1
EXHIBIT 2.5.1
PAGE 6 OF 14
2
DESCRIPTION OF CAPITAL STOCK
The following summary description of capital stock of the Company is
subject to and qualified in its entirety by reference to Maryland law described
herein, and to the Articles of Incorporation and Bylaws of the Company which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
GENERAL
The Articles of Incorporation of the Company provide that the Company may
issue up to 60,000,000 shares of capital stock, consisting of 50,000,000 shares
of Common Stock, $0.01 par value per share, and 10,000,000 shares of Preferred
Stock, $0.01 par value per share ("Preferred Stock"). Upon the closing of the
Offering, 11,122,000 shares of Common Stock will be issued and outstanding and
no shares of Preferred Stock will be issued and outstanding. Under Maryland law,
stockholders generally are not liable for a corporation's debt or obligations
solely by reason of ownership of stock of the corporation.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other shares
or series of shares of capital stock and to the provisions of the Company's
Articles of Incorporation regarding the consequences of actually or
constructively owning shares of Common Stock in violation of the Ownership Limit
(as discussed below), holders of Common Stock will be entitled to receive
dividends on such Common Stock if, as and when authorized and declared by the
Board of Directors of the Company out of assets legally available therefor and
to share ratably in the assets of the Company legally available for distribution
to its stockholders in the event of its liquidation, dissolution or winding-up
after payment of, or adequate provision for, all known debts and liabilities of
the Company. The Company intends to continue its practice of paying regular
quarterly dividends to its stockholders. See "Price Range of Common Stock and
Distributions."
Subject to the provisions of the Company's Articles of Incorporation
regarding the consequences of actually or constructively owning shares of Common
Stock in violation of the Ownership Limit and to the matters discussed below
under "Certain Provisions of Maryland Law and of the Company's Articles of
Incorporation and Bylaws -- Control Share Acquisitions," each outstanding share
of Common Stock entitles the holder to one vote on all matters submitted to a
vote of stockholders, including the election of directors, and, except as
otherwise required by law or except as provided with respect to any other class
or series of shares of stock, the holders of such shares of Common Stock will
possess the exclusive voting power. There is no cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding shares of Common Stock can elect all of the directors then standing
for election and the holders of the remaining shares, if any, will not be able
to elect any directors.
Holders of Common Stock have no conversion, sinking fund, redemption rights
or any preemptive rights to subscribe for any securities of the Company. See
"Description of Capital Stock -- Restrictions on Ownership."
Subject to the provisions of the Articles of Incorporation regarding the
consequences of actually or constructively owning shares of Common Stock in
violation of the Ownership Limit, all shares of Common Stock will have equal
dividend, distribution, liquidation and other rights, and will have no
preference, appraisal or exchange rights.
Pursuant to the MGCL, a Maryland corporation generally cannot dissolve,
amend its articles of incorporation, merge, sell all or substantially all of its
assets, engage in a share exchange or engage in similar transactions outside the
ordinary course of business unless approved by the affirmative vote or written
consent of stockholders holding at least two-thirds of the shares entitled to
vote on the matter unless a lesser percentage (but not less than a majority of
all of the votes entitled to be cast on the matter) is set forth in the
corporation's articles of incorporation. The Articles of Incorporation provides
that a majority of all of the votes entitled to be cast is the required vote of
stockholders in such situations, except that any proposal (i) to permit
cumulative voting in the election of directors, (ii) to alter provisions of the
Articles of Incorporation requiring
87
3
a majority of the directors to be independent directors or provisions of the
Articles of Incorporation relating to the classification of the Board of
Directors into three classes, removal of directors, preemptive rights,
indemnification of corporate agents and limitation of liability of officers and
directors or (iii) that would terminate the Company's status as a REIT for tax
purposes, requires, in each case, the approval of at least two-thirds of all of
the votes entitled to be cast on such matter. In addition, a number of other
provisions of the MGCL could have a significant effect on the Common Stock and
the rights and obligations of holders thereof. See "Certain Provisions of
Maryland Law and of the Company's Articles of Incorporation and Bylaws --
Control Share Acquisitions."
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time, in one or more
classes, as authorized by the Board of Directors. Prior to issuance of shares of
any such class, the Board of Directors is required by the MGCL and the Articles
of Incorporation to set for such class, subject to the provisions of the
Articles of Incorporation regarding Shares-in-Trust, the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption for
each class as are permitted by Maryland law. The Board of Directors could
authorize the issuance of shares of Preferred Stock with terms and conditions
which could have the effect of delaying, deferring, discouraging or preventing
an attempt by a third party to obtain control of the Company or other
transaction which holders of some, or a majority, of the shares might receive a
premium for their shares of Common Stock over the then prevailing market price
of such shares. As of the date hereof, no shares of Preferred Stock are
outstanding and the Company has no present plans to issue any shares of
Preferred Stock. If and when issued, the Preferred Stock will be subject to the
restrictions on ownership set forth below.
CLASSIFICATION OR RECLASSIFICATION OF COMMON STOCK OR PREFERRED STOCK
The Company's Articles of Incorporation authorizes the Board of Directors
to classify or reclassify any unissued shares of Common Stock or Preferred Stock
by setting or changing the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, distributions, qualifications
or terms or conditions of redemption.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of capital
stock. Specifically, not more than 50% in value of the Company's outstanding
shares may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year, and the Company must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. See "Federal Income Tax
Considerations -- Requirements for Qualification." In addition, the Company must
meet certain requirements regarding the nature of its gross income in order to
qualify as a REIT. One such requirement is that at least 75% of the Company's
gross income for each year must consist of rents from real property and income
from certain other real property investments. The rents received by the
Partnership from the Lessee would not qualify as rents from real property, which
would result in loss of REIT status for the Company, if the Company were at any
time to own, directly or constructively, 10% or more of the ownership interests
in the Lessee within the meaning of Section 856(d)(2)(B) of the Code. See
"Federal Income Tax Considerations -- Requirements for Qualification -- Income
Tests."
Because the Board of Directors believes it is essential for the Company to
qualify as a REIT, the Articles of Incorporation, subject to certain exceptions
described below, provides that no person may own, or be deemed to own by virtue
of the constructive ownership provisions of the Code, more than 9.8% of the
lesser in value of the total number or value of the outstanding shares of Common
Stock or the outstanding shares of Preferred Stock (the "Ownership Limit"). The
constructive ownership rules of the Code are complex and may cause shares owned
actually or constructively by two or more related individuals and/or entities to
be constructively owned by one individual or entity. As a result, the
acquisition of less than 9.8% of the outstanding shares of Common Stock or 9.8%
of the shares of Preferred Stock (or the acquisition of an interest in an entity
which owns the shares) by an individual or entity could cause that individual or
entity (or another individual or entity) to own constructively in excess of 9.8%
of the outstanding shares of Common
88
4
Stock or 9.8% of the outstanding shares of Preferred Stock, and thus subject
such shares to the Ownership Limit provisions of the Articles of Incorporation.
The Ownership Limit also prohibits any transfer of Common or Preferred Stock
that would (i) result in the Common and Preferred Stock being owned by fewer
than 100 persons (determined without reference to any rules of attribution),
(ii) result in the Company being "closely held" within the meaning of Section
856(h) of the Code, or (iii) cause the Company to own, directly or
constructively, 10% or more of the ownership interests in a tenant of the
Company's real property, within the meaning of Section 856(d)(2)(B) of the Code.
Except as otherwise provided below, any such acquisition or transfer of the
Company's capital stock (including any constructive acquisition or transfer of
ownership) shall be null and void, and the intended transferee or owner will
acquire no rights to, or economic interests in, the shares.
Subject to certain exceptions described below, any purported transfer of
Common or Preferred Stock that would (i) result in any person owning, directly
or indirectly, Common or Preferred Stock in excess of the Ownership Limit, (ii)
result in the Common and Preferred Stock being owned by fewer than 100 persons
(determined without reference to any rules of attribution), (iii) result in the
Company being "closely held" within the meaning of Section 856(h) of the Code,
or (iv) cause the Company to own, directly or constructively, 10.0% or more of
the ownership interests in a tenant of the Company's or the Partnership's real
property, within the meaning of Section 856(d)(2)(B) of the Code, will be
designated as "Shares-in-Trust" and transferred automatically to a trust (the
"Share Trust") effective on the day before the purported transfer of such Common
or Preferred Stock. The record holder of the Common or Preferred Stock that are
designated as Shares-in-Trust (the "Prohibited Owner") will be required to
submit such number of Common or Preferred Stock to the Share Trust for
designation in the name of the Share Trustee. The Share Trustee will be
designated by the Company. The beneficiary of the Share Trust (the
"Beneficiary") will be one or more charitable organizations that are named by
the Company.
Shares-in-Trust will remain issued and outstanding Common or Preferred
Stock and will be entitled to the same rights and privileges as all other shares
of the same class or series. The Share Trust will receive all dividends and
distributions on the Shares-in-Trust and will hold such dividends or
distributions in trust for the benefit of the Beneficiary. The Share Trustee
will vote all Shares-in-Trust. The Share Trustee will designate a permitted
transferee of the Shares-in-Trust, provided that the permitted transferee (i)
purchases such Shares-in-Trust for valuable consideration and (ii) acquires such
Shares-in-Trust without such acquisition resulting in a transfer to another
Share Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Share Trust the amount of any dividends or distributions received
by the Prohibited Owner (i) that are attributable to any Shares-in-Trust and
(ii) that the record date of which was on or after the date that such shares
became Shares-in-Trust. The Prohibited Owner generally will receive from the
Share Trustee the lesser of (i) the price per share such Prohibited Owner paid
for the Common or Preferred Stock that were designated as Shares-in-Trust (or,
in the case of a gift or devise, the Market Price (as defined below) per share
on the date of such transfer) and (ii) the price per share received by the Share
Trustee from the sale or other disposition of such Shares-in-Trust. Any amounts
received by the Share Trustee in excess of the amounts to be paid to the
Prohibited Owner will be distributed to the Beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in the
case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept such
offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust and (ii) the date the
Company determines in good faith that a transfer resulting in such
Shares-in-Trust occurred.
"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction
89
5
reporting system with respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the Common or Preferred Stock are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of Common or
Preferred Stock are listed or admitted to trading or, if the shares of Common or
Preferred Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price, or if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System or,
if such system is no longer in use, the principal other automated quotations
system that may then be in use or, if the shares of Common or Preferred Stock
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Common or Preferred Stock as selected by the Board of Directors. "Trading Day"
shall mean a day on which the principal national securities exchange on which
the shares of Common or Preferred Stock are listed or admitted to trading is
open for the transaction of business or, if the shares of Common or Preferred
Stock are not listed or admitted to trading on any national securities exchange,
shall mean 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.
Any person who acquires or attempts to acquire Common or Preferred Stock in
violation of the foregoing restrictions, or any person who owned shares of
Common or Preferred Stock that were transferred to a Share Trust, will be
required (i) to give immediately written notice to the Company of such event and
(ii) to provide to the Company such other information as the Company may request
in order to determine the effect, if any, of such transfer on the Company's
status as a REIT.
All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding shares of Common and Preferred Stock must within 30 days after
January 1 of each year, provide to the Company a written statement or affidavit
stating the name and address of such direct or indirect owner, the number of
shares of Common and Preferred Stock owned directly or indirectly, and a
description of how such shares are held. In addition, each direct or indirect
stockholder 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.
The Ownership Limit generally will not apply to the acquisition of shares
of Common or Preferred Stock by an underwriter that participates in a public
offering of such shares. In addition, the Board of Directors, upon receipt of a
ruling from the Service or an opinion of counsel and upon such other conditions
as the Board of Directors may direct, may exempt a person from the Ownership
Limit under certain circumstances. The foregoing restrictions will continue to
apply until the Board of Directors, with the approval of the holders of at least
two-thirds of the outstanding shares of all votes entitled to vote on such
matter at a regular or special meeting of the stockholders of the Company,
determines to terminate its status as a REIT.
The Ownership Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to remove any ownership concentration
limitation. Any change of the Ownership Limit would require an amendment to the
Articles of Incorporation. Such amendment requires the affirmative vote of
holders holding at least two-thirds of the outstanding shares entitled to vote
on the matter. In addition to preserving the Company's status as a REIT, the
Ownership Limit may have the effect of delaying, deferring, discouraging or
preventing an acquisition of control of the Company without the approval of the
Board of Directors.
All certificates representing shares of Common or Preferred Stock will bear
a legend referring to the restrictions described above.
90
6
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Articles of Incorporation and Bylaws of the Company is subject to and qualified
in its entirety by reference to the Articles of Incorporation and Bylaws of the
Company which are filed as exhibits to the Registration Statement of which this
Prospectus is a part.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Bylaws provide that the number of directors of the Company may be
established by the Board of Directors but may not be fewer than three nor more
than nine. The directors may increase the number of directors by a vote of a
least 80% of the members of the Board of Directors, provided that the number of
directors shall never be less than the number required by Maryland law and that
the tenure of office of a director shall not be affected by any decrease in the
number of directors. Any vacancy will be filled, including a vacancy created by
an increase in the number of directors, at any regular meeting or at any special
meeting called for that purpose, by a majority of the remaining directors,
except that a vacancy resulting from an increase in the number of directors must
be filled by a majority of the entire Board of Directors.
Pursuant to the Articles of Incorporation the Board of Directors will be
divided into three classes of directors. The initial terms of the first, second
and third classes will expire in 1997 and 1998, respectively. The term of the
two Class I directors elected at the 1996 annual meeting of stockholders expires
in 1999. As the term of each class expires, directors in that class will be
elected by the stockholders of the Company for a term of three years and until
their successors are duly elected and qualify. Classification of the Board of
Directors is intended to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Directors.
Holders of Common Stock will have no right to cumulative voting in the election
of directors. Consequently, at each annual meeting of stockholders, the holders
of a majority of the shares of Common Stock present in person or by proxy at
such meeting will be able to elect all of the successors of the class of
directors whose terms expire at that meeting.
The classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult, which
could delay, defer, discourage or prevent an attempt by a third party to obtain
control of the Company or other transaction, even though such an attempt or
other transaction might be beneficial to the Company and its stockholders. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board of Directors. Thus, the
classified board provision could increase the likelihood that incumbent
directors will retain their positions. See "Risk Factors -- Limitation on
Acquisition and Change of Control."
REMOVAL OF DIRECTORS
The Articles of Incorporation provide that a director may be removed with
or without cause by the affirmative vote of at least two-thirds of the votes
entitled to be cast in the election of directors. This provision when coupled
with the provision in the Bylaws authorizing the Board of Directors to fill
vacant directorships, could preclude stockholders from removing incumbent
directors except upon the existence of a substantial affirmative vote and by
filling the vacancies created by such removal with their own nominees upon the
affirmative vote of a majority of the votes entitled to be cast in the election
of directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Articles of Incorporation and Bylaws limit the liability of the
Company's directors and officers for money damages to the Company and its
stockholders to the fullest extent permitted from time to time by Maryland law.
Maryland law presently permits the liability of directors and officers to a
corporation or its stockholders for money damages to be limited, except (i) to
the extent that it is proved that the director or officer actually received an
improper benefit or profit, or (ii) to the extent that a judgment or other final
adjudication is entered in a proceeding based on a finding that the director's
or officer's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action, as adjudicated in the
91
7
proceeding. This provision does not limit the ability of the Company or its
stockholders to obtain other relief, such as an injunction or rescission.
The Articles of Incorporation and Bylaws require the Company to indemnify
its directors and officers to the fullest extent permitted from time to time by
Maryland law. The Company's Articles of Incorporation and Bylaws also permit the
Company to indemnify employees, agents and other persons acting on behalf of or
at the request of the Company. The MGCL permits a corporation to indemnify its
directors, officers and certain other parties against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service to or at the request of the Company, unless it is established
that: (i) the act or omission of the indemnified party was material to the
matter giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty; (ii) the indemnified party actually
received an improper personal benefit; or (iii) in the case of any criminal
proceeding, the indemnified party had reasonable cause to believe that the act
or omission was unlawful. Indemnification may be made against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by the
director or officer in connection with the proceeding; provided, however, that
if the proceeding is one by or in the right of the Company, indemnification may
not be made with respect to any proceeding in which the director or officer has
been adjudged to be liable to the Company. In addition, a director or officer
may not be indemnified with respect to any proceeding charging improper personal
benefit to the director or officer in which the director or officer was adjudged
to be liable on the basis that the personal benefit was improperly received. The
termination of any proceeding by conviction, or upon a plea of nolo contendere
or its equivalent, or an entry of any order of probation prior to judgment,
creates a rebuttable presumption that the director or officer did not meet the
requisite standard of conduct required for indemnification to be permitted.
Indemnification under the provisions of the MGCL is not deemed exclusive to any
other rights, by indemnification or otherwise, to which an officer or director
may be entitled under the Articles of Incorporation or Bylaws, or under
resolutions of stockholders or directors, contract or otherwise. It is the
position of the Commission that indemnification of directors and officers for
liabilities arising under the Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities Act.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of such corporation's shares or an affiliate of such corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of ten percent or more of the voting power of the
then-outstanding voting shares of such corporation (an "Interested Stockholder")
or an affiliate thereof are prohibited for five years after the most recent date
on which the Interested Stockholder became an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(a) 80% of the votes entitled to be cast by holders of outstanding voting shares
of such corporation and (b) two-thirds of the votes entitled to be cast by
holders of voting shares of such corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other things, the corporation's
stockholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares. These provisions of Maryland law
do not apply, however, to business combinations that are approved or exempted by
the board of directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. The Board of Directors has
exempted from these provisions of the MGCL any business combination with certain
officers and directors of the Company, including Messrs. Alter, Biederman and
Enever, and all present or future Affiliates or associates of, or any other
person acting in concert or as a group with, any of the foregoing persons and
any other business combination which may arise in connection with the Company
formation transactions generally.
92
8
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror, by officers or by directors who are
employees of the corporation. "Control Shares" are voting shares which, if
aggregated with all other such shares previously acquired by the acquiror, or in
respect of which the acquiror is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power: (i) one-fifth or more but less than one-third
(ii) one-third or more but less than a majority, or (iii) a majority or more of
all voting power. Control Shares do not include shares the acquiring person is
then entitled to vote as a result of having previously obtained stockholder
approval. A "control share acquisition" means the acquisition of control shares,
subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange, if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the articles of
incorporation or bylaws of the corporation.
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's Common Stock or Preferred Stock. There can be no assurance that such
provision will not be amended or eliminated at any time in the future.
AMENDMENTS TO THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation may only be amended by the affirmative vote
of the holders of not less than a majority of the votes entitled to be cast on
the matter, except that any proposal (i) to permit cumulative voting in the
election of directors, (ii) to alter provisions of the Articles of Incorporation
requiring a majority of the directors to be independent directors or provisions
of the Articles of Incorporation relative to the classification of the Company's
Board of Directors into three classes, removal of directors, preemptive rights,
indemnification of corporate agents and limitation of liability of officers and
directors, or (iii) that would terminate the Company's status as a REIT for tax
purposes, may not be amended, altered, changed or repealed without the
affirmative vote of at least two-thirds of all of the votes entitled to be cast
on the matter. Subject to the right of the Company's stockholders to adopt,
alter or repeal the Bylaws, the Bylaws may be amended by the Board of Directors,
except for provisions of the Bylaws relating to the sale of a Sunstone Hotel and
transactions involving the Company in which an advisor, director or officer has
an interest, which may be altered or repealed only upon the vote of stockholders
holding at least two-thirds of the outstanding shares of Common Stock entitled
to vote generally in the election of directors.
93