Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
APPLE HOSPITALITY TWO, INC.
ARTICLE I
NAME
The name of the corporation (the "Corporation") is Apple Hospitality
Two, Inc.
ARTICLE II
PURPOSE
The Corporation is organized for the purpose of operating as a "real
estate investment trust," as defined in the Internal Revenue Code of 1986, as
the same may be amended from time to time (the "Code"), and to acquire, own,
operate, manage, lease, finance, refinance, dispose of and otherwise deal with
real property (and personal property incidental thereto), and shall have the
power to conduct all lawful activities incidental or related thereto, and to
engage in any lawful business.
ARTICLE III
AUTHORIZED SHARES
3.1 Number and Designation. The number and designation of shares that
the Corporation shall have authority to issue are as follows:
Class Number of Shares
----- ----------------
Common 200,000,000
Preferred 215,240,000
The Common Shares and the Preferred Shares shall have no par value per
share. The Preferred Shares may be issued from time to time in one or more
series. Notwithstanding anything to the contrary in these Articles of
Incorporation, the Board of Directors, by adoption of an amendment of these
Articles of Incorporation, may fix in whole or in part the preferences,
limitations and relative rights, within the limits set forth in the Virginia
Stock Corporation Act, of any series within the Preferred Shares before the
issuance of any shares of that series.
3.2 Preemptive Rights. No holder of outstanding shares shall have any
preemptive right with respect to (i) any shares of the Corporation of any class,
whether now or hereafter authorized, (ii) any warrants, rights or options to
purchase any such shares, or (iii) any obligations convertible into any such
shares or into warrants, rights or options to purchase any such shares.
3.3 Debt Securities. The Board of Directors may, in its discretion,
authorize and issue any notes, bonds, debentures or other obligations of the
Corporation, including any obligations maturing more than one year after the
date of issuance thereof, whether or not secured by assignment, pledge or
mortgage of any property of the Corporation, on such terms and at such prices as
the Board of Directors in its sole discretion may in good faith determine.
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ARTICLE IV
COMMON SHARES
4.1 Voting Rights. The holders of the outstanding Common Shares shall,
to the exclusion of the holders of any other class of shares of the Corporation,
have the sole power to vote for the election of directors and for all other
purposes without limitation, except (i) as otherwise provided in the Articles of
Amendment establishing any series of preferred shares, or (ii) as may be
required by law.
4.2 Distributions. The Board of Directors shall have the authority to
declare dividends from funds available for such purposes under the Virginia
Stock Corporation Act and shall declare such dividends to the extent necessary
to ensure the Corporation's qualification as a real estate investment trust
under the Code. Subject to the rights of the holders of shares, if any, ranking
senior to the Common Shares as to dividends or rights in liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
outstanding Common Shares shall be entitled to receive, if, when and as declared
by the Board of Directors, dividends and distributions of the net assets of the
Corporation upon the liquidation, dissolution or winding up of the affairs of
the Corporation.
ARTICLE V
PREFERRED SHARES
5.1 Series A Preferred Shares. There are hereby designated Two Hundred
Million (200,000,000) Series A Preferred Shares, no par value (the "Series A
Preferred Shares"). The Series A Preferred Shares shall have the following
preferences, limitations and relative rights:
(a) Relationship to Common Shares. For each Common Share issued,
each recipient will, in addition, receive one of the Series A Preferred Shares.
No
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additional amount is due for each share of Series A Preferred that accompanies
each Common Share. If the Corporation shall (i) pay a dividend on its
outstanding Common Shares in Common Shares or subdivide or otherwise split its
outstanding Common Shares, or (ii) combine its outstanding Common Shares into a
smaller number of shares, the Series A Preferred Shares will be adjusted
accordingly so that the ratio of Common Shares to Series A Preferred Shares will
always remain one to one . A Series A Preferred Share shall not be separately
tradable from each Common Share to which it relates.
(b) Liquidation. In the event of liquidation, dissolution or winding
up of the affairs of the Corporation, the holders of the outstanding Series A
Preferred Shares shall be entitled to be paid in cash out of the net assets of
the Corporation, including its capital, a liquidation payment of $10.00 per
Series A Preferred Share, as such amount may be adjusted to reflect any and all
adjustments made to the Common Shares, including but not limited to, any
combinations, consolidations, recapitalizations, stock splits, stock dividends
and the like, and no more, before any distribution or payment shall be made to
the holders of any other shares of the Corporation. The balance of such assets,
if any, shall be paid to the holders of the shares of the Corporation ranking
junior to the Series A Preferred Shares as to rights in liquidation, according
to their respective rights. For the purposes set forth in the preceding language
of this Section 5.1(b), neither the consolidation of the Corporation with, nor
the merger of the Corporation into, any other corporation, nor the lease of all,
or substantially all, of the Corporation's properties and assets shall, without
further corporate action, be deemed a liquidation, dissolution or winding up of
the affairs of the Corporation. If the net assets of the Corporation are
insufficient to pay to the holders of the Series A Preferred Shares the full
amounts to
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which they are respectively entitled, the entire net assets of the Corporation
remaining shall be distributed ratably to the holders of the Series A Preferred
Shares.
(c) Distributions. Other than the distribution to the holders of the
Series A Preferred Shares pursuant to Section 5.1(b), the holders of the Series
A Preferred Shares shall have no other distribution rights associated with such
shares.
(d) Voting Rights.
(i) Except for the voting rights expressly conferred by this
Section 5.1(d), and except to the extent provided by law, the holders of the
outstanding Series A Preferred Shares shall not be entitled (x) to vote on any
matter, or (y) to receive notice of, or to participate in, any meeting of
shareholders of the Corporation at which they are not entitled to vote.
(ii) The affirmative vote of the holders of more than two-thirds
of the outstanding Series A Preferred Shares shall be required for (x) the
adoption of any amendment, alteration or repeal of any provision of the Articles
of Incorporation of the Corporation that adversely changes the preferences,
limitations or relative rights of the Series A Preferred Shares or the holders
thereof (it being understood that an increase in the number of directors of the
Corporation is not such an adverse change), or (y) the authorization of, or the
increase in the authorized number of shares of, any class of shares ranking
senior to or on a parity with the Series A Preferred Shares as to rights in
liquidation.
(iii) Whenever the holders of Series A Preferred Shares are
entitled to vote as a separate voting group on any matter pursuant to the
provisions of paragraph (ii) of this Section 5.1(d), the vote required to
approve such matter shall be the
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affirmative vote of more than two-thirds of all the votes entitled to be cast by
that voting group, with each share having one vote.
(e) Conversion. The Series A Preferred Shares shall have no
conversion rights.
5.2 Series B Convertible Preferred Shares. There are hereby designated
Two Hundred Forty Thousand (240,000) Series B Convertible Preferred Shares, no
par value (the "Series B Convertible Preferred Shares"). The Series B
Convertible Preferred Shares shall have the following preferences, limitations
and relative rights:
(a) Dividends. The holders of the outstanding Series B Convertible
Preferred Shares shall not be entitled to receive dividends on such Series B
Convertible Preferred Shares.
(b) Voting Rights.
(i) Except for the voting rights expressly conferred by this
Section 5.2(b), and except to the extent provided by law, the holders of the
outstanding Series B Convertible Preferred Shares shall not be entitled (x) to
vote on any matter, or (y) to receive notice of, or to participate in, any
meeting of shareholders of the Corporation at which they are not entitled to
vote.
(ii) The affirmative vote of the holders of more than two-thirds
of the outstanding Series B Convertible Preferred Shares shall be required for
(x) the adoption of any amendment, alteration or repeal of any provision of the
Articles of Incorporation of the Corporation that adversely changes the
preferences, limitations or relative rights of the Series B Convertible
Preferred Shares or the holders thereof (it being understood that an increase in
the number of directors of the Corporation is not such an
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adverse change), or (y) the authorization of, or the increase in the authorized
number of shares of, any class of shares ranking senior to or on a parity with
the Series B Convertible Preferred Shares as to rights in liquidation.
(iii) Whenever the holders of Series B Convertible Preferred
Shares are entitled to vote as a separate voting group on any matter pursuant to
the provisions of paragraph (ii) of this Section 5.2(b), the vote required to
approve such matter shall be the affirmative vote of more than two-thirds of all
the votes entitled to be cast by that voting group, with each share having one
vote.
(c) Redemption. The Corporation may not redeem all or any portion of
the outstanding Series B Convertible Preferred Shares.
(d) Liquidation. In the event of the liquidation, dissolution or
winding up of the affairs of the Corporation, subject to the rights of the
holders of the Series A Preferred Shares, the holders of the outstanding Series
B Convertible Preferred Shares shall be entitled to be paid in cash out of the
net assets of the Corporation, including its capital, a liquidation payment of
$10.00 per number of Common Shares each Series B Convertible Preferred Share
would be convertible into according to the formula contained in Section
5.2(e)(i), and no more, before any distribution or payment shall be made to the
holders of any shares of the Corporation ranking junior to the Series B
Convertible Preferred Shares. For the purposes of the preceding sentence,
neither the consolidation of the Corporation with nor the merger of the
Corporation into any other corporation, nor the lease of all, or substantially
all, of the Corporation's properties and assets shall, without further corporate
action, be deemed a liquidation, dissolution or winding up of the affairs of the
Corporation. The cash payment conferred by this Section 5.2(d) to the
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holders of the Series B Convertible Shares will be made only to the extent the
Series B Convertible Preferred Shares have not been previously converted. If the
net assets of the Corporation are insufficient to pay to the holders of the
Series B Convertible Preferred Shares the full amounts to which they are
respectively entitled, the entire net assets of the Corporation remaining shall
be distributed ratably to the holders of the Series B Convertible Preferred
Shares and the holders of other preferred shares, if any, ranking on a parity
with the Series B Convertible Preferred Shares as to rights in liquidation in
proportion to the full amounts to which they are respectively entitled. After
the payment of (i) full liquidation preference of the Series A Preferred set
forth in Section 5.1(b) above and (ii) full liquidation preference of the Series
B Convertible Preferred set forth in this section 5.2(d), the remaining net
assets of the Corporation, if any, shall be distributed ratably to the holders
of Common Shares and Series B Convertible Preferred Shares on an as-if-converted
to Common Shares basis.
(e) Conversion.
(i) Each holder of outstanding Series B Convertible Preferred
Shares shall have the right to convert any of such shares into Common Shares of
the Corporation upon and for 180 days following the occurrence of either of the
following events: (x) the transfer of substantially all of the Corporation's
assets, shares or business, whether through exchange, merger, consolidation,
lease, share exchange or otherwise, or (y) the termination or expiration without
renewal of the Advisory Agreement with the Advisor, and if the Corporation
ceases to use the Property Broker to provide substantially all of its property
acquisition and disposition services. Upon the occurrence of either such event,
each Series B Convertible Preferred Share may be converted into a number of
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Common Shares based upon the gross proceeds raised through the date of
conversion in the public offering or offerings of the Corporation's Common
Shares made by the Corporation's Prospectus according to the following formula:
Number of Common Shares through
Gross Proceeds Raised From Sales of Conversion of One Series B Convertible Preferred Share
Common Shares through Date of Conversion (the initial "Conversion Ratio")
- ----------------------------------------------------------- --------------------------------------------------------
$50 million 1.0
- ----------------------------------------------------------- --------------------------------------------------------
$100 million 2.0
- ----------------------------------------------------------- --------------------------------------------------------
$150 million 3.5
- ----------------------------------------------------------- --------------------------------------------------------
$200 million 5.3
- ----------------------------------------------------------- --------------------------------------------------------
(ii) Each holder of outstanding Series B Convertible Preferred
Shares may exercise the conversion right provided in paragraph (e)(i) above as
to all or any portion of the shares he holds by delivering to the Corporation
during regular business hours, at the principal office of the Corporation or at
such other place as may be designated in writing by the Corporation, the
certificate or certificates for the shares to be converted, duly endorsed or
assigned in blank or endorsed or assigned to the Corporation (if so required),
or if such shares are not evidenced by a certificate or certificates, a written
notice of election, accompanied in either such case by written notice stating
that the holder elects to convert such shares and stating the name or names
(with address and applicable social security or other tax identification number)
in which the Common Shares are to be issued. Conversion shall be deemed to have
been effected on the date (the "Conversion Date") when such delivery is made. As
promptly as practicable thereafter, the Corporation shall issue and deliver to
or upon the written order of such holder, at such office or other place
designated by the Corporation, a certificate or
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certificates for the number of Common Shares to which he is entitled (or shall
cause such Common Shares to be duly issued as required herein, if the Common
Shares are uncertificated). The person in whose name the Common Shares are to be
issued shall be deemed to have become a shareholder of record on the Conversion
Date, unless the transfer books of the Corporation are closed on that date, in
which event he shall be deemed to have become a shareholder of record on the
next succeeding date on which the transfer books are open; but the Conversion
Ratio shall be that in effect on the Conversion Date. The Corporation may issue
fractional Common Shares upon conversion of Series B Convertible Preferred
Shares.
(iii) The issuance of Common Shares on conversion of outstanding
Series B Convertible Preferred Shares shall be made by the Corporation without
charge for expenses or for any tax in respect of the issuance of such Common
Shares, but the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
Common Shares in any name other than that of the holder of record on the books
of the Corporation of the outstanding Series B Convertible Preferred Shares
converted, and the Corporation shall not be required to issue or deliver any
certificate for Common Shares unless and until the person requesting the
issuance thereof shall have paid to the Corporation the amount of such tax or
shall have established to the satisfaction of the Corporation that such tax has
been paid.
(iv) The term "Fair Market Value" of one Common Share, as used in
this Section 5.2(e) shall, if the Common Shares are traded in the
over-the-counter market, be deemed to be the mean between the bid and asked
prices on the date the value
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is required to be determined, as reported by NASDAQ or any similar service, and
if the Common Shares are listed and traded on a national stock exchange, be
deemed to be the closing price of the Common Shares for such day derived from
the New York Stock Exchange Composite Tape or any similar service; provided,
however, that if the Common Shares are not traded on that date, then the Fair
Market Value shall be determined, in the manner hereinabove set forth, on the
most recent preceding business day on which the Common Shares were traded;
provided further, however, that if the Fair Market Value of the Common Shares
cannot be determined in accordance with the foregoing provisions (for example,
if the Common Shares are not traded), the Fair Market Value of the Common Shares
shall be determined in good faith by the Corporation's Board of Directors. The
term "Conversion Ratio," as used herein, shall mean, as of any date, the number
of Common Shares into which each Series B Convertible Preferred Share is
convertible on that date. The initial Conversion Ratio shall be as set forth in
Section 5.2(e)(i), but shall be adjusted as described below.
(v) The Conversion Ratio shall be subject to the following
adjustments:
(a) If the Corporation shall (y) pay a dividend on its outstanding
Common Shares in Common Shares or subdivide or otherwise split its
outstanding Common Shares, or (z) combine its outstanding Common Shares
into a smaller number of shares, the Conversion Ratio shall be adjusted so
that the holder of any Series B Convertible Preferred Shares surrendered
for conversion after such event shall be entitled to receive the same
aggregate number of
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Common Shares that he would have been entitled to receive had such shares
been converted immediately prior to any such event and such event had then
occurred.
(b) If the Corporation shall issue rights, warrants or options to all
holders of its Common Shares entitling them to subscribe for or purchase
Common Shares at a price per share which is less than the Current Market
Value per share (as hereinafter defined) on the record date mentioned
below, the Conversion Ratio shall be adjusted to an amount determined by
multiplying the Conversion Ratio in effect immediately prior to the
issuance of such rights, warrants or options by a fraction, (y) the
numerator of which shall be the number of Common Shares outstanding at the
close of business on the date of issuance of such rights, warrants or
options plus the number of additional Common Shares offered for
subscription pursuant to such rights, warrants or options and (z) the
denominator of which shall be the number of Common Shares outstanding at
the close of business on the date of issuance of such rights, warrants or
options plus the number of Common Shares which the aggregate exercise price
of all such rights, warrants or options would purchase at such Current
Market Value. Such adjustment shall be retroactively effective to the time
immediately after the record date for the determination of the shareholders
entitled to receive such rights, warrants or options. For the purposes of
this Section 5.2(e)(v), the "Current Market Value" per Common Share on any
date shall be deemed to be the average of the Fair Market Value of one
Common Share (as defined in Section 5.2(e)(iv)) on each of the 20
consecutive trading days commencing 40 trading days before such date (a
trading day being a day on which
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securities are traded in the over-the-counter market or, if the Common
Shares are then listed on any national stock exchange, on such exchange),
and if the Common Shares are not then traded, the Fair Market Value of one
Common Share (as determined under Section 5.2(e)(iv)) as of the date in
question.
(c) If the Corporation shall make a distribution to all holders of its
Common Shares of evidences of its indebtedness or assets (excluding
dividends paid in cash out of funds available for dividends in accordance
with applicable law), or rights, warrants or options to subscribe for or
purchase securities of the Corporation (other than those referred to in
subparagraph (b) of this Section 5.2(e)(v)), the Conversion Ratio
immediately prior to such distribution shall be adjusted to an amount
determined by multiplying such Conversion Ratio by a fraction, (y) the
numerator of which shall be the Current Market Value of one Common Share
(as defined in subparagraph (b) of this Section 5.2(e)(v)), and (z) the
denominator of which shall be the Current Market Value of one Common Share
on the next full business day after the record date fixed for the
determination of the shareholders entitled to such distribution less the
fair value (as conclusively determined in good faith by the Board of
Directors of the Corporation) at the time of such distribution of that
portion of the evidences of indebtedness, assets, or the rights, warrants
or options, distributed which is applicable to one Common Share. Such
adjustment shall be retroactively effective to a time immediately after
such record date.
(vi) Notwithstanding any of the foregoing provisions of this
Section 5.2(e), no adjustment of the Conversion Ratio shall be made (i) if the
Corporation
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shall issue Common Shares or rights, warrants or options to purchase Common
Shares pursuant to one or more stock purchase plans, stock option plans, stock
purchase contracts, incentive compensation plans, or other remuneration plans
for employees (including officers) or directors of the Corporation or its
Subsidiaries adopted or approved as required by law at any time or, (ii) in
respect of any right granted by the Corporation to all holders of its Common
Shares to purchase Common Shares at a discount from their Current Market Value
by the reinvestment of dividends paid on its Common Shares.
(vii) If any Series B Convertible Preferred Shares are converted
into Common Shares after the record date for the occurrence of any of the events
described in subparagraphs (a), (b) or (c) of Section 5.2(e)(v) but before the
occurrence of such event, the Corporation may defer, until the occurrence of
such event, issuing to the holder of Series B Convertible Preferred Shares so
converted the Common Shares which he is entitled to receive because of the
adjustments required pursuant to any such subparagraph.
(viii) Whenever there is a required adjustment to the Conversion
Ratio, such adjustment shall be made to the Conversion Ratio applicable to each
step in the formula set forth in Section 5.2(e)(i) so that the adjustment given
effect at the time of conversion is applied to the Conversion Ratio applicable
to the amount of gross proceeds raised through the date of conversion. Anything
in this Section 5.2(e) to the contrary notwithstanding, no adjustment to the
Conversion Ratio shall be required unless such adjustment would require an
increase or decrease of at least 0.1 in such ratio; provided, however, that any
adjustments which by reason of this Section 5.2(e) are not required to
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be made shall be carried forward and taken into account in making subsequent
adjustments. All calculations under this Section 5.2(e) shall be made to the
nearest 0.01.
(ix) Whenever the Conversion Ratio is adjusted pursuant to this
Section 5.2(e), the Corporation shall (i) promptly place on file at its
principal office and at the office of each transfer agent, if any, for the
Series B Convertible Preferred Shares, a statement, signed by the Chairman or
President of the Corporation showing in detail the facts requiring such
adjustment and a computation of the adjusted Conversion Ratio, and shall make
such statement available for inspection by shareholders of the Corporation, and
(ii) cause a notice to be mailed to each holder of record of outstanding Series
B Convertible Preferred Shares stating that such adjustment has been made and
setting forth the adjusted Conversion Ratio.
(x) In the event of any reclassification or recapitalization of
the outstanding Common Shares (except a change in par value, or from no par
value to par value, or subdivision or other split or combination of shares), or
in case of any consolidation or merger to which the Corporation is a party,
except a merger in which the Corporation is the surviving corporation and which
does not result in any such reclassification or recapitalization, or in case of
any sale or conveyance to a person or another business entity of all or
substantially all of the property of the Corporation, the Corporation or the
successor or purchasing business entity shall provide (i) that the holder of
each Series B Convertible Preferred Share then outstanding shall thereafter have
the right to convert such share into the kind and amount of stock and other
securities and property receivable, upon such reclassification,
recapitalization, consolidation, merger, sale or conveyance, by a holder of the
number of Common Shares of the Corporation into
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which such Series B Convertible Preferred Shares might have been converted, and
(ii) that there shall be subsequent adjustments of the Conversion Ratio which
shall be equivalent, as nearly as practicable, to the adjustments provided for
in this Section 5.2(e). The provisions of this paragraph (x) of this Section
5.2(e) shall similarly apply to successive reclassifications, recapitalizations,
consolidations, mergers, sales or conveyances.
(xi) Common Shares issued on conversion of Series B Convertible
Preferred Shares shall be issued as fully paid shares and shall be nonassessable
by the Corporation. The Corporation shall, at all times, reserve and keep
available, for the purpose of effecting the conversion of the outstanding Series
B Convertible Preferred Shares, such number of its duly authorized Common Shares
as shall be sufficient to effect the conversion of all of the outstanding Series
B Convertible Preferred Shares.
(xii) Series B Convertible Preferred Shares converted as provided
herein shall not again become available for issuance.
5.3 Series C Convertible Preferred Shares. There are hereby designated
One Million Two Hundred Seventy-Two Thousand (1,272,000) Series C Convertible
Preferred Shares, no par value (the "Series C Convertible Preferred Shares").
The Series C Convertible Preferred Shares shall have the following preferences,
limitations and relative rights:
(a) Dividends and Distribution.
(i) The holders of the outstanding Series C Convertible Preferred
Shares shall be entitled to receive if, when and as declared by the
Board of Directors from funds available for such purposes under the
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Virginia Stock Corporation Act dividends in a per share amount equal
to the per share amount of any dividend declared on the Common Shares
multiplied by the number of Common Shares into which each Series C
Convertible Preferred Share would be convertible according to Section
5.3(d) immediately after the close of business on the record date
fixed for such dividend. The Corporation shall not declare or pay
dividends on the Common Shares without declaring and paying the
dividends contemplated by this Section 5.3(a).
(ii) The Corporation shall not make a distribution to all holders
of its Common Shares of evidences of its indebtedness or assets
(excluding dividends paid in cash out of funds available for dividends
in accordance with applicable law or payments in the event of
liquidation, dissolution or winding up of the affairs of the
Corporation), or rights, warrants or options to subscribe for or
purchase securities of the Corporation, unless the Corporation makes
such distribution to the holders of the outstanding Series C
Convertible Preferred Shares so that each such holder receives the
same distribution as a holder of the number of Common Shares into
which such Series C Convertible Preferred Shares would be convertible
according to Section 5.3(d) immediately after the close of business on
the record date fixed for such distribution.
(b) Liquidation. In the event of liquidation, dissolution or winding
up of the affairs of the Corporation, subject to the rights of the holders of
the Series A Preferred Shares and Series B Convertible Preferred Shares, if any,
the holders of the
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outstanding Series C Convertible Preferred Shares shall be entitled to be paid
in cash out of the net assets of the Corporation, including its capital, a
liquidation payment of $10.00 per the number of Common Shares the Series C
Convertible Preferred Shares would be convertible into according to Section
5.3(d), (as such amount may be adjusted to reflect any and all adjustments made
to the Common Shares, including but not limited to, any combinations,
consolidations, recapitalizations, stock splits, stock dividends and the like),
and no more, before any distribution or payment shall be made to the holders of
any shares of the Corporation ranking junior to the Series C Convertible
Preferred Shares. For the purposes of the preceding sentence, neither the
consolidation of the Corporation with nor the merger of the Corporation into any
other corporation, nor the lease of all, or substantially all, of the
Corporation's properties and assets shall, without further corporate action, be
deemed a liquidation, dissolution or winding up of the affairs of the
Corporation. The cash payment conferred by this Section 5.3(b) to the holders of
Series C Convertible Preferred Shares will be made only to the extent the Series
C Convertible Preferred Shares have not been previously converted. If the net
assets of the Corporation are insufficient to pay to the holders of the Series C
Convertible Preferred Shares the full amounts to which they are respectively
entitled, the entire net assets of the Corporation remaining shall be
distributed ratably to the holders of the Series C Convertible Preferred Shares
and the holders of other preferred shares, if any, ranking on a parity with the
Series C Convertible Preferred Shares as to rights in liquidation in proportion
to the full amounts to which they are respectively entitled. After payment of
(i) full liquidation preference of the Series A Preferred Shares set forth in
Section 5.1(b) above and (ii) full liquidation preference of the Series B
Convertible Preferred Shares, if any, set forth in
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Section 5.2(d) and the Series C Convertible Preferred Shares set forth in this
Section 5.3(b), the remaining assets of the Corporation, if any, shall be
distributed ratably to the holders of Common Shares, the Series B Convertible
Preferred Shares, if any, on an as-if-converted to Common Shares basis and
Series C Convertible Preferred Shares on an as-if-converted to Common Shares
basis.
(c) Voting Rights.
(i) The holders of the outstanding Series C Convertible Preferred
Shares shall be entitled (x) except to the extent otherwise provided by law, to
vote together with the Common Shares on any matter, with each Series C
Convertible Preferred Share having a number of votes equal to the number of
Common Shares into which each Series C Convertible Preferred Share would be
convertible pursuant to Section 5.3(d) immediately after the close of business
on the record date fixed for the meeting called to consider, or effective date
of the written consent with respect to, such matter, and (y) to receive notice
of, or to participate in, any meeting of holders of Common Shares of the
Corporation at which the holders of Common Shares are entitled to vote.
(ii) In addition to the voting rights set forth in Section
5.3(c)(i), the affirmative vote of the holders of more than two-thirds of the
outstanding Series C Convertible Preferred Shares shall be required for (x) the
adoption of any amendment, alteration or repeal of any provision of the Articles
of Incorporation of the Corporation that adversely changes the preferences,
limitations or relative rights of the Series C Convertible Preferred Shares or
the holders thereof (it being understood that an increase in the number of
directors of the Corporation is not such as adverse change), or (y) the
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authorization of, or the increase in the authorized number of shares of, any
class of shares ranking senior to or on a parity with the Series C Convertible
Preferred Shares as to rights in liquidation.
(iii) Whenever the holders of Series C Convertible Preferred
Shares are entitled to vote as a separate voting group on any matter pursuant to
the provisions of paragraph (ii) of this Section 5.3(c), the vote required to
approve such matter shall be the affirmative vote of more than two-thirds of all
the votes entitled to be cast by that voting group, with each share having one
vote.
(d) Conversion.
(i) Each holder of outstanding Series C Convertible Preferred
Shares shall have the right to convert any of such shares into Common Shares of
the Corporation (together with any Series A Preferred Shares issued with respect
thereto pursuant to Section 5.1) upon and for 180 days following the occurrence
of either of the following events: (x) the transfer of substantially all of the
Corporation's assets, shares or business as a going concern, whether through
exchange, merger, consolidation, lease, share exchange or otherwise, other than
a sale of assets in liquidation, dissolution or winding up of the affairs of the
Corporation, or (y) the listing of the Common Shares (together with any related
Series A Preferred Shares) on a national exchange or quotation system or in any
established market. Upon the occurrence of either such event, each Series C
Convertible Preferred Share may be converted into one Common Share, subject to
adjustment as described below, together with any Series A Preferred Shares
issued with respect thereto pursuant to Section 5.1.
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(ii) If the Corporation shall (y) pay a dividend on its
outstanding Common Shares in Common Shares or subdivide or otherwise split its
outstanding Common Shares, or (z) combine its outstanding Common Shares into a
smaller number of shares, the number of Common Shares issuable upon conversion
by a holder of Series C Convertible Preferred Shares shall be adjusted so that
the holder of any Series C Convertible Preferred Shares surrendered for
conversion after such event shall be entitled to receive the same aggregate
number of Common Shares that he would have been entitled to receive had such
shares been converted immediately prior to any such event and such event had
then occurred.
(iii) Each holder of outstanding Series C Convertible Preferred
Shares may exercise the conversion right provided in paragraph d(i) above as to
all or any portion of the shares he holds by delivering to the Corporation
during regular business hours, at the principal office of the Corporation or at
such other place as may be designated in writing by the Corporation, the
certificate or certificates for the shares to be converted, duly endorsed or
assigned in blank or endorsed or assigned to the Corporation (if so required),
or is such shares are not evidenced by a certificate or certificates, a written
notice of election, accompanied in either such case by written notice stating
that the holder elects to convert such shares and stating the name or names
(with address and applicable social security or other tax identification number)
in which the Common Shares (and any related Series A Preferred Shares) are to be
issued. Conversion shall be deemed to have been effected on the date (the
"Conversion Date") when such delivery is made. As promptly as practicable
thereafter, the Corporation shall issue and deliver to or upon the written order
of such holder, at such office or other place designated by the
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Corporation, a certificate or certificates for the number of Common Shares (and
any related Series A Preferred Shares) to which he is entitled (or shall cause
such Common Shares (and any related Series A Preferred Shares) to be duly issued
as required herein, if the Common Shares (and any related Series A Preferred
Shares) are uncertificated). The person in whose name the Common Shares (and any
related Series A Preferred Shares) are to be issued shall be deemed to have
become a shareholder of record on the Conversion Date, unless the transfer books
of the Corporation are closed on that date, in which event he shall be deemed to
have become a shareholder of record on the next succeeding date on which the
transfer books are open. The Corporation may issue fractional Common Shares (and
any related Series A Preferred Shares) upon conversion of Series C Convertible
Preferred Shares.
(iv) The issuance of Common Shares (and any related Series A
Preferred Shares) on conversion of outstanding Series C Convertible Preferred
Shares shall be made by the Corporation without charge for expenses or for any
tax in respect of the issuance of such Common Shares (and any related Series A
Preferred Shares), but the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of Common Shares (and any related Series A Preferred Shares) in any
name other than that of the holder of record on the books of the Corporation of
the outstanding Series C Convertible Preferred Shares converted, and the
Corporation shall not be required to issue or deliver any certificate for Common
Shares (and any related Series A Preferred Shares) unless and until the person
requesting the issuance thereof shall have paid to the Corporation the amount of
such tax or shall have established to the satisfaction of the Corporation that
such tax has been paid.
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(v) In the event of any reclassification or recapitalization of
the outstanding Common Shares (except a charge in par value, or from no par
value to par value, or subdivision or other split or combination of shares), or
in case of any consolidation or merger to which the Corporation is a party,
except a merger in which the Corporation is the surviving corporation and which
does not result in any such reclassification or recapitalization, the
Corporation or the successor entity shall provide (i) that the holder of each
Series C Convertible Preferred Share then outstanding shall thereafter have the
right to convert such share into the kind and amount of stock and other
securities and property receivable, upon such reclassification,
recapitalization, consolidation or merger by a holder of the number of Common
Shares of the Corporation into which such Series C Convertible Preferred Shares
might have been converted, and (ii) that there shall be subsequent adjustments
of the number of Common Shares into which each Series C Convertible Preferred
Shares is convertible which shall be equivalent, as nearly as practicable, to
the adjustments provided for in this Section 5.3(d). The provisions of this
paragraph (v) of this Section 5.3(d) shall similarly apply to successive
reclassifications, recapitalizations, consolidations, mergers or conveyances.
(vi) Common Shares (and any related Series A Preferred Shares)
issued on conversion of Series C Convertible Preferred Shares shall be issued as
fully paid shares and shall be nonassessable by the Corporation. The Corporation
shall, at all times, reserve and keep available, for the purpose of effecting
the conversion of the outstanding Series C Convertible Preferred Shares, such
number of its duly authorized Common Shares as shall be sufficient to effect the
conversion of all of the outstanding Series C Convertible Preferred Shares.
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(vii) Series C Convertible Preferred Shares converted as provided
herein shall not again become available for issuance.
ARTICLE VI
LIMIT ON LIABILITY AND INDEMNIFICATION
6.1 Limit on Liability. In every instance in which the Virginia Stock
Corporation Act, as it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of liability of directors or officers of a
corporation to the corporation or its shareholders, the directors and officers
of the Corporation shall not be liable to the Corporation or its shareholders.
6.2 Mandatory Indemnification. The Corporation shall indemnify any
individual who is, was or is threatened to be made a party to a civil, criminal,
administrative, investigative or other proceeding (including a proceeding by or
in the right of the Corporation or by or on behalf of its shareholders) because
such individual is or was a director or officer of the Corporation or of any
legal entity controlled by the Corporation, or is or was a fiduciary of any
employee benefit plan established at the direction of the Corporation, against
all liabilities and reasonable expenses incurred by him on account of the
proceeding, provided that the directors of the Corporation (excluding the
indemnified party) determine in good faith that his course of conduct which
caused the loss or liability was in the best interests of the Corporation, and
provided further that such liabilities and expenses were not incurred because of
his willful misconduct, bad faith, reckless disregard of duties or knowing
violation of the criminal law. Before any indemnification is paid, a
determination shall be made that indemnification is permissible in the
circumstances because the person seeking
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indemnification is eligible for indemnification and has met the standard of
conduct set forth above. Such determination shall be made in the manner provided
by Virginia law for determining that indemnification of a director is
permissible, provided, however, that if a majority of the directors of the
Corporation has changed after the date of the alleged conduct giving rise to a
claim for indemnification, the determination that indemnification is permissible
shall, at the option of the person claiming indemnification, be made by special
legal counsel agreed upon by the Board of Directors and such person. Unless a
determination has been made that indemnification is not permissible, the
Corporation shall make advances and reimbursement for expenses incurred by any
person named above upon receipt of an undertaking from him to repay the same if
it is ultimately determined that such individual is not entitled to
indemnification. The Corporation is authorized to contract in advance to
indemnify any of the persons named above to the extent it is required to
indemnify them pursuant to the provisions of this Section 6.2.
Notwithstanding the above, indemnification will not be allowed for any
liability imposed by judgment, and costs associated therewith, including
attorneys' fees, arising from or out of a violation of federal or state
securities laws associated with the public offering of the Common Shares unless
(i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee, or
(ii) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (iii) a court of
competent jurisdiction approves a settlement of the claims against a particular
indemnitee.
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6.3 Miscellaneous. The rights of each person or entity entitled to
indemnification under this Article shall inure to the benefit of such person's
or entity's heirs, executors, administrators, successors or assigns.
Indemnification pursuant to this Article shall not be exclusive of any other
right of indemnification to which any person or entity may be entitled,
including indemnification pursuant to a valid contract, indemnification by legal
entities other than the Corporation, and indemnification under policies of
insurance purchased and maintained by the Corporation or others. However, no
person or entity shall be entitled to indemnification by the Corporation to the
extent such person or entity is indemnified by another, including an insurer.
6.4 Amendments. No amendment, modification or repeal of this Article
shall diminish the rights provided hereunder to any person or entity arising
from conduct or events occurring before the adoption of such amendment,
modification or repeal.
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ARTICLE VII
BOARD OF DIRECTORS
The number of directors of the Corporation shall be fixed in the
bylaws. The number of directors shall be divided into three groups with each
group containing one third of the total, as nearly equal in number as possible.
The terms of the directors in the first group shall expire at the first annual
meeting of shareholders. The terms of the directors in the second group shall
expire at the second annual meeting of shareholders and the terms of directors
in the third group shall expire at the third annual meeting of shareholders. At
each annual meeting of shareholders, one group of directors shall be elected for
a term of three years to succeed those whose terms expire.
ARTICLE VIII
AMENDMENT OF ARTICLES;
SHAREHOLDER VOTE ON CERTAIN MATTERS
8.1 Amendment of Articles. These Articles (other than Article VII) may
be amended at any time, and from time to time, upon the vote of the holders of a
majority of the issued and outstanding Common Shares of the Corporation. Article
VII of these Articles may be amended at any time, and from time to time, upon
the vote of the holders of more than two-thirds of the issued and outstanding
Common Shares of the Corporation.
8.2 Votes on Certain Matters. The Corporation's shareholders, by vote
of the holders of a majority of the issued and outstanding Common Shares of the
Corporation, may vote to approve a plan of merger, share exchange or
dissolution, or to sell, lease, exchange, or otherwise dispose of all, or
substantially all, of the Corporation's property otherwise than in the usual and
regular course of business.
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ARTICLE IX
DEFINITIONS AND INTERPRETATIONS
9.1 Definitions. As used in these Articles, unless the context
otherwise requires, the following terms shall have the following meanings:
"Advisor" means the company with which the Corporation first enters
into an advisory agreement (and any successor in interest to such company which
is an affiliate of such company).
"Advisory Agreement" means the Advisory Agreement between the
Corporation and the Advisor, as it may be in effect from time to time.
"Property Broker" means the company with which the Corporation first
enters into a property acquisition/disposition agreement (and any successor in
interest to such company which is an affiliate of such company).
"Prospectus" means the final version of the prospectus of the
Corporation in connection with the registration of certain of the Corporation's
Common Shares under a registration statement filed with the United States
Securities and Exchange Commission on Form S-11, as amended and supplemented.
"Subsidiary" means any corporation a majority of the outstanding voting
shares of which is owned, directly or indirectly, by the Corporation, by one or
more Subsidiaries of the Corporation or by the Corporation and one or more
Subsidiaries of the Corporation.
9.2 Interpretations. For the purpose of these Articles, the shares of
any class of the Corporation shall be deemed to rank as follows:
(a) senior to a series of preferred shares, either as to dividends
or as to rights in liquidation, if the holders of such shares shall be entitled
to the receipt of dividends or of amounts distributable upon the liquidation,
dissolution or winding up of
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the affairs of the Corporation, as the case may be, in preference or priority to
the holders of that series of preferred shares;
(b) on a parity with a series of preferred shares, either as to
dividends or as to rights in liquidation, whether or not the dividend rates,
dividend payment dates, or redemption or liquidation prices per share thereof be
different from those of that series of preferred shares, if the holders of such
shares shall be entitled to the same rights of that series of that series of
preferred shares as to the receipt of dividends or of amounts distributable upon
the liquidation, dissolution or winding up of the affairs of the Corporation, as
the case may be, in proportion to their respective dividend rates or liquidation
prices, without preference or priority of one over the other as between the
holders of such shares; and
(c) junior to a series of preferred shares, either as to dividends
or as to rights in liquidation, if such shares shall be Common Shares or if the
holders of the series of preferred shares shall be entitled to the receipt of
dividends or of amounts distributable upon the liquidation, dissolution or
winding up of the affairs of the Corporation, as the case may be, in preference
or priority to the holders of such shares.
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