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EXHIBIT 3(i).1
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BAY APARTMENT COMMUNITIES, INC.
ARTICLES SUPPLEMENTARY (SERIES B CONVERTIBLE PREFERRED)
Bay Apartment Communities, Inc., a Maryland corporation (the
"Corporation"), having its principal office in San Jose, California, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors of
the Corporation by Article 7.2 of the Charter of the Corporation, the Board of
Directors has duly divided and classified 405,022 shares of the Preferred Stock
of the Corporation into a series designated Series B Preferred Stock and has
provided for the issuance of such series.
SECOND: Subject in all cases to the provisions of Article Tenth of the
Charter of the Corporation with respect to Excess Common Stock, the following is
a description of the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the Series B Preferred Stock of the Corporation:
(1) DESIGNATION AND AMOUNT.
The designation of the Preferred Stock described in Article First hereof
shall be "Series B Convertible Preferred Stock (par value $.01 per share)"
(hereinafter, the "Series B Preferred"). The number of shares of the Series B
Preferred Stock to be authorized shall be 405,022. The Series B Preferred Stock
shall rank senior to the Corporation's Common Stock and on a pari passu basis
with the Corporation's Series A Preferred Stock with respect to the payment of
dividends. The Series B Preferred Stock shall have identical preferences, voting
powers, restrictions, limitations as to dividends, qualifications, terms and
conditions of redemption, conversion and other rights as the Series A Preferred
Stock.
(2) DIVIDEND RIGHTS.
(a) The holders of record of outstanding shares of Series B Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, cash dividends which are (1)
cumulative (2) preferential to the dividends paid on the Corporation's Common
Stock and pari passu with the dividends paid on the Corporation's Series A
Preferred Stock and (3) payable at an annual rate equal to the Series B Dividend
Amount (as defined below) and no more, on the fifteenth day of each February,
May, August and November following the date of original issuance of the Series B
Preferred
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Stock (the "Original Issue Date"). Each calendar quarter immediately preceding
the fifteenth day of February, May, August and November (or if the Original
Issue Date is not on the first day of a calendar quarter, the period beginning
on the date of issuance and ending on the last day of the calendar quarter of
issuance) is referred to hereinafter as a "Dividend Period." The initial per
share Series B Dividend Amount per annum shall be equal to $1.648. The amount of
dividends payable for each full Dividend Period for each share of the Series B
Preferred Stock shall be computed by dividing the per share Series B Dividend
Amount by four. The amount of dividends on the Series B Preferred Stock payable
for the initial Dividend Period, or any other period shorter or longer than a
full Dividend Period, shall be computed ratably on the basis of the actual
number of days in such Dividend Period. In the event of any change in the
quarterly cash dividend per share declared on the Common Stock after the date of
these Articles Supplementary, the quarterly cash dividend per share on the
Series B Preferred Stock shall be adjusted for the same Dividend Period by an
amount computed by multiplying the amount of the change in the Common Stock
dividend times the Conversion Ratio (as defined in Section 4.1).
(b) In the event the Corporation shall declare a distribution payable in
(i) securities of other persons, (ii) evidences of indebtedness issued by the
Corporation or other persons, (iii) assets (excluding cash dividends) or (iv)
options or rights to purchase capital stock or evidences of indebtedness in the
Corporation or other persons, then, in each such case for the purpose of this
Section 2(b), the holders of the Series B Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Series B Preferred Stock are or would be convertible (assuming such shares of
Series B Preferred Stock were then convertible).
(c) The Corporation shall not (i) declare or pay or set apart for payment
any dividends or distributions on any stock ranking as to dividends junior to
the Series B Preferred Stock (other than dividends paid in shares of such junior
stock) or (ii) make any purchase or redemption of, or any sinking fund payment
for the purchase or redemption of, any stock ranking as to dividends junior to
the Series B Preferred Stock (other than a purchase or redemption made by issue
or delivery of such junior stock) unless all dividends payable on all
outstanding shares of Series B Preferred Stock for all past Dividend Periods
shall have been paid in full or declared and a sufficient sum set apart for
payment thereof, provided, however, that any moneys theretofore deposited in any
sinking fund with respect to any preferred stock of the Corporation in
compliance with the provisions of such sinking fund may thereafter be applied to
the purchase or redemption of such preferred stock in accordance with the terms
of such sinking fund.
(d) All dividends declared on shares of Series B Preferred Stock and any
other class of preferred stock or series thereof ranking on a parity as to
dividends with the Series B Preferred Stock and the Series A Preferred Stock
shall be declared pro rata, so that the amounts of dividends declared per share
on the Series B Preferred Stock and Series A
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Preferred Stock for the Dividend Period of the Series B Preferred Stock and
Series A Preferred Stock ending either on the same day or within the dividend
period of such other stock, shall, in all cases, bear to each other the same
ratio that accrued dividends per share on the shares of Series B Preferred
Stock, Series A Preferred Stock and such other stock bear to each other.
(3) LIQUIDATION RIGHTS.
(a) Subject to any prior rights of any class or series of stock, in the
event of any liquidation, dissolution, or winding up of the Corporation, either
voluntary or involuntary, the holders of Series B Preferred Stock shall be
entitled to receive, on a pari passu basis with the holders of the Corporation's
Series A Preferred Stock and prior and in preference to any distribution of any
of the assets or surplus funds of the Corporation to the holders of Common Stock
by reason of their ownership of such stock, an amount equal to all accrued but
unpaid dividends for each share of Series B Preferred Stock then held by them.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Series B Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid amounts to which they
are entitled, then, subject to any prior rights of any classes or series of
stock, the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably to the holders of the Series A
Preferred Stock and Series B Preferred Stock, and any other shares of Stock on a
parity for liquidation purposes in proportion to the aggregate amounts owed to
each such holder.
(b) Subject to any prior rights of any other class or series of stock,
after the payment or setting apart of payment to the holders of Series B
Preferred Stock of the full preferential amounts to which they shall be entitled
pursuant to Section 3(a) above, the holders of record of the Series B Preferred
Stock shall be treated pari passu with the holders of record of Series A
Preferred Stock and Common Stock, with each holder of record of Series B
Preferred Stock being entitled to receive, in addition to the amounts payable
pursuant to Section 3(a) above, that amount which such holder would be entitled
to receive if such holder had converted all its Series B Preferred Stock into
Common Stock immediately prior to the liquidating distribution in question.
(4) CONVERSION.
4.1 RIGHT TO CONVERT.
Beginning on October 2, 1998, the holders of shares of Series B
Preferred Stock shall have the right, at their option, to convert each such
share, at any time and from time to time, into one (the "Conversion Ratio,"
which shall be subject to adjustment as hereinafter provided) fully paid
and nonassessable share of Common Stock; provided, however, that no holder
of Series B Preferred Stock shall be entitled to convert shares of such
Series B Preferred Stock into Common Stock pursuant to the foregoing
provision, if, immediately after
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such conversion, such person would be the Beneficial Owner of more than
4.9% of the Corporation's outstanding Common Stock (the "4.9% Limitation").
Beneficial Owner shall have the meaning set forth in Rule 13d-3 under the
Securities Exchange Act of 1934 (or any successor provision thereto).
Notwithstanding the foregoing, such conversion right may be exercised at
any time after the Original Issue Date and irrespective of the 4.9%
Limitation (and no such limit shall apply) if any of the following
circumstances occurs:
(i) For any two consecutive fiscal quarters, the aggregate amount
outstanding as of the end of the quarter under (1) all mortgage
indebtedness of the Corporation and its consolidated entities and (2)
unsecured indebtedness of the Corporation and its consolidated
entities exceeds sixty-five percent (65%) of the amount arrived at by
(A) taking the Corporation's consolidated gross revenues less
property-related expenses, including real estate taxes, insurance,
maintenance and utilities, but excluding depreciation, amortization,
interest and corporate general and administrative expenses, for the
quarter in question and the immediately preceding quarter, (B)
multiplying the amount in clause A by two (2), and (C) dividing the
resulting product in clause B by nine percent (9%) (all as such items
of indebtedness, revenues and expenses are reported in consolidated
financial statements contained in the Corporation's Forms 10-K and
Forms 10-Q as filed with the Securities and Exchange Commission); or
(ii) Gilbert M. Meyer has ceased to be an executive officer of
the Corporation, unless the holders of a majority of the shares of the
Series B Preferred Stock then outstanding have voted on and approved a
replacement for Mr. Meyer and the replacement remains an executive
officer of the Corporation; or
(iii) If (A) the Corporation shall be party to, or shall have
entered into an agreement for, any transaction (including, without
limitation, a merger, consolidation, statutory share exchange or sale
of all or substantially all of its assets (each of the foregoing a
"Transaction")), in each case as a result of which shares of Common
Stock shall have been or will be converted into the right to receive
stock, securities or other property (including cash or any combination
thereof) or which has resulted or will result in the holders of Common
Stock immediately prior to the Transaction owning less than 50% of the
Common Stock after the Transaction, or (B) a "change of control" as
defined in the next sentence occurs with respect to the Corporation. A
change of control shall mean the acquisition (including by virtue of a
merger, share exchange or other business combination) by one
stockholder or a group of stockholders acting in concert of the power
to elect a majority of the Corporation's board of directors. The
Corporation shall notify the holders of Series B Preferred Stock
promptly if any of the events listed in this Section 4.1(iii) shall
occur.
Calculations set forth in Section 4.1(i) shall be made without regard
to unconsolidated indebtedness incurred as a joint venture partner, and the
effect of any unconsolidated joint venture, including any income from such
unconsolidated joint venture, shall be excluded for
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purposes of the calculation set forth in Section 4.1(i).
4.2 MANDATORY CONVERSION.
On October 2, 2005 (the "Mandatory Conversion Date"), each issued and
outstanding share of Series B Preferred Stock which has not been converted
to Common Stock shall mandatorily convert to that number of fully paid and
nonassessable shares of Common Stock equal to the Conversion Ratio, as
adjusted, regardless of the 4.9% Limitation. From and after the Mandatory
Conversion Date, certificates representing shares of Series B Preferred
Stock shall be deemed to represent the shares of Common Stock into which
they have been converted. Following the Mandatory Conversion Date, the
holder of certificates for Series B Preferred Stock may surrender those
certificates at the office of any transfer agent for the Common Stock, or
if there is no such transfer agent, at the principal offices of the
Corporation, or at such other office as may be designated by the
Corporation, accompanied by instructions from the holder as to the name(s)
and address(es) in which such holder wishes the certificate(s) for the
shares of Common Stock issuable upon such conversion to be issued. Promptly
following surrender of certificates for Series B Preferred Stock after the
Mandatory Conversion Date, the Corporation shall issue and deliver at such
office a certificate or certificates for the number of whole shares of
Common Stock issuable upon mandatory conversion of the Series B Preferred
Stock to the person(s) entitled to receive the same. For purposes of
Sections 4.4 and 4.5 below, the Mandatory Conversion Date shall constitute
the Conversion Date.
4.3 PROCEDURE FOR CONVERSION.
In order to exercise its right to convert shares of Series B Preferred
Stock into Common Stock, the holder of shares of Series B Preferred Stock
shall surrender the certificate(s) therefor, duly endorsed if the
Corporation shall so require, or accompanied by appropriate instruments of
transfer satisfactory to the Corporation, at the office of any transfer
agent for the Series B Preferred Stock or if there is no such transfer
agent, at the principal offices of the Corporation, or at such other office
as may be designated by the Corporation, together with written notice that
such holder elects to convert such shares. Such notice shall also state the
name(s) and address(es) in which such holder wishes the certificate(s) for
the shares of Common Stock issuable upon conversion to be issued. As soon
as practicable after a conversion, the Corporation shall issue and deliver
at said office a certificate or certificates for the number of whole shares
of Common Stock issuable upon conversion of the shares of Series B
Preferred Stock duly surrendered for conversion, to the person(s) entitled
to receive the same. Shares of Series B Preferred Stock shall be deemed to
have been converted immediately prior to the close of business on the date
on which the certificates therefor and notice of intention to convert the
same are duly received by the Corporation in accordance with the foregoing
provisions, and the person(s) entitled to receive the Common Stock issuable
upon such conversion shall be deemed for all purposes as record holder(s)
of such Common Stock as of the close of business on such date (hereinafter,
the "Conversion Date").
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4.4 NO FRACTIONAL SHARES.
No fractional shares shall be issued upon conversion of the Series B
Preferred Stock into Common Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. As to any final
fraction of a share which the holder of one or more shares of Series B
Preferred Stock would be entitled to receive upon exercise of his
conversion right, the Corporation shall pay a cash adjustment in an amount
equal to the same fraction of the last sale price (or bid price if there
were no sales) per share of Common Stock on the New York Stock Exchange on
the business day which next precedes the Conversion Date or, if such Common
Stock is not then listed on the New York Stock Exchange, of the market
price per share (as determined in a manner prescribed by the Board of
Directors of the Corporation) at the close of business on the business day
which next precedes the Conversion Date.
4.5 PAYMENT OF ADJUSTED ACCRUED DIVIDENDS UPON CONVERSION.
On the next dividend payment date (or such later date as is permitted
in this Section 4.5) following any Conversion Date hereunder, the
Corporation shall pay in cash Adjusted Accrued Dividends (as defined below)
on shares of Series B Preferred Stock so converted. The holder shall be
entitled to receive accrued and unpaid dividends, if any, accrued to and
including the Conversion Date on the shares of Series B Preferred Stock
converted (assuming that such dividends accrue ratably each day that such
shares are outstanding based on the Dividend Amount for such quarter), less
an amount equal to the pre-conversion portion of the dividends paid on the
shares of Common Stock issued upon such conversion (the "Conversion
Stock"). (The record date for the Conversion Stock which occurs after the
Conversion Date is hereinafter referred to as the "Subsequent Record
Date.") The pre-conversion portion of such Conversion Stock dividend means
that portion of such dividend as is attributable to the period that (i)
begins on the day after the last Conversion Stock dividend record date
occurring before such Subsequent Record Date and (ii) ends on such
Conversion Date, assuming that such dividends accrue ratably during the
period. The term "Adjusted Accrued Dividends" means the amount arrived at
through the application of the foregoing formula. Adjusted Accrued
Dividends shall not be less than zero. The formula for Adjusted Accrued
Dividends shall be applied to effectuate the Corporation's intent that the
holder converting shares of Series B Preferred Stock to Conversion Stock
shall be entitled to receive dividends on such shares of Series B Preferred
Stock up to and including the Conversion Date and shall be entitled to the
dividends on the shares of Conversion Stock issued upon such conversion
which are deemed to accrue beginning on the first day after the Conversion
Date, but shall not be entitled to dividends attributable to the same
period for both the shares of Series B Preferred Stock converted and the
shares of Conversion Stock issued upon such conversion. The Corporation
shall be entitled to withhold (to the extent consistent with the intent to
avoid double dividends for overlapping portions of Series B Preferred Stock
and the Conversion Stock dividend periods) the payment of Adjusted Accrued
Dividends until the applicable Subsequent Record Date, even though such
date occurs after the applicable dividend payment date with respect to the
Series B Preferred Stock, in which event the Corporation shall mail to each
holder who
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converted Series B Preferred Stock a check for the Adjusted Accrued
Dividends thereon within five (5) business days after such Subsequent
Record Date. Adjusted Accrued Dividends shall be accompanied by an
explanation of how such Adjusted Accrued Dividends have been calculated.
Adjusted Accrued Dividends shall not bear interest.
4.6 ADJUSTMENTS.
(a) In the event the Corporation shall at any time (i) pay a dividend
or make a distribution to holders of Common Stock in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a larger
number of shares, or (iii) combine its outstanding shares of Common Stock
into a smaller number of shares, the Conversion Ratio shall be adjusted on
the effective date of the dividend, distribution, subdivision or
combination by multiplying the Conversion Ratio by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution, subdivision or
combination and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such dividend, distribution,
subdivision or combination.
(b) Whenever the Conversion Ratio shall be adjusted as herein
provided, the Corporation shall cause to be mailed by first class mail,
postage prepaid, as soon as practicable to each holder of record of shares
of Series B Preferred Stock a notice stating that the Conversion Ratio has
been adjusted and setting forth the adjusted Conversion Ratio, together
with an explanation of the calculation of the same.
(c) If the Corporation shall be party to any Transaction in each case
as a result of which shares of Common Stock shall be converted into the
right to receive stock, securities or other property (including cash or any
combination thereof), the holder of each share of Series B Preferred Stock
shall have the right in connection with such Transaction to convert such
share, pursuant to the optional conversion provisions hereof, into the
number and kind of shares of stock or other securities and the amount and
kind of property receivable upon such Transaction by a holder of the number
of shares of Common Stock issuable upon conversion of such share of Series
B Preferred Stock immediately prior to such Transaction. The Corporation
shall not be party to any Transaction unless the terms of such Transaction
are consistent with the provisions of this Section 4.6(c), and it shall not
consent to or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or purchasing
entity, as the case may be, for the benefit of the holders of the Series B
Preferred Stock, thereby enabling the holders of the Series B Preferred
Stock to receive the benefits of this Section 4.6(c) and the other
provisions of these Articles Supplementary. Without limiting the generality
of the foregoing, provision shall be made for adjustments in the Conversion
Ratio which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 4.6(a). The provisions of this Section
4.6(c) shall similarly apply to successive Transactions.
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(d) In the event that the Corporation shall propose to effect any
Transaction which would result in an adjustment under Section 4.6(c), the
Corporation shall cause to be mailed to the holders of record of Series B
Preferred Stock at least 20 days prior to the record date for such
Transaction a notice stating the date on which such Transaction is expected
to become effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
Transaction. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of such Transaction.
4.7 OTHER.
(a) The Corporation shall at all times reserve and keep available out
of its authorized but unissued Common Stock the maximum number of shares of
Common Stock issuable upon the conversion of all shares of Series B
Preferred Stock then outstanding, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series B
Preferred Stock, in addition to such other remedies as shall be available
to the holders of such Series B Preferred Stock, the Corporation shall take
such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
(b) The Corporation shall pay any taxes that may be payable in respect
of the issuance of shares of Common Stock upon conversion of shares of
Series B Preferred Stock, but the Corporation shall not be required to pay
any taxes which may be payable in respect of any transfer of shares of
Series B Preferred Stock or any transfer involved in the issuance of shares
of Common Stock in a name other than that in which the shares of Series B
Preferred Stock so converted are registered, and the Corporation shall not
be required to transfer any such shares of Series B Preferred Stock or to
issue or deliver any such shares of Common Stock unless and until the
person(s) requesting such transfer or issuance shall have paid to the
Corporation the amount of any such taxes, or shall have established to the
satisfaction of the Corporation that such taxes have been paid.
(c) The Corporation will not, by amendment of the Articles of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Corporation, but will at all times in good faith assist in carrying out
of all the provisions of these Articles Supplementary and in the taking of
all such action as may be necessary or appropriate to protect the
conversion rights of the holders of the Series B Preferred Stock against
impairment.
(d) Holders of Series B Preferred Stock shall be entitled to receive
copies of all communications by the Corporation to its holders of Common
Stock, concurrently with the
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distribution to such shareholders.
(5) VOTING RIGHTS.
(a) Except as indicated in this Section 5, or except as otherwise from time
to time required by applicable law, the holders of shares of Series B Preferred
Stock will have no voting rights.
(b) If six quarterly dividends (whether or not consecutive) payable on
shares of Series B Preferred Stock or on any series of preferred stock which
ranks pari passu with the Series B Preferred Stock as to dividends (the "Parity
Stock") are in arrears, the number of directors then constituting the Board of
Directors of the Corporation will be increased by two, and the holders of the
shares of Series B Preferred Stock, voting together as a class with the holders
of shares of any other series of Parity Stock entitled to such voting rights
(any such other series, the "Voting Preferred Stock"), will have the right to
elect two additional directors to serve on the Corporation's Board of Directors
at any annual meeting of stockholders or a properly called special meeting of
the holders of Series B Preferred Stock and such other Voting Preferred Stock
until all such dividends have been declared and paid or set aside for payment.
The term of office of all directors so elected will terminate with the
termination of such voting rights.
(c) The approval of two-thirds of the outstanding Series B Preferred Stock
and all other series of Voting Preferred Stock similarly affected, voting as a
single class, is required in order to amend the Corporation's Articles
Supplementary or Charter to affect materially and adversely the rights,
preferences or voting power of the holder of shares of Series B Preferred Stock
or the Voting Preferred Stock. For purposes of the foregoing, the creation of a
new class of stock having rights, preferences or privileges senior to, on a
parity with or junior to the rights, preferences or privileges of the Series B
Preferred Stock shall not be treated as a material adverse change in the rights,
preferences or privileges of the Series B Preferred Stock, and the holders of
Series B Preferred Stock shall not have any right to vote on the creation of
such new class of stock.
(d) Except as provided above and as required by law, the holders of Series
B Preferred Stock are not entitled to vote on any merger or consolidation
involving the Corporation, on any share exchange or on a sale of all or
substantially all of the assets of the Corporation.
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(6) REACQUIRED SHARES.
Shares of Series B Preferred Stock converted, redeemed or otherwise
purchased or acquired by the Corporation shall be restored to the status of
authorized but unissued shares of preferred stock without designation as to
series.
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed
in its name and on its behalf by its President and witnessed by its Secretary on
May 6, 1996.
WITNESS: BAY APARTMENT COMMUNITIES, INC.
By
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, Assistant Secretary Gilbert M. Meyer, Chairman of the
Board and President
THE UNDERSIGNED, President of Bay Apartment Communities, Inc. who executed
on behalf of the Corporation the Articles Supplementary of which this
Certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles Supplementary to be the corporate act of
said Corporation and hereby certifies that the matters and facts set forth
herein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
(SEAL)
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Gilbert M. Meyer, Chairman of the Board
and President