final and conclusive as to any persons dealing with the Company if executed by an individual who, according to the records of the Company or of any recording office in which these Articles of Incorporation may be recorded, appears to be the Secretary or an Assistant Secretary of the Company or a Director, and if certifying to (i) the number or identity of Directors, officers of the Company or Stockholders; (ii) the due authorization of the execution of any document; (iii) the action or vote taken, and the existence of a quorum, at a meeting of the Directors or Stockholders; (iv) a copy of the Articles of Incorporation or of the Bylaws as a true and complete copy as then in force; (v) an amendment to these Articles of Incorporation; (vi) the dissolution of the Company; or (vii) the existence of any fact or facts which relate to the affairs of the Company. 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 Company by the Directors or by any duly authorized officer, employee or agent of the Company.
SECTION 12.3 Provisions in Conflict with Law or Regulations.
THIRD: There are five directors of the Company. The names of the directors are:
James M. Seneff, Jr.
Thomas K. Sittema
Michael P. Haggerty
Douglas J. Holladay
J. Chandler Martin
FOURTH: The current address of the principal office of the Company is as set forth in Article I of the foregoing amendment and restatement of the charter of the Company.
FIFTH: The name and address of the Company’s current resident agent is as set forth in Article I of the foregoing amendment and restatement of the charter of the Company.
SIXTH: The amendment and restatement of the charter of the Company as hereinabove set forth has been duly advised by the Board of Directors and approved by the stockholders of the Company as required by law.
SEVENTH: The total number of shares of stock which the Corporation had authority to issue immediately prior to the foregoing amendment and restatement of the charter of the Corporation was one billion six hundred twenty million (1,620,000,000) shares, consisting of one billion one hundred twenty million (1,120,000,000) shares of common stock, par value $0.01 per share, two hundred million (200,000,000) shares of preferred stock, par value $0.01 per share, and three hundred million (300,000,000) shares of excess stock, par value $0.01 per share. The aggregate par value of all shares of stock having par value was $16,200,000.
EIGHTH: The total number of shares of stock which the Corporation has authority to issue pursuant to the foregoing amendment and restatement of the charter of the Corporation is one billion three hundred twenty million (1,320,000,000) shares, consisting of one billion one hundred twenty million (1,120,000,000) shares of common stock, par value $0.01 per share, and two hundred million (200,000,000) shares of preferred stock, par value $0.01 per share. The aggregate par value of all authorized shares of stock having par value is $13,200,000.
NINTH: The undersigned acknowledges these Articles of Amendment and Restatement to be the corporate act of the Company and as to all matters or facts required to be verified under oath, the undersigned acknowledges 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.
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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 Chief Executive Officer and President and attested to by its Secretary on this day of , 2013.
| CNL HEALTHCARE PROPERTIES, INC. | ||||||
| By: |
| |||||
| Name: | Stephen H. Mauldin | |||||
| Title: | Chief Executive Officer and President | |||||
| Attest: | ||||||
| By: |
| |||||
| Name: | Holly J. Greer | |||||
| Title: | Secretary | |||||
(i) The provisions of these Articles of Incorporation are severable, and if the Directors shall determine that any one or more of such provisions are in conflict with the REIT Provisions of the Code, or other applicable federal or state laws, the conflicting provisions shall be deemed never to have constituted a part of these Articles of Incorporation, even without any amendment of these Articles of Incorporation pursuant to Section 10.1 hereof; provided, however, that such determination by the Directors shall not affect or impair any of the remaining provisions of these Articles of Incorporation or render invalid or improper any action taken or omitted prior to such determination. No Director shall be liable for making or failing to make such a determination.
(ii) If any provision of these Articles of Incorporation 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 these Articles of Incorporation in any jurisdiction.
SECTION 12.4 Construction. In these Articles of Incorporation, 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 both genders. The title and headings of different parts are inserted for convenience and shall not affect the meaning, construction or effect of these Articles of Incorporation. In defining or interpreting the powers and duties of the Company and its Directors and officers, reference may be made, to the extent appropriate, to the Code and to Titles 1 through 3 of the Corporations and Associations Article of the Annotated Code of Maryland, referred to herein as the “MGCL.”
SECTION 12.5 Recordation. These Articles of Incorporation 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 Directors deem appropriate, but failure to file for record these Articles of Incorporation or any amendment hereto in any office other than in the State of Maryland shall not affect or impair the validity or effectiveness of these Articles of Incorporation or any amendment hereto. A restated Articles of Incorporation shall, upon filing, be conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu of the original Declaration of Trust and the various amendments thereto.
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EXHIBIT B
SECONDTHIRD AMENDED AND RESTATED BYLAWS OF
CNL HEALTHCARE PROPERTIES, INC.
These Second Amended and Restated Bylaws (the “Bylaws”), amended and restated as of December 26, 2012, are the Bylaws of CNL Healthcare Properties, Inc., a corporation organized under the laws of the State of Maryland and formerly known as CNL Healthcare Trust, Inc. (the “Company”), having National Registered Agents, Inc. of MD as its resident agent located at 836 Park Avenue, 2nd Floor, Baltimore, Maryland 21201, are as follows:
ARTICLE I
OFFICES
SECTION 1.PRINCIPAL OFFICE. The principal office oftheCNL Healthcare Properties, Inc., a Maryland corporation (the “Company”), shall be located at such place or places as the Board of Directors may designate in the State of Maryland.
SECTION 2.ADDITIONAL OFFICES. The Company may have additional offices at such places as the Board of Directors may from time to time determine or the business of the Company may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1.PLACE. All meetings of stockholders shall be held at the principal office of the Company or at such other place within the United States as shall be stated in the notice of the meeting.
SECTION 2.ANNUAL MEETING. An annual meeting of the stockholders for the election of Directors, as such term is defined below, and the transaction of any business within the powers of the Company shall be held upon reasonable notice and not less than thirty (30) days after delivery of the annual report.
SECTION 3.SPECIAL MEETINGS. Subject to the rights of the holders of any series of Preferred Shares (as such term is defined in the Company’sArticles of Incorporation, as amendedcharter (the “Articles of Incorporation”)) to elect additional Directors under specified circumstances, special meetings of the stockholders may be called by (i) the chief executive officer, the president or the chairman of the Board of Directors; (ii) a majority of the Board of Directors; (iii) a majority of the Independent Directors (as such term is defined herein); or (iv) the secretary at the request in writing of stockholders holding outstanding Equity Shares (as such term is defined in the Articles of Incorporation) representing at least ten percent (10%) of all votes entitled to be cast on any issue proposed to be considered at any such special meeting. Written notice of any special meeting called pursuant to subsection (iv) will be provided to all stockholders within ten (10) days after any such request is received, stating the purpose of the meeting and time and place of the meeting specified in the request, or if none is specified, a time and place convenient to the stockholders. The meeting shall be held on a date not less than fifteen (15) nor more than sixty (60) days after distribution of the notice.
SECTION 4.NOTICE. Not less than fifteen (15) nor more than sixty (60) days before each meeting of stockholders, the secretary shall give to each stockholder entitled to vote at such meeting, and to each stockholder not entitled to vote who is entitled to notice of the meeting, written or printed notice stating the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by statute or theseBylawsThird Amended and Restated Bylaws (the “Bylaws”), the purpose for which the meeting is called, either by mail to the address of such stockholder as it appears on the records of the Company, by presenting it to such stockholder personally, by leaving it at his residence or usual place of business or by any other means permitted by Maryland law. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at his post office address as it appears on the records of the Company, with postage thereon prepaid.
SECTION 5.SCOPE OF NOTICE. Any business of the Company may be transacted at an annual meeting of stockholders without being specifically designated in the notice, except such business as is required by statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except as specifically designated in the notice.
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SECTION 6.QUORUM; ORGANIZATION AND CONDUCT OF MEETING. At any meeting of stockholders, the presence in person or by proxy of the stockholders entitled to cast fifty percent (50%) of all the votes entitled to be cast at the meeting shall constitute a quorum; but this section shall not affect any requirement under any statute, any other provision of these Bylaws, or the Articles of Incorporation for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present at any meeting of the stockholders, the stockholders entitled to vote at such meeting, present in person or by proxy, shall have power to adjourn the meeting from time to time to a date not more than one hundred twenty (120) days after the original record date without notice other than announcement at the meeting. At 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.
The chairman of the board or such other person who has such authority pursuant to these Bylaws or such other person to whom the chairman of the board has delegated such authority pursuant to these Bylaws shall serve as the chairman of every meeting of stockholders. The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chairman of the meeting. The secretary, or in the secretary’s absence, a person appointed by the chairman of the meeting, shall act as secretary of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of such chairman, are appropriate for the proper conduct of the meeting, including, without limitation, (i) restricting admission to the time set for the commencement of the meeting; (ii) limiting attendance at the meeting to stockholders of record of the Company, their duly authorized proxies or such other persons as the chairman of the meeting may determine; (iii) limiting participation at the meeting on any matter to stockholders of record of the Company entitled to vote on such matter, their duly authorized proxies or such other persons as the chairman of the meeting may determine; (iv) limiting the time allotted to questions or comments by participants; (v) determining when polls should be opened and closed; (vi) maintaining order and security at the meeting; (vii) removing any stockholder or any other individual who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman of the meeting; (viii) concluding a meeting or recessing or adjourning the meeting to a later date and time and place announced at the meeting; and (ix) complying with any state and local laws and regulations concerning safety and security. Unless otherwise determined by the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
SECTION 7.VOTING. A majority of all the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to elect a Director, notwithstanding the concurrence of the Board of Directors to such action.With respect to the election of Directors, “a majority of all the votes cast” shall mean that a nominee for Director receives the affirmative vote of a majority of the total votes cast for and against or affirmatively withheld as to such nominee.Each share may be voted for as many individuals as there are Directors to be elected and for whose election the share is entitled to be voted. A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required by statute or by the Articles of Incorporation. Unless otherwise provided in the Articles of Incorporation, each Equity Share owned of record on the applicable record date shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. The Company’s Advisor (as such term is defined in the Articles of Incorporation), the Directors and any affiliates are prohibited from voting on or consenting to matters submitted to the stockholders regarding the removal of the Advisor, Directors or any affiliate or any transaction between the Company and any of them, nor will such shares be counted in determining a quorum or a majority in such circumstances.
SECTION 8.PROXIES. A stockholder may vote the Equity Shares owned of record by him, either in person or by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the Company before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy.
SECTION 9.VOTING OF SHARES BY CERTAIN HOLDERS. Equity Shares registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the chief executive officer or a vice president, a general partner, trustee or other fiduciary 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 Board of Directors of such corporation or other entity presents a certified copy of such bylaw or resolution, in which case such person may vote such shares. Any trustee or other fiduciary may vote shares registered in his name as such fiduciary, either in person or by proxy.
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Equity Shares of the Company owned by it or its subsidiaries 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.
The Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Company that any Equity Shares registered in the name of the stockholder are held for the account of a specific person other than the stockholder. The resolution shall set forth: the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and 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 Company; and any other provisions with respect to the procedure which the Directors consider 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 stockholder of record of the specified shares in place of the stockholder who makes the certification.
SECTION 10.INSPECTORS. At any meeting of stockholders, the chairman of the meeting may, or upon the request of any stockholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of Equity Shares represented at the meeting based upon their determination of the validity and effect of proxies, determine the existence of a quorum, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the stockholders.
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 11.REPORTS TO STOCKHOLDERS. Not later than one hundred twenty (120) days after the close of each fiscal year of the Company, the Directors shall deliver or cause to be delivered a report of the business and operations of the Company during such fiscal year to the stockholders, containing (i) financial statements prepared in accordance with generally accepted accounting principles as in effect in the United States of America from time to time or such other accounting system accepted by the U.S. Securities and Exchange Commission and which are audited and reported on by independent certified public accountants; (ii) the ratio of the costs of raising capital during the period to the capital raised; (iii) the aggregate amount of advisory fees and the aggregate amount of other fees paid to the Company’s Advisor and any affiliate of the Advisor by the Company and including fees or charges paid to the Advisor and any affiliate of the Advisor by third parties doing business with the Company; (iv) the Total Operating Expenses (as such term is defined in the Articles of Incorporation) of the Company, stated as a percentage of, for a specified period, the Average Invested Assets (as such term is defined in the Articles of Incorporation) and as a percentage of its Net Income (as such term is defined in the Articles of Incorporation); (v) a report from the Independent Directors that the policies being followed by the Company are in the best interests of its stockholders and the basis for such determination; and (vi) separately stated, full disclosure of all material terms, factors, and circumstances surrounding any and all transactions involving the Company, Directors, Advisor and any Affiliate thereof occurring in the year for which the annual report is made.
SECTION 12.NOMINATIONS AND STOCKHOLDER BUSINESS.
(a)Annual Meetings of Stockholders.
(1) With respect to an annual meeting of stockholders, nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders may be made only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Company who was a stockholder of record at the time of giving of notice, 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 stockholder pursuant to clause (ii) of paragraph (a)(1) of this Section 12, the stockholder must have given timely notice thereof in writing to the secretary of the Company. To be timely, a stockholder’s notice shall be delivered to the secretary at the principal executive offices of the Company not less than one hundred twenty (120) days nor
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more than one hundred fifty (150) days prior to the first anniversary of the preceding year’s annual meeting;provided, however, that in the event that the date of the annual meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the one hundred twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting. Such stockholder’s notice shall set forth: (i) as to each person whom the stockholder proposes to nominate for election or re-election as a Director all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A (or any successor regulation) 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 Director if elected); (ii) as to any other business that the stockholder proposes 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 stockholder or any Stockholder Associated Person (as defined below) and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice, any Stockholder Associated Person and the beneficial owner, if any, on whose behalf the nomination or proposal is made, the name and address of such stockholder, as they appear on the Company’s books, of any Stockholder Associated Person and of such beneficial owner and the class and number of shares of the Company which are owned beneficially and of record by such stockholder, Stockholder Associated Person and such beneficial owner. “Stockholder Associated Person” of any stockholder shall mean (x) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (y) any beneficial owner of shares of stock of the Company owned of record or beneficially by such stockholder and (z) any person controlling, controlled by or under common control with such Stockholder Associated Person.
(3) Notwithstanding anything in the second sentence of Section 12(a)(2) to the contrary, in the event that the number of Directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for Director or specifying the size of the increased Board of Directors made by the Company at least one hundred thirty (130) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’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 Company not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Company.
(b)Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Company’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which Directors are to be elected pursuant to the Company’s notice of meeting (i) by or at the direction of the Board of Directors or (ii) provided that the Board of Directors has determined that Directors shall be elected at such special meeting, by any stockholder of the Company who is a stockholder of record at the time of giving of notice provided for in this Section 12(b), who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 12(b). In the event the Company calls a special meeting of stockholders for the purpose of electing one or more Directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be) for election to such position as specified in the Company’s notice of meeting, if the stockholder’s notice complies with the requirements of Section 12(a)(2) and is delivered to the secretary at the principal executive offices of the Company not earlier than the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such special meeting or 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 Directors to be elected at such meeting.
(c)General.
(1) Only such persons who are nominated in accordance with the procedures set forth in this Section 12 shall be eligible for election by stockholders as Directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 12. The presiding officer 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 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 defective nomination or proposal be disregarded.
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(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 Company with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
(3) Notwithstanding the foregoing provisions of this Section 12, a stockholder also shall comply with all applicable requirements of state 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 stockholders to request inclusion of proposals in the Company’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 13.VOTING BY BALLOT. Voting on any question or in any election may be viva voce unless the presiding officer shall order or any stockholder shall demand that voting be by ballot.
SECTION 14.NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject to the rights of the holders of any series of Preferred Shares to elect additional Directors under specific circumstances, any action required or permitted to be taken by the stockholders of the Company after the commencement of the Initial Public Offering (as defined in the Articles of Incorporation) must be effected at an annual or special meeting of stockholders and may not be effected by any consent in writing by such stockholders.
ARTICLE III
DIRECTORS
SECTION 1.GENERAL POWERS; NUMBER; QUALIFICATIONS. The business and affairs of the Company shall be managed under the direction of its board of directors (also referred to herein as “Board” or “Board of Directors”, and each director being referred to as a “Director” or collectively, the “Directors”). Notwithstanding the other requirements set forth herein and in the Articles of Incorporation, a Director shall be an individual at least twenty-one (21) years of age who is not under legal disability.Until such time as the Company is subject to the NASAA REIT Guidelines (as defined in the Articles of Incorporation), theThe number of Directors that shall constitute the wholeBoard shall be at least two (2) and not more than eleven (11). Thereafter, the number of Directors that shall constitute the whole Boardboard shall not be less than three (3) nor more than eleven (11). Within such limits, the actual number of directors which shall constitute the wholeBoardboard shall be as fixed from time to time by resolution of the Board of Directors.
SECTION 2.INDEPENDENT DIRECTORS; QUALIFICATIONS. After the commencement of the Initial Public Offering (as defined in the Articles of Incorporation), aA majority of Directors of the Company shall be Independent Directors. To qualify as an “Independent Director,” an individual must not be and within the last two years must not have been directly or indirectly associated with the Sponsor (as defined in the Articles of Incorporation) or Advisor by virtue of (i) ownership of an interest in the Sponsor,the Advisor or any of their Affiliates, (ii) employment by the Sponsor,theAdvisor or any of their Affiliates, (iii) service as an officer or director of the Sponsor,theAdvisor or any of their Affiliates, (iv) performance of services, other than as a Director, for the Company, (v) service as a director or trustee of more than three real estate investment trusts sponsored by the Sponsor or advised by the Advisor, or (vi) maintenance of a material business or professional relationship with the Sponsor,theAdvisor or any of their Affiliates. A business or professional relationship is considered material if the gross revenue derived by the Director from the Sponsor,theAdvisor and their Affiliates exceeds five percent (5%) of either the Director’s annual gross revenue during either of the last two (2) years or the Director’s net worth on a fair market value basis. An indirect relationship shall include circumstances in which a Director’s spouse, parents, children, siblings, mothers- or fathers-in-law, sons- or daughters-in-law, or brothers- or sisters-in-law is or has been associated with the Sponsor,theAdvisor, any of their Affiliates, or the Company.
SECTION 3.REGULAR AND ANNUAL MEETINGS. A meeting of the Directors shall be held at least quarterly in person or by telephone. The Directors may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Directors without other notice than such resolution. An annual meeting of the Directors shall be held immediately after and at the same location as the annual meeting of stockholders.
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SECTION 4.SPECIAL MEETINGS. Special meetings of Directors may be called by or at the request of the chief executive officer or chairman or by a majority of the Directors then in office. The person or persons authorized to call special meetings of the Directors may fix any place, either within or without the State of Maryland, as the place for holding any special meeting of the Directors called by them.
SECTION 5.NOTICE. Notice of any annual, regular or special meeting shall be given by written notice delivered personally, transmitted by facsimile, electronic mail or mailed to each Director at his business or residence address. Personally delivered, facsimile transmitted or electronically mailed notices shall be given at least two (2) days prior to the meeting. Notice by facsimile shall be promptly followed by mailed notice. Notice by mail shall be given at least five (5) days prior to the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. If given by electronic mail, a notice shall be deemed given and received when the electronic mail is transmitted to the recipient’s electronic mail address provided in writing by the recipient and electronic confirmation of receipt (either by reply from the recipient or by automated response to a request for delivery receipt) is received by the sending party during normal business hours or on the next business day if not confirmed during normal business hours, and an identical notice is also sent simultaneously by mail, overnight courier or personal delivery as otherwise provided in this Section 5. Except for facsimile and electronic mail notices sent as expressly described above, no notice hereunder shall be effective if sent or delivered by electronic means. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Directors need be stated in the notice, unless specifically required by statute or these Bylaws.
SECTION 6.QUORUM. A whole number of Directors equal to at least a majority of the whole Board of Directors, including a majority of Independent Directors, shall constitute a quorum for transaction of business at any meeting of the Directors; provided, that if less than a quorum are present at said meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice; and provided further, that if, pursuant to the Articles of Incorporation or these Bylaws, the vote of a majority of a particular group of Directors is required for action, a quorum must also include a majority of such group.
The Directors present at a meeting that has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Directors to leave less than a quorum.
SECTION 7.VOTING. The action of the majority of the Directors present at a meeting at which a quorum is present shall be the action of the Directors, unless the concurrence of a particular group of Directors or of a greater proportion is required for such action by applicable statute, the Articles of Incorporation or these Bylaws.
SECTION 8.TELEPHONE MEETINGS. Directors 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.INFORMAL ACTION BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Directors may be taken without a meeting, if a consent in writing to such action is signed by each Director and such written consent is filed with the minutes of proceedings of the Directors.
SECTION 10.VACANCIES. If for any reason any or all the Directors cease to be Directors, such event shall not terminate the Company or affect these Bylaws or the powers of the remaining Directors hereunder (even if fewer than three Directors remain). Any vacancy created by an increase in the number of Directors shall be filled, at any regular meeting or at any special meeting of the Directors called for that purpose, by a majority of the entire Board of Directors, although that majority is less than a quorum. Any other vacancy shall be filled at any regular meeting or at any special meeting of the Directors called for that purpose, by a majority of the remaining Directors, whether or not sufficient to constitute a quorum. Any individual so elected as Director shall hold office for the unexpired term of the Director he is replacing. In the event of a vacancy among the Independent Directors, the remaining Independent Directors shall nominate replacements for such position.
SECTION 11. COMPENSATION. Each Director is entitled to receive $15,00035,000 annually for serving on the Board of Directors, as well as fees of $2,000 per meeting of the Board of Directors attended or participated in telephonically. Each Director is entitled to receive $2,000 per Audit Committee meeting attended or participated in telephonically. In addition to the fee for each Audit Committee meeting, the chairman of the Audit
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Committee shall receive an annual retainer of $10,000 and shall be entitled to receive a fee of $2,000 per meeting attended or telephonic meeting in which such chairman participates with the Company’s independent accountants as a representative of the Audit Committee. In addition, each Director is entitled to receive $2,000 per meeting of any other committee of the Board of Directors attended or telephonic meeting of any such committee in which the Director participates. Directors that are members of a special committee are entitled to receive fees of $2,000 per day for service as representatives of such special committee in lieu of the above compensation (to the extent that such Directors devote in excess of three (3) hours on such day to matters relating to such special committee). The Company will not pay any compensation to the Directors of the Company who also serve as officers and directors of the Advisor or are employees of an Affiliate of the Advisor (as such term is defined in the Articles of Incorporation). No additional compensation shall be paid for attending the annual stockholders meeting.
SECTION 12.ELECTION AND REMOVAL OF DIRECTORS; TERM. The stockholders may, at any time, remove any Director in the manner provided in the Articles of Incorporation. The term of service for a Director is one (1) year, without limit on successive terms.
SECTION 13.CHAIRMAN OF THE BOARD. The Directors from time to time may elect a chairman of the board. The chairman of the board, if one be elected, shall preside at all meetings of the Directors and of the stockholders, and the chairman of the board shall have and perform such other duties as from time to time may be assigned to the chairman of the board by the Directors. The chairman of the board may delegate to any qualified person authority to chair any meeting of the stockholders, either on a temporary or permanent basis.
SECTION 14.LOSS OF DEPOSITS. No Director 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 which moneys or shares have been deposited.
SECTION 15.SURETY BONDS. Unless required by law, no Director shall be obligated to give any bond or surety or other security for the performance of any of his duties.
SECTION 16.RELIANCE. Each Director, officer, employee and agent of the Company shall, in the performance of his duties with respect to the Company, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Company, upon an opinion of counsel or upon reports made to the Company by any of its officers or employees or by the advisers, accountants, appraisers or other experts or consultants selected by the Directors or officers of the Company, regardless of whether such counsel or expert may also be a Director.
SECTION 17.CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The Directors shall have no responsibility to devote their full time to the affairs of the Company. Any Director, officer, employee or agent of the Company, in his 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 those of or relating to the Company, subject to the adoption of any policies relating to such interests and activities adopted by the Directors and applicable law.
ARTICLE IV
COMMITTEES
SECTION 1.NUMBER, TENURE AND QUALIFICATIONS. The Directors may, by resolution or resolutions passed by a majority of the whole Board, appoint from among its members an Audit Committee and other committees, composed of two (2) or more Directors to serve at the pleasure of the Directors. At such time, if any, as the Shares become listed on a national securities exchange, the Company will form a Compensation Committee.After the commencement of the Initial Public Offering (as defined in the Articles of Incorporation), atAt least a majority of the members of each committee of the Company’s Board of Directors, or if a committee numbers two (2) or less, both directors, must be Independent Directors.
SECTION 2.POWERS. The Directors may delegate to committees appointed under Section 1 of this Article IV any of the powers of the Board of Directors;provided,however, that the Directors may not delegate to any committee the power to declare dividends or other Distributions (as such term is defined in the Articles of Incorporation), elect Directors, issue Equity Shares in the Company other than as provided in the next sentence, recommend to the stockholders any action which requires stockholder approval, amend the Bylaws or approve any
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merger or share exchange which does not require stockholder approval. If the Board of Directors has given general authorization for the issuance of Equity Shares in the Company to a committee of the Board, in accordance with a general formula or method specified by the Board by resolution or by adoption of an option or other plan, such committee may fix the terms of the Equity Shares subject to classification or reclassification and the terms on which the shares may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors.
SECTION 3.COMMITTEE PROCEDURES. Each committee may fix rules of procedure for its business. A majority of the members of a committee shall constitute a quorum for the transaction of business and the action of a majority of those present at a meeting at which a quorum is present shall be action of the committee. In the absence of any member of any committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another Director to act in the place of such absent member, subject to the requirements of Section 1 of this Article IV. Any action required or permitted to be taken at a meeting of a committee may be taken without a meeting, if a unanimous written consent which sets forth the action to be taken is signed by each member of the committee and filed with the minutes of the proceedings of such committee. The members of a committee may conduct any meeting thereof 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 such means shall constitute presence in person at the meeting.
ARTICLE V
OFFICERS
SECTION 1.GENERAL PROVISIONS. The officers of the Company may consist of a chairman of the board, a chief executive officer, a president, a chief operating officer, one or more vice presidents, a chief financial officer and treasurer, a secretary, and one or more assistant secretaries, as determined by the Directors. In addition, the Directors may from time to time appoint such other officers with such powers and duties as they shall deem necessary or desirable. The officers of the Company shall be elected annually by the Directors at the first meeting of the Directors held after each annual meeting of stockholders. 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 (2) or more offices except (i) chief executive officer and vice president, or (ii) president and vice president, may be held by the same person, although any person holding more than one office in the Company 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. In their discretion, the Directors may leave unfilled any office except that of the chief executive officer, the president, the treasurer and the secretary. Election of an officer or agent shall not of itself create contract rights between the Company and such officer or agent.
SECTION 2.REMOVAL AND RESIGNATION. Any officer or agent of the Company may be removed by a majority of the members of the whole Board of Directors, with or without cause, if in their judgment the best interests of the Company would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Company may resign at any time by giving written notice of his resignation to the Directors, the chairman of the board, 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.
SECTION 3.VACANCIES. A vacancy in any office may be filled by the Directors for the balance of the term.
SECTION 4.CHIEF EXECUTIVE OFFICER. The Directors may designate a chief executive officer from among the elected officers. In the absence of such designation, the president shall be the chief executive officer of the Company. The chief executive officer shall in general supervise the management of the business affairs of the Company and the implementation of the policies of the Company, as determined by the Directors. He or she shall, when present and in the absence of the chairman of the board, preside at all meetings of the stockholders and the Board of Directors. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Directors or by these Bylaws to some other officer or agent of the Company or shall be required by law to be otherwise executed, and in general shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Directors from time to time.
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SECTION 5.PRESIDENT. The president, subject to the control of the Board of Directors and with the chief executive officer, shall in general supervise and control all of the business and affairs of the Company. He or she shall, when present and in the absence of the chairman of the board and the chief executive officer, preside at all meetings of the stockholders and the Board of Directors. He or she may sign with the secretary or any other proper officer of the Company authorized by the Board of Directors, deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Company, or shall be required by law to be otherwise signed or executed, and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the chief executive officer or the Directors from time to time.
SECTION 6.CHIEF OPERATING OFFICER. The chief operating officer, under the direction of the chief executive officer, shall have general management authority and responsibility for the day-to-day implementation of the policies of the Company. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Directors or by these Bylaws to some other officer or agent of the Company or shall be required by law to be otherwise executed, and in general shall perform all duties incident to the office of chief operating officer and such other duties as may be prescribed by the Directors from time to time.
SECTION 7.VICE PRESIDENTS. In the absence of the chief executive officer, the president, the chief operating officer or in the event of a vacancy in all such offices, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the chief executive officer or the president and when so acting shall have all the powers of and be subject to all the restrictions upon the chief executive officer and the president. The vice presidents shall additionally have authority to perform such other duties as from time to time may be assigned to him or her by the chief executive officer, by the president, by the chief operating officer or by the Directors. The Directors may designate one or more vice presidents as executive vice president or as vice president for particular areas of responsibility.
SECTION 8.SECRETARY. The secretary shall: (i) keep the minutes of the proceedings of the stockholders, the Directors and committees of the Directors in one or more books provided for that purpose; (ii) see that all notices are duly given in accordance with the provisions of the Articles of Incorporation, these Bylaws or as required by law; (iii) be custodian of the trust records and of the seal (if any) of the Company; (iv) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (v) have general charge of the share transfer books of the Company; and (vi) in general perform such other duties as from time to time may be assigned to him or her by the chief executive officer, by the president, by the chief operating officer or by the Directors.
SECTION 9.CHIEF FINANCIAL OFFICER AND TREASURER. The chief financial officer and treasurer shall have the custody of the funds and securities of the Company and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Directors. The chief financial officer shall disburse the funds of the Company as may be ordered by the Directors, taking proper vouchers for such disbursements, and shall render to the chief executive officer and Directors, at their regular meetings of the Directors or whenever they may require it, an account of all his or her transactions as chief financial officer and of the financial condition of the Company.
If required by the Directors, he or she shall give the Company a bond in such sum and with such surety or sureties as shall be satisfactory to the Directors for the faithful performance of the duties of his or her office and for the restoration to the Company, in case of his or her death, resignation, retirement or removal from office, all books, papers, vouchers, moneys and other property of whatever kind in his or her possession or under his or her control belonging to the Company.
SECTION 10.ASSISTANT SECRETARIES. The assistant secretaries, in general, shall perform such duties as shall be assigned to them by the secretary, or by the chief executive officer, the president, or the Directors.
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SECTION 11.ASSISTANT TREASURERS. The assistant treasurers, in general, shall perform such duties as shall be assigned to them by the chief financial officer and treasurer, or by the chief executive officer, the president, or the Directors.
SECTION 12.SALARIES. The salaries of the officers shall be fixed from time to time by the Directors, and no officer shall be prevented from receiving such salary by reason of the fact that he or she is also a Director. The Board may delegate authority to fix salaries to the president or chief executive officer for Company employees not specifically listed in this Article.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1.CONTRACTS. The Directors 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 Company 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 Directors or by an authorized person shall be deemed valid and binding upon the Directors and upon the Company when so authorized or ratified by action of the Directors.
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 Company shall be signed by such officer or officers, agent or agents of the Company and in such manner as shall from time to time be determined by the Directors.
SECTION 3.DEPOSITS. All funds of the Company not otherwise employed shall be deposited from time to time to the credit of the Company in such banks, trust companies or other depositories as the Directors may designate.
ARTICLE VII
EQUITY SHARES
SECTION 1.CERTIFICATES. The Company will not issue share certificates. A stockholder’s investment will be recorded on the books of the Company. A stockholder wishing to transfer his or her Shares will be required to send only an executed form to the Company, and the Company will provide the required form upon a stockholder’s request. The executed form and any other required documentation must be received by the Company on or before the fifteenth (15th) of the month for a transfer to be effective the following month.
SECTION 2.TRANSFERS. Transfers of Equity Shares shall be effective, and the transferee of the Equity Shares will be recognized as a holder of such Shares as of the first day of the following month on which the Company receives properly executed documentation. Stockholders who are residents of New York may not transfer fewer than two hundred fifty (250) shares at any time.
The Company shall be entitled to treat the holder of record of any Equity Shares 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 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 3.NOTICE OF ISSUANCE OR TRANSFER. Upon issuance or transfer of Equity Shares, the Company shall send the stockholder a written statement that complies with the requirements of Section 7.6(xii) of Articles of Incorporation and reflects such investment or transfer. In addition such written statement shall set forth (i) the name of the Company; (ii) the name of the stockholder or other person to whom it is issued or transferred; (iii) the class of shares and number of shares purchased; (iv) the designations and any preferences, conversions and other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption of the shares of each class which the Company is authorized to issue; (v) the differences in the relative rights and preferences between the shares of each series of shares to the extent they have been set; (vi) the authority of the Board of Directors to set the relative rights and preferences; (vii) the restrictions on transferability of the shares sold or transferred (without affecting § 8-204 of the Commercial Law Article of theAnnotated Code ofMaryland General Corporation Law (the “MGCL”); and (viii) any other information required by law. The Company, alternatively, may furnish notice that a full statement of the information contained in the foregoing subsections (i) through (viii) and otherwise complying with Section 7.6(xii) of the Articles of Incorporation will be provided to any stockholder upon request and without charge.
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SECTION 4.CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Directors may set, in advance, a record date for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or stockholders entitled to receive payment of any Distribution or the allotment of any other rights, or in order to make a determination of stockholders 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 not be more than ninety (90) days and, in the case of a meeting of stockholders, not less than ten (10) days, before the date on which the meeting or particular action requiring such determination of stockholders is to be held or taken.
In the context of fixing a record date, the Directors may provide that the share transfer books shall be closed for a stated period but not longer than twenty (20) days. If the share transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed at least ten (10) days before the date of such meeting.
If no record date is fixed and the share transfer books are not closed for the determination of stockholders, (i) the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the date on which notice of meeting is mailed or the thirtieth (30th) day before the meeting, whichever is the closer date to the meeting, and (ii) the record date for the determination of stockholders entitled to receive payment of a Distribution or an allotment of any other rights shall be the close of business on the day on which the resolution of the Directors declaring the Distribution or allotment of rights is adopted, but the payment or allotment of rights may not be made more than sixty (60) days after the date on which the resolution is adopted.
When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section 4, such determination shall apply to any adjournment thereof, except where the determination has been made through the closing of the transfer books and the stated period of closing has expired.
SECTION 5.SHARE LEDGER. The Company shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger, in written form or in any other form which can be converted within a reasonable time into written form for visual inspection, containing the name and address of each stockholder and the number of shares of each class held by such stockholder.
SECTION 6.FRACTIONAL SHARES; ISSUANCE OF UNITS. Directors 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 Articles of Incorporation or these Bylaws, the Directors may issue units consisting of different securities of the Company. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Company, except that the Directors may provide that for a specified period securities of the Company issued in such unit may be transferred on the books of the Company only in such unit.
Before issuance of any shares classified or reclassified or otherwise issued in a unit, the Board of Directors will file articles supplementary with the Maryland State Department of Assessments and Taxationof Marylandthat describe such shares, including (a) the preferences, conversion and other rights, voting powers, restrictions, limitations as to distributions, qualifications, and terms and conditions of redemption, as set or changed by the Board of Directors; and (b) a statement that the shares have been classified or reclassified by the Board of Directors pursuant to its authority under theCompany’s charterArticles of Incorporation. The articles supplementary will be executed in the manner provided byTitle 7 of the Maryland General Corporation Law (the “the MGCL”).
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ARTICLE VIII
ACCOUNTING YEAR
The Directors shall have the power, from time to time, to fix the fiscal year of the Company by a duly adopted resolution, provided that the fiscal year of the Company shall be the calendar year for all taxable periods following the Company’s election as, and prior to any termination or revocation of the election of the Company as, a real estate investment trust under the Internal Revenue Code of 1986, as amended.
ARTICLE IX
DISTRIBUTIONS
SECTION 1.DECLARATION. Distributions upon the Equity Shares of the Company may be declared by the Directors, subject to the provisions of law and the Articles of Incorporation. Distributions may be paid in cash or other property of the Company, subject to the provisions of law and the Articles of Incorporation.
SECTION 2.CONTINGENCIES. Before payment of any Distributions, there may be set aside out of any funds of the Company available for Distributions such sum or sums as the Directors may from time to time, in their absolute discretion, think proper as a reserve fund for the contingencies, for equalizing Distributions, for repairing or maintaining any property of the Company or for such other purpose as the Directors shall determine to be in the best interest of the Company, and the Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the Articles of Incorporation, the Directors may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Company as they shall deem appropriate in their sole discretion. In addition, the Independent Directors shall review the Company’s investment policies at least annually to determine that the policies are in the best interests of the stockholders. The determination will be set forth in the minutes of the Board of Directors along with the basis for such determination.
ARTICLE XI
SEAL
SECTION 1.SEAL. The Directors may authorize the adoption of a seal by the Company. The seal shall have inscribed thereon the name of the Company and the year of its organization. The Directors may authorize one or more duplicate seals and provide for the custody thereof.
SECTION 2.AFFIXING SEAL. Whenever the Company is required to place 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 Company.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Articles of Incorporation or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons 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 person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIII
AMENDMENT OF BYLAWS
SECTION 1.AMENDMENTS. TheseUntil Listing (as defined in the Articles of Incorporation), these Bylaws may be amended or repealed by either the affirmative vote of a majority of all Equity Shares outstanding
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and entitled to vote generally in the election of Directors, voting as a single group, or by an affirmative vote of a majority of the Directors, provided that such amendments are not inconsistent with the Articles of Incorporation, and further provided that the Directors may not amend these Bylaws, without the affirmative vote of a majority of the Equity Shares, to the extent that such amendments adversely affect the rights, preferences and privileges of Stockholders. After Listing, the Board of Directors shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.
SECTION 2.LOCATION OF BYLAWS. The original or a certified copy of these Bylaws, including any amendments thereto, shall be kept at the Company’s principal office, as determined pursuant to Article I, Section 1 of these Bylaws.
The foregoing are certified as the Bylaws of the Company adopted by the Directors as of December 26, 2012.
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B-13
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ANNEX 1
2013 FORM OF PROXY
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CNL Healthcare Properties, Inc. (Logo)
450 South Orange Avenue
Orlando, FL 32801
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the website and follow the touch-tone prompts to obtain your records and create an electronic voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the touch-tone prompts.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge Investor Communication Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
Sign up today to receive next year’s annual report and proxy materials via the Internet rather than by mail. Additional mailings, such as distribution statements and tax forms, are also available electronically. To sign up to receive these mailings electronically, or to review or change your current delivery preferences, visit our website atwww.CNLhealthcareproperties.com/gopaperless.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
CNL HEALTHCARE PROPERTIES, INC.
2013 ANNUAL MEETING OF STOCKHOLDERS
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE “FOR ALL” OR FOR” THE FOLLOWING PROPOSALS
I. Election of five (5) directors, each for a term expiring at the 2014 annual meeting of stockholders and until his successor is duly elected and qualifies.
Nominees
01) James M. Seneff, Jr.
02) Thomas K. Sittema
03) J. Chandler Martin
04) Michael P. Haggerty
05) J. Douglas Holladay
For All ¨ Withhold All ¨ For All Except ¨
To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
| II. | Approval of the amendment and restatement of the Company’s charter: |
| II-A | Approval of proposed amendments to the charter relating to stockholder vote for election of directors. |
For ¨ Against ¨ Abstain ¨
| II-B | Approval of proposed amendments to the charter relating to the board of directors. |
For ¨ Against ¨ Abstain ¨
| II-C | Approval of proposed amendments to the charter relating to business combinations. |
For ¨ Against ¨ Abstain ¨
| II-D | Approval of proposed amendments to the charter relating to extraordinary transactions. |
For ¨ Against ¨ Abstain ¨
| II-E | Approval of proposed amendments to the charter relating to stock. |
For ¨ Against ¨ Abstain ¨
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| II-F | Approval of proposed amendments to the charter relating to stockholders’ rights: |
| II F-1 | Approval of proposed amendments to the charter relating to number of directors. |
For ¨ Against ¨ Abstain ¨
| II-F-2 | Approval of proposed amendments to the charter relating to amendments to bylaws. |
For ¨ Against ¨ Abstain ¨
| II F-3 | Approval of proposed amendments to the charter relating to classes of stock and appraisal rights. |
For ¨ Against ¨ Abstain ¨
| II-F-4 | Approval of proposed amendments to the charter relating to stock certificates. |
For ¨ Against ¨ Abstain ¨
| II-F-5 | Approval of proposed amendments to the charter relating to stockholder amendments to the charter. |
For ¨ Against ¨ Abstain ¨
| II-F-6: | Approval of proposed amendments to the charter relating to stockholder action by written consent. |
For ¨ Against ¨ Abstain ¨
| II-F-7: | Approval of proposed amendments to the charter relating to stockholder inspection of records. |
For ¨ Against ¨ Abstain ¨
| II-F-8 | Approval of proposed amendments to the charter relating to certain corporate elections. |
For ¨ Against ¨ Abstain ¨
| II-F-9 | Approval of proposed amendments to the charter relating to stockholders’ rights subject to charter and bylaws |
For ¨ Against ¨ Abstain ¨
| III. | Approval of the amendment and restatement of the Company’s bylaws: |
| III-A | Approval of the amendment and restatement of the Company’s bylaws relating to the Board of Directors. |
For ¨ Against ¨ Abstain ¨
| III-B | Approval of the amendment and restatement of the Company’s bylaws relating to the stockholders’ rights. |
For ¨ Against ¨ Abstain ¨
| III-C | Approval of the amendment and restatement of the Company’s bylaws relating to the extraordinary transactions. |
For ¨ Against ¨ Abstain ¨
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IV. Ratification of PricewaterhouseCoopers LLP as the Company’s independent registered certified public accounting firm for the fiscal year ending December 31, 2013.
For ¨ Against ¨ Abstain ¨
V. Transaction of such other business as may properly come before the 2013 Annual Meeting or any adjournment or postponement thereof.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying proxy statement and notice of the 2013 Annual Meeting and our 2012 Annual Report to Shareholders with respect to our 2012 fiscal year, the terms of each of which are incorporated by reference, and hereby revoke(s) any proxy or proxies heretofore given with respect to the 2013 Annual Meeting. This proxy may be revoked at any time before it is exercised.
THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST IN THE DISCRETION OF THE PROXY HOLDER UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
For address changes and/or comments, please check this box and write them on the back where indicated.
Important: Please sign exactly as name appears hereon. Joint owners should each sign personally. Trustees and others signing in a representative or fiduciary capacity should indicate their full titles in such capacity.
| Signature [PLEASE SIGN WITHIN BOX] Date | Signature (Joint Owners) Date |
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS FOR THE 2013 ANNUAL MEETING OF STOCKHOLDERS
The Proxy Statement and the 2013 Annual Report to Shareholders are available at:
www.proxyvote.com
The undersigned hereby appoints James M. Seneff, Jr. and Thomas K. Sittema, each of them as proxies with full power of substitution in each to attend, to cast on behalf of the undersigned all votes the undersigned is entitled to cast as such meeting, including with respect to the 2013 Annual Meeting of Stockholders of CNL Healthcare Properties, Inc. to be held on June 27, 2013 at 9:30 a.m., Eastern Time, and any adjournment or postponement thereof, and otherwise to represent the undersigned at the meeting with all powers possessed by the undersigned if personally present all matters set forth in the Notice of 2013 Annual Meeting of Stockholders and Proxy Statement dated April 29, 2013, a copy of which has been received by the undersigned.
The votes entitled to be case by the undersigned will be cast as directed. If the Proxy is executed,
but no direction is given, the votes entitled to be cast by the undersigned will be cast “FOR ALL” or “FOR”
the proposals stated.
| Address Changes/Comments: |
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
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| ANNEX 2 |  | |||
| VOTING REMINDER FLYER |
| Please Vote! | |
| YOUR VOTE IS IMPORTANT. PLEASE AUTHORIZE YOUR PROXY PROMPTLY. | ||
| Reduce corporate expenses by authorizing your proxy by Internet at www.proxyvote.com. | ||
| x | Read the Enclosed Materials… |
Enclosed is the following information for the CNL Healthcare Properties, Inc. 2013 Annual Meeting of Stockholders:
| • | 2012 Annual Report to Shareholders |
| • | Proxy Statement that describes the proposals to be voted upon |
| • | Proxy card for each registration* |
| * | You may have more than one proxy card included in your packet because you have multiple registrations.Please be sure to vote all proxies in your packet. |
| x | Vote by Internet… |
Visitwww.proxyvote.com and follow the online instructions to authorize your proxy. Your control number is located on the proxy card.
| x | … Or Complete the Proxy Card and Return by Mail… |
On the proxy card, cast your vote on the proposals, sign and return it in the postage-paid envelope provided.Please note, all parties must sign.
| x | …Or Vote by Telephone |
Call (800) 690-6903 using a touch-tone telephone and follow the simple, recorded instructions. Your control number is located on the proxy card.
If you authorize your proxy by Internet or by phone, please DO NOT mail back the proxy card.
| x | For Assistance… |
If you have any questions or need assistance with completing your proxy card, please call our proxy solicitor, Broadridge Investor Communication Solutions, Inc., at (866) 776-7430.
Thank you!
We appreciate your participation and support. Again, please be sure to authorize your proxy.
Your vote is important!