Exhibit 3.1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
NNN APARTMENT REIT, INC.
FIRST: NNN Apartment REIT, Inc., a Maryland corporation, desires to amend
and restate its Charter as currently in effect and as hereinafter amended.
SECOND: The following provisions are all the provisions of the Charter
currently in effect and as hereinafter amended:
ARTICLE I
NAME
The name of the corporation is NNN Apartment REIT, Inc. (the
"Corporation").
ARTICLE II
PURPOSES AND POWERS
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging in
business as a real estate investment trust under Sections 856 through 860, or
any successor sections, of the Internal Revenue Code of 1986, as amended (the
"Code")), for which corporations may be organized under the MGCL and the general
laws of the State of Maryland as now or hereafter in force.
ARTICLE III
RESIDENT AGENT AND PRINCIPAL OFFICE
The name and address of the resident agent for service of process of the
Corporation in the State of Maryland is CSC-Lawyers Incorporating Service
Company, 11 East Chase Street, Baltimore, Maryland 21202. The resident agent is
a Maryland corporation. The address of the Corporation's principal office in the
State of Maryland is 11 East Chase Street, Baltimore, Maryland 21202. The
Corporation may have such other offices and places of business within or outside
the State of Maryland as the board may from time to time determine.
ARTICLE IV
DEFINITIONS
As used in the Charter, the following terms shall have the following
meanings unless the context otherwise requires:
Acquisition Expenses. Any and all expenses related to the selection,
evaluation and acquisition of, and investment in, properties, whether or not
acquired or made, including, but not limited to, legal fees and expenses, travel
and communications expenses, cost of appraisals and surveys, nonrefundable
option payments on property not acquired, accounting fees and expenses, computer
use related expenses, architectural, engineering and other property reports,
environmental and asbestos audits, title insurance and escrow fees, loan fees or
any fee of a similar nature paid to a third party, however, designated, transfer
taxes and personnel and miscellaneous expenses related to the selection,
evaluation and acquisition of properties.
Acquisition Fees. The total of any and all fees and commissions, exclusive
of Acquisition Expenses, paid by any Person to any other Person (including any
fees or commissions paid by or to any Affiliate of the Corporation or the
Advisor) in connection with the purchase, development or construction of any
Property, including, without
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limitation, real estate commissions, acquisition fees, finder's fees, selection
fees, non-recurring management fees, consulting fees, loan fees or points or any
fee of a similar nature, however designated.
Advisor. The Person appointed, employed or contracted with by the
Corporation pursuant to Section 8.1 hereof and responsible for directing or
performing the day-to-day business affairs of the Corporation, including any
Person to whom the Advisor subcontracts all or substantially all of such
functions.
Advisory Agreement. The agreement between the Corporation and the Advisor
pursuant to which the Advisor will direct or perform the day-to-day business
affairs of the Corporation.
Affiliate. An Affiliate of another Person includes any of the following:
(a) any Person directly or indirectly owning, controlling or
holding, with the power to vote, 10% or more of the outstanding voting
securities of such other Person;
(b) any Person 10% or more of whose outstanding voting securities
are directly or indirectly owned, controlled or held, with the power to
vote, by such other Person;
(c) any Person directly or indirectly controlling, controlled by or
under common control with such other Person;
(d) any executive officer, director, trustee or general partner of
such other Person; and
(e) any legal entity for which such Person acts as an executive
officer, director, trustee or general partner.
Average Invested Assets. For a specified period, the average of the
aggregate book value of the assets of the Corporation invested, directly or
indirectly in real estate assets or in equity interests in and loans secured by
real estate, before deducting depreciation, bad debts or other non-cash
reserves, computed by taking the average of such values at the end of each month
during such period.
Capital Stock. All classes or series of stock of the Corporation,
including Common Stock and Preferred Stock.
Charter. The charter of the Corporation.
Code. The term shall have the meaning as provided in Article II herein.
Common Stock. The term shall have the meaning as provided in Section 5.1
herein.
Common Stockholders. The registered holders of Common Stock.
Competitive Real Estate Commission. A real estate or brokerage commission
paid for the purchase or sale of a property that is reasonable, customary and
competitive in light of the size, type and location of the property.
Contract Purchase Price. The amount actually paid or allocated in respect
of the purchase, development, construction or improvement of a property
exclusive of Acquisition Fees and Acquisition Expenses.
Corporation. The term shall have the meaning as provided in Article I
herein.
Gross Proceeds. The aggregate purchase price of all Shares sold for the
account of the Corporation through an Offering, without deduction for Selling
Commissions, volume discounts, any marketing support and due diligence expense
reimbursement or Organizational and Offering Expenses. For the purpose of
computing Gross Proceeds, the purchase price of any Share for which reduced
Selling Commissions are paid (where net proceeds to the Corporation are not
reduced) shall be deemed to be the full amount of the offering price per Share
pursuant to the Prospectus for such Offering without reduction.
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Independent Directors. The directors of the Corporation who are not
associated and have not been associated within the last two years, directly or
indirectly, with the Sponsor or Advisor of the Corporation.
(a) A director shall be deemed to be associated with the Sponsor or
Advisor if he or she:
(i) owns an interest in the Sponsor, Advisor or any of their
Affiliates;
(ii) is employed by the Sponsor, Advisor or any of their Affiliates;
(iii) is an officer or director of the Sponsor, Advisor or any of
their Affiliates;
(iv) performs services, other than as a director, for the
Corporation;
(v) is a director for more than three REITs organized by the Sponsor
or advised by the Advisor; or
(vi) has any material business or professional relationship with the
Sponsor, Advisor or any of their Affiliates.
(b) Notwithstanding the foregoing, and consistent with (a)(v) above,
serving as a director of or owning an interest in a REIT or other real estate
program organized by the Sponsor or advised or managed by the Advisor or its
Affiliates shall not, by itself, cause a director to be deemed associated with
the Sponsor or the Advisor.
(c) For purposes of determining whether or not a business or professional
relationship is material pursuant to (a)(vi) above, the gross revenue derived by
the director from the Sponsor, Advisor and their Affiliates shall be deemed
material per se if it exceeds 5% of the director's:
(i) annual gross revenue, derived from all sources, during either of
the last two years; or
(ii) net worth, on a fair market value basis.
(d) An indirect relationship shall include circumstances in which a
director's spouse, parents, children, siblings, mothers- or fathers-in-law,
sons- or daughters-in-law or brothers- or sisters-in-law are or have been
associated with the Sponsor, Advisor, any of their Affiliates or the
Corporation.
Independent Expert. A Person or entity with no material current or prior
business or personal relationship with the Advisor or directors and who is
engaged to a substantial extent in the business of rendering opinions regarding
the value of assets of the type held by the Corporation.
Initial Investment. A contribution of at least $200,000 by the Advisor or
an Affiliate thereof to acquire an equity interest in the Corporation or its
subsidiaries pursuant to Section II.A of the NASAA REIT Guidelines.
Leverage. The aggregate amount of indebtedness of the Corporation for
money borrowed (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.
Listing. The listing of the shares of Capital Stock on i) the New York
Stock Exchange, the American Stock Exchange, or the National Market System of
the Nasdaq Stock Market (or any successor to such entities), or ii) a national
securities exchange (or tier or segment thereof) that has listing standards that
the U.S. Securities and Exchange Commission has determined by rule are
substantially similar to the listing standards applicable to securities
described in Section 18(b)(1)(A) of the Securities Act of 1933, as amended. Upon
such Listing, the shares of Capital Stock shall be deemed Listed.
MGCL. The Maryland General Corporation Law, as amended from time to time.
NASAA REIT Guidelines. The Statement of Policy Regarding Real Estate
Investment Trusts published by the North American Securities Administrators
Association.
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Net Assets. The total assets of the Corporation (other than intangibles)
at cost, before deducting depreciation, bad debt or other non-cash reserves,
less total liabilities, calculated quarterly by the Corporation on a basis
consistently applied.
Net Income. For any period, total revenues applicable to such period less
the total expenses applicable to such period other than additions to or
allowances for reserves for depreciation, amortization or bad debts or other
similar non-cash reserves; provided, however, that Net Income shall exclude the
gain from the sale of the Corporation's assets.
Organizational and Offering Expenses. All expenses incurred by and to be
paid from the assets of the Corporation in connection with and in preparing the
Corporation for registration of and subsequently offering and distributing its
shares to the public, including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the underwriters'
attorneys); expenses for printing, engraving and mailing; salaries of employees
while engaged in sales activity; charges of transfer agents, registrars,
trustees, escrow holders, depositaries and experts; and expenses of
qualification of the sale of the securities under Federal and State laws,
including taxes and fees, accountants', consultants' and attorneys' fees and
expenses.
Person. An individual, corporation, partnership, estate, trust (including
a trust qualified under Sections 401(a) or 501(c)(17) of the Code), a portion of
a trust permanently set aside for or to be used exclusively for the purposes
described in Section 642(c) of the Code, association, private foundation within
the meaning of Section 509(a) of the Code, joint stock company or other entity
and also includes a group as that term is used for purposes of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended, and a group to which an
Excepted Holder Limit applies.
Preferred Stock. The term shall have the meaning as provided in Section
5.1 herein.
Prospectus. The term shall have the meaning as defined in Section 2(10) of
the Securities Act of 1933, as amended (the "Securities Act"), including a
preliminary prospectus, an offering circular as described in Rule 256 of the
General Rules and Regulations under the Securities Act or, in the case of an
intrastate offering, any document by whatever name known utilized for the
purpose of offering and selling securities to the public.
REIT. A corporation, trust, association or other legal entity (other than
a real estate syndication) that is engaged primarily in investing in equity
interests in real estate (including fee ownership and leasehold interests) or in
loans secured by real estate or both as defined in Sections 856 through 860 of
the Code and any successor or other provisions of the Code relating to REITs
(including provisions as to the attribution of ownership of beneficial interests
therein) and the regulations promulgated thereunder.
Roll-Up Entity. A partnership, real estate investment trust, corporation,
trust or similar entity that would be created or would survive after the
successful completion of a proposed Roll-Up Transaction.
Roll-Up Transaction. A transaction involving the acquisition, merger,
conversion or consolidation, either directly or indirectly, of the Corporation
and the issuance of securities of a Roll-Up Entity to the stockholders of the
Corporation.
Such term does not include:
(a) a transaction involving securities of the Corporation that have
been, for at least 12 months, Listed; or
(b) a transaction involving the conversion to corporate, trust or
association form of only the Corporation, if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following:
(i) the voting rights of Common Stockholders;
(ii) the term of existence of the Corporation;
(iii) Sponsor or Advisor compensation; or
(iv) the Corporation's investment objectives.
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SDAT. The State Department of Assessments and Taxation of Maryland.
Sponsor. Any Person directly or indirectly instrumental in organizing,
wholly or in part, the Corporation or any Person who will control, manage or
participate in the management of the Corporation and any Affiliate of such
Person. Not included is any Person whose only relationship with the Corporation
is that of an independent property manager of the Corporation's assets and whose
only compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants, consultants and underwriters whose only
compensation is for professional services. A Person may also be deemed a Sponsor
of the Corporation by:
(a) taking the initiative, directly or indirectly, in founding or
organizing the business or enterprise of the Corporation, either alone or
in conjunction with one or more other Persons;
(b) receiving a material participation in the Corporation in
connection with the founding or organizing of the business of the
Corporation, in consideration of services or property, or both services
and property;
(c) having a substantial number of relationships and contacts with
the Corporation;
(d) possessing significant rights to control the Corporation's
properties;
(e) receiving fees for providing services to the Corporation which
are paid on a basis that is not customary in the industry; or
(f) providing goods or services to the Corporation on a basis which
was not negotiated at arms length with the Corporation.
Total Operating Expenses. All expenses paid or incurred by the
Corporation, as determined under generally accepted accounting principles, that
are in any way related to the operation of the Corporation or to the
Corporation's business, including advisory fees, but excluding (a) the expenses
of raising capital such as Organizational and Offering Expenses, legal, audit,
accounting, underwriting, brokerage, listing, registration and other fees,
printing and other such expenses and taxes incurred in connection with the
issuance, distribution, transfer, registration and stock exchange listing of the
Capital Stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such
as depreciation, amortization and bad debt reserves; (e) incentive fees paid in
compliance with the NASAA REIT Guidelines; and (f) Acquisition Expenses, real
estate commissions on the resale of any property and other expenses connected
with the acquisition, disposition (whether by sale, exchange or condemnation),
management and ownership of real estate interests, mortgage loans or other
property (including the costs of foreclosure, insurance premiums, legal
services, maintenance, repair and improvement of property).
Unimproved Real Property. The real property of the Corporation that has
the following three characteristics:
(a) an equity interest in real property which has not been acquired
for the purpose of producing rental or other operating income;
(b) has no development or construction in process on such land; and
(c) no development or construction on such land is planned in good
faith to commence on such land within one year.
ARTICLE V
STOCK
SECTION 5.1. Authorized Shares. The Corporation has authority to issue
300,000,000 shares of common stock, $0.01 par value per share ("Common Stock"),
and 50,000,000 shares of preferred stock, $0.01 par value per share ("Preferred
Stock"). The aggregate par value of all authorized shares of Capital Stock
having par value is $3,500,000. The board of directors, with the approval of a
majority of the directors and without any action by the stockholders of the
Corporation, may amend the Charter from time to time to increase or decrease the
aggregate
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number of shares of Capital Stock or the number of shares of Capital Stock of
any class or series that the Corporation has authority to issue.
SECTION 5.2. Common Stock. Subject to the provisions of Article VI and
except as may otherwise be specified in the terms of any class or series of
Common Stock, each share of Common Stock shall entitle the holder thereof to one
vote on all matters upon which stockholders are entitled to vote pursuant to
Section 11.3 hereof. The board of directors may classify or reclassify any
unissued shares of Common Stock from time to time in one or more classes or
series of Capital Stock.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up, or any distribution of the assets of the Corporation, the
aggregate assets available for distribution to holders of the shares of Common
Stock shall be determined in accordance with applicable law. Each holder of
shares of Common Stock shall be entitled to receive, ratably with each other
holder of shares of Common Stock, that portion of such aggregate assets
available for distribution as the number of shares of outstanding Common Stock
held by such holder bears to the total number of outstanding shares of Common
Stock then outstanding.
(b) Except as may be provided otherwise in the Charter, and subject to the
express terms of any series of Preferred Stock, the holders of the shares of
Common Stock shall have the exclusive right to vote on all matters (as to which
a common stockholder shall be entitled to vote pursuant to applicable law) at
all meetings of the stockholders.
SECTION 5.3. Preferred Stock. The board of directors may classify any
unissued shares of Preferred Stock and reclassify any previously classified but
unissued shares of Preferred Stock of any series from time to time in one or
more series of Capital Stock.
SECTION 5.4. Classified or Reclassified Shares. Prior to the issuance of
classified or reclassified shares of any class or series, the board of directors
by resolution shall: (a) designate that class or series to distinguish it from
all other classes and series of Capital Stock; (b) specify the number of shares
to be included in the class or series; (c) set or change, subject to the
provisions of Article VI and subject to the express terms of any class or series
of Capital Stock outstanding at the time, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms and conditions of redemption for each
class or series; and (d) cause the Corporation to file articles supplementary
with the SDAT. Any of the terms of any class or series of Capital Stock set or
changed pursuant to clause (c) of this Section 5.4 may be made dependent upon
facts or events ascertainable outside the Charter (including determinations by
the board of directors or other facts or events within the control of the
Corporation) and may vary among holders thereof, provided that the manner in
which such facts, events or variations shall operate upon the terms of such
class or series of Capital Stock is clearly and expressly set forth in the
articles supplementary filed with the SDAT.
SECTION 5.5. Charter and Bylaws. The rights of all stockholders and the
terms of all Capital Stock are subject to the provisions of the Charter and the
bylaws of the Corporation.
SECTION 5.6. No Preemptive Rights. No holder of shares of Capital Stock of
any class shall have any preemptive right to subscribe for or purchase any
additional shares of any class, or any bonds or convertible securities of any
nature; provided, however, that the board of directors may, in authorizing the
issuance of shares of Capital Stock of any class, confer any preemptive right
that the board of directors may deem advisable in connection with such issuance.
SECTION 5.7. Issuance of Shares Without Certificates. Until Listing, the
Corporation shall not issue stock certificates. A stockholder's investment shall
be recorded on the books of the Corporation. To transfer his or her shares of
Capital Stock, a Stockholder shall submit an executed form to the Corporation,
which form shall be provided by the Corporation upon request. Such transfer will
also be recorded on the books of the Corporation. Upon issuance or transfer of
shares of Capital Stock, the Corporation will provide the Stockholder with
information concerning his or her rights with regard to such shares of Capital
Stock, as required by the bylaws and the MGCL or other applicable law.
SECTION 5.8. Suitability of Stockholders. Until Listing, the following
provisions shall apply:
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(a) To become a Common Stockholder in the Corporation, an individual
or fiduciary must represent to the Corporation:
(i) that such individual (or, in the case of a fiduciary, that
the beneficiary, fiduciary account, grantor or donor who directly or
indirectly supplies the funds to purchase the shares) has a minimum
annual gross income of $45,000 and a net worth (excluding home,
furnishings and automobiles) of not less than $45,000; or
(ii) that such individual (or, in the case of a fiduciary,
that the beneficiary, fiduciary account, grantor or donor who
directly or indirectly supplies the funds to purchase the shares)
has a net worth (excluding home, furnishings and automobiles) of not
less than $150,000; or
(iii) such other standards as may be established by individual
states.
(b) The Sponsor and each Person selling shares on behalf of the
Sponsor or the Corporation shall make every reasonable effort to determine
that the purchase of shares is a suitable and appropriate investment for
each Common Stockholder. In making this determination, the Sponsor or each
Person selling shares on behalf of the Sponsor or the Corporation shall
ascertain that the prospective Common Stockholder: (i) meets the minimum
income and net worth standards established for the Corporation; (ii) can
reasonably benefit from the Corporation based on the prospective
stockholder's overall investment objectives and portfolio structure; (iii)
is able to bear the economic risk of the investment based on the
prospective stockholder's overall financial situation; and (iv) has
apparent understanding of (1) the fundamental risks of the investment; (2)
the risk that the stockholder may lose the entire investment; (3) the lack
of liquidity of the shares; (4) the restrictions on transferability of the
shares; (5) the background and qualifications of the Sponsor or the
Advisor; and (6) the tax consequences of the investment. The Sponsor or
each Person selling shares on behalf of the Sponsor or the Corporation
shall make this determination on the basis of information it has obtained
from a prospective stockholder. Relevant information for this purpose will
include at least the age, investment objectives, investment experience,
income, net worth, financial situation and other investments of the
prospective stockholder, as well as any other pertinent factors. The
Sponsor or each Person selling shares on behalf of the Sponsor or the
Corporation shall maintain records of the information used to determine
that an investment in shares is suitable and appropriate for a Common
Stockholder. The Sponsor or each Person selling shares on behalf of the
Sponsor or the Corporation shall maintain these records for at least six
years.
SECTION 5.9. Dividend Reinvestment Plan. The board may establish, from
time to time, a dividend reinvestment plan. Under any dividend reinvestment
plan, (a) all material information regarding dividends to the Common
Stockholders and the effect of reinvesting such dividends, including the tax
consequences thereof, shall be provided to the Common Stockholders not less
often than annually, and (b) each Common Stockholder participating in such plan
shall have a reasonable opportunity to withdraw from the plan not less often
than annually after receipt of the information required in clause (a) above.
SECTION 5.10. Repurchase of Shares. The board of directors may establish,
from time to time, a program or programs by which the Corporation voluntarily
repurchases shares of Capital Stock from its stockholders; provided, however,
that such repurchase does not impair the capital or operations of the
Corporation. The Sponsor, Advisor, members of the board or any Affiliates
thereof may not receive any fees arising out of the repurchase of shares of
Capital Stock by the Corporation.
SECTION 5.11. Distributions. Only the board of directors may authorize
payments to stockholders in connection with their stock. The decision to
authorize a distribution, like all other board decisions, shall be made in good
faith, in a manner reasonably believed to be in the best interests of the
Corporation and with the care that an ordinarily prudent person in a like
position would use under similar circumstances. Until the board of directors
determines that it is no longer in the best interests of the Corporation to
qualify as a REIT, the board of directors must authorize dividends to the extent
necessary to preserve the status of the Corporation as a REIT.
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Distributions in kind shall not be permitted, except for distributions of
readily marketable securities, distributions of beneficial interests in a
liquidating trust established for the dissolution of the Corporation and the
liquidation of its assets in accordance with the terms of the Charter or
distributions that meet all of the following conditions: (a) the board of
directors advises each Common Stockholder of the risks associated with direct
ownership of the property, (b) the board of directors offers each Common
Stockholder the election of receiving such in-kind distributions and (c) in-kind
distributions are made only to those Common Stockholders who accept such offer.
SECTION 5.12. Actions Required if Common Stock Not Listed. If by 2013, the
shares of Common Stock are not Listed, then the board of directors must either
(a) adopt a resolution that sets forth a proposed amendment to the Charter
extending or eliminating this deadline (the "Extension Amendment"), declare that
the Extension Amendment is advisable and direct that the proposed Extension
Amendment be submitted for consideration at either an annual or special meeting
of the stockholders, or (b) adopt a resolution that declares a proposed
liquidation and dissolution is advisable on substantially the terms and
conditions set forth, or referred to, in the resolution (the "Plan of
Liquidation") and direct that the proposed Plan of Liquidation be submitted for
consideration at either an annual or special meeting of the stockholders. If the
board of directors seeks the Extension Amendment as described above and the
stockholders do not approve such amendment, then the board of directors shall
seek the Plan of Liquidation as described above. If the stockholders do not then
approve the Plan of Liquidation, the Corporation shall continue its business. If
the board of directors seeks the Plan of Liquidation as described above and the
stockholders do not approve such resolution, then the board of directors shall
seek the Extension Amendment as described above. If the stockholders do not then
approve the Extension Amendment, the Corporation shall continue its business.
ARTICLE VI
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
SECTION 6.1. Definitions. For the purpose of this Article VI, the
following terms shall have the following meanings:
Aggregate Stock Ownership Limit. 9.9% in value of the aggregate of the
outstanding shares of Capital Stock.
Beneficial Ownership. Ownership of Capital Stock by a Person, whether the
interest in the shares of Capital Stock is held directly or indirectly
(including by a nominee), and shall include interests that would be treated as
owned through the application of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code. The terms "Beneficial Owner," "Beneficially Owns,"
"Beneficially Owning" and "Beneficially Owned" shall have the correlative
meanings.
Benefit Plan Investor. The term shall have the meaning provided in Section
2510.3-101 of the Department of Labor regulations or any successor regulation
thereto.
Business Day. Any day, other than a Saturday or Sunday, that is neither a
legal holiday nor a day on which banking institutions in New York City are
authorized or required by law, regulation or executive order to close.
Charitable Beneficiary. One or more beneficiaries of the Trust as
determined pursuant to Section 6.3.6, provided that each such organization must
be described in Section 501(c)(3) of the Code and contributions to each such
organization must be eligible for deduction under each of Sections 170(b)(1)(A),
2055 and 2522 of the Code.
Common Stock Ownership Limit. 9.9% (in value or in number of shares,
whichever is more restrictive) of the aggregate of the outstanding shares of
Common Stock of the Corporation.
Constructive Ownership. Ownership of Capital Stock by a Person, whether
the interest in the shares of Capital Stock is held directly or indirectly
(including by a nominee), and shall include interests that would be treated as
owned through the application of Section 318(a) of the Code, as modified by
Section 856(d)(5) of the Code. The terms "Constructive Owner," "Constructively
Owns," "Constructively Owning" and "Constructively Owned" shall have the
correlative meanings.
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ERISA Investor. Any holder of shares of Capital Stock that is (i) an
employee benefit plan subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended, (ii) a plan as defined in Section 4975(e) of
the Code (any such employee benefit plan or "plan" as described in clause (i) or
this clause (ii) being referred to herein as "Plan"), (iii) a trust which was
established pursuant to a Plan, or a nominee for such trust or Plan, or (iv) an
entity whose underlying assets include assets of a Plan by reason of such Plan's
investment in such entity.
Excepted Holder. A stockholder of the Corporation for whom an Excepted
Holder Limit is created by the Charter or by the board of directors pursuant to
Section 6.2.7.
Excepted Holder Limit. The percentage limit established by the board of
directors pursuant to Section 6.2.7 provided that the affected Excepted Holder
agrees to comply with the requirements established by the board of directors
pursuant to Section 6.2.7, and subject to adjustment pursuant to Section 6.2.8.
Initial Date. The date upon which the Charter containing this Article VI
is accepted for record by the SDAT.
Market Price. With respect to any class or series of outstanding shares of
Capital Stock, the Closing Price for such Capital Stock on such date. The
"Closing Price" on any date shall mean the last sale price for such Capital
Stock, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, for such Capital
Stock, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on the
principal national securities exchange on which such Capital Stock is listed or
admitted to trading or, if such Capital Stock is 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 quotation system that may then be in use or, if
such Capital Stock is 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 such Capital Stock selected by the board of directors or, in the
event that no trading price is available for such Capital Stock, the fair market
value of the Capital Stock, as determined in good faith by the board of
directors.
Prohibited Owner. With respect to any purported Transfer, any Person who,
but for the provisions of Section 6.2.1, would Beneficially Own or
Constructively Own shares of Capital Stock and, if appropriate in the context,
shall also mean any Person who would have been the record owner of the shares
that the Prohibited Owner would have so owned.
Restriction Termination Date. The first day after the Initial Date on
which the Corporation determines pursuant to Section 7.8 of the Charter that it
is no longer in the best interests of the Corporation to attempt to, or continue
to, qualify as a REIT or that compliance with the restrictions and limitations
on Beneficial Ownership, Constructive Ownership and Transfers of shares of
Capital Stock set forth herein is no longer required in order for the
Corporation to qualify as a REIT.
Transfer. Any issuance, sale, transfer, gift, assignment, devise or other
disposition as well as any other event that causes any Person to acquire
Beneficial Ownership or Constructive Ownership, or any agreement to take any
such actions or cause any such events, of Capital Stock or the right to vote or
receive dividends on Capital Stock, including (a) the granting or exercise of
any option (or any disposition of any option), (b) any disposition of any
securities or rights convertible into or exchangeable for Capital Stock or any
interest in Capital Stock or any exercise of any such conversion or exchange
right and (c) Transfers of interests in other entities that result in changes in
Beneficial Ownership or Constructive Ownership of Capital Stock; in each case,
whether voluntary or involuntary, whether owned of record, Constructively Owned
or Beneficially Owned and whether by operation of law or otherwise. The terms
"Transferring" and "Transferred" shall have the correlative meanings.
Trust. Any trust provided for in Section 6.3.1.
Trustee. The Person unaffiliated with the Corporation and a Prohibited
Owner that is appointed by the Corporation to serve as trustee of the Trust.
SECTION 6.2. Capital Stock.
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SECTION 6.2.1. Ownership Limitations. During the period commencing on the
Initial Date and prior to the Restriction Termination Date, but subject to
Section 6.5:
(a) Basic Restrictions.
(i) (1) No Person, other than an Excepted Holder, shall
Beneficially Own or Constructively Own shares of Capital Stock in
excess of the Aggregate Stock Ownership Limit, (2) no Person, other
than an Excepted Holder, shall Beneficially Own or Constructively
Own shares of Common Stock in excess of the Common Stock Ownership
Limit and (3) no Excepted Holder shall Beneficially Own or
Constructively Own shares of Capital Stock in excess of the Excepted
Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially Own or Constructively Own
shares of Capital Stock to the extent that such Beneficial Ownership
or Constructive Ownership of Capital Stock would result in the
Corporation being "closely held" within the meaning of Section
856(h) of the Code (without regard to whether the ownership interest
is held during the last half of a taxable year), or otherwise
failing to qualify as a REIT (including, but not limited to,
Beneficial Ownership or Constructive Ownership that would result in
the Corporation owning (actually or Constructively) an interest in a
tenant that is described in Section 856(d)(2)(B) of the Code if the
income derived by the Corporation from such tenant would cause the
Corporation to fail to satisfy any of the gross income requirements
of Section 856(c) of the Code).
(iii) Any Transfer of shares of Capital Stock that, if
effective, would result in the Capital Stock being Beneficially
Owned by less than 100 Persons (determined under the principles of
Section 856(a)(5) of the Code) shall be void ab initio, and the
intended transferee shall acquire no rights in such shares of
Capital Stock; provided, however, that the board of directors may
waive this Section 6.2.1(a)(iii) if, in the opinion of the board of
directors, such Transfer would not adversely affect the
Corporation's ability to qualify as a REIT.
(b) Transfer in Trust. If any Transfer of shares of Capital Stock
occurs which, if effective, would result in any Person Beneficially Owning
or Constructively Owning shares of Capital Stock in violation of Section
6.2.1(a)(i) or Section 6.2.1(a)(ii),
(i) then that number of shares of Capital Stock the Beneficial
Ownership or Constructive Ownership of which otherwise would cause
such Person to violate Section 6.2.1(a)(i) or Section 6.2.1(a)(ii)
(rounded to the nearest whole share) shall be automatically
transferred to a Trust for the benefit of a Charitable Beneficiary,
as described in Section 6.3, effective as of the close of business
on the Business Day prior to the date of such Transfer and such
Person shall acquire no rights in such shares; provided, however,
(ii) if the transfer to the Trust described in clause (i) of
this sentence would not be effective for any reason to prevent the
violation of Section 6.2.1(a)(i) or Section 6.2.1(a)(ii), then the
Transfer of that number of shares of Capital Stock that otherwise
would cause any Person to violate Section 6.2.1(a)(i) or Section
6.2.1(a)(ii) shall be void ab initio and the intended transferee
shall acquire no rights in such shares of Capital Stock.
SECTION 6.2.2. Remedies for Breach. If the board of directors or its
designee (including any duly authorized committee of the board) shall at any
time determine in good faith that a Transfer or other event has taken place that
results in a violation of Section 6.2.1(a) or that a Person intends to acquire
or has attempted to acquire Beneficial Ownership or Constructive Ownership of
any shares of Capital Stock in violation of Section 6.2.1(a) (whether or not
such violation is intended), the board of directors or its designee shall take
such action as it deems advisable to refuse to give effect to or to prevent such
Transfer or other event, including, without limitation, causing the Corporation
to redeem shares, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer or other event;
provided, however, that any Transfers or attempted Transfers or other events in
violation of Section 6.2.1(a) shall automatically result in the transfer to the
Trust described above and, where applicable, such Transfer (or other event)
shall be void ab initio as provided above irrespective of any action (or
non-action) by the board of directors or its designee.
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SECTION 6.2.3. Notice of Restricted Transfer. Any Person who acquires or
attempts or intends to acquire Beneficial Ownership or Constructive Ownership of
shares of Capital Stock that will or may violate Section 6.2.1(a) or any Person
who would have owned shares of Capital Stock that resulted in a transfer to the
Trust pursuant to the provisions of Section 6.2.1(b) shall immediately give
written notice to the Corporation of such event or, in the case of such a
proposed or attempted transaction, give at least 15 days prior written notice
and shall provide to the Corporation such other information as the Corporation
may request in order to determine the effect, if any, of such Transfer on the
Corporation's status as a REIT.
SECTION 6.2.4. Owners Required to Provide Information. From the Initial
Date and prior to the Restriction Termination Date:
(a) every owner of more than 5% (or such lower percentage as
required by the Code or the Treasury Regulations promulgated thereunder)
of the outstanding shares of Capital Stock, within 30 days after the end
of each taxable year, shall give written notice to the Corporation stating
the name and address of such owner, the number of shares of Capital Stock
and other shares of the Capital Stock Beneficially Owned and a description
of the manner in which such shares are held. Each such owner shall provide
to the Corporation such additional information as the Corporation may
request in order to determine the effect, if any, of such Beneficial
Ownership on the Corporation's status as a REIT and to ensure compliance
with the Aggregate Stock Ownership Limit.
(b) each Person who is a Beneficial Owner or Constructive Owner of
Capital Stock and each Person (including the stockholder of record) who is
holding Capital Stock for a Beneficial Owner or Constructive Owner shall
provide to the Corporation such information as the Corporation may
request, in good faith, in order to determine the Corporation's status as
a REIT and to comply with requirements of any taxing authority or
governmental authority or to determine such compliance.
SECTION 6.2.5. Remedies Not Limited. Subject to Section 7.8, nothing
contained in this Section 6.2 shall limit the authority of the board of
directors to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its stockholders in preserving the
Corporation's status as a REIT.
SECTION 6.2.6. Ambiguity. In the case of an ambiguity in the application
of any of the provisions of this Section 6.2, Section 6.3 or any definition
contained in Section 6.1, the board of directors shall have the power to
determine the application of the provisions of this Section 6.2 or Section 6.3
with respect to any situation based on the facts known to it. In the event
Section 6.2 or Section 6.3 requires an action by the board of directors and the
Charter fails to provide specific guidance with respect to such action, the
board of directors shall have the power to determine the action to be taken so
long as such action is not contrary to the provisions of Sections 6.1, 6.2 or
6.3. Absent a decision to the contrary by the board of directors (which the
board may make in its sole and absolute discretion), if a Person would have (but
for the remedies set forth in Section 6.2.2) acquired Beneficial or Constructive
Ownership of shares of Capital Stock in violation of Section 6.2.1, such
remedies (as applicable) shall apply first to the shares of Capital Stock which,
but for such remedies, would have been Beneficially Owned or Constructively
Owned (but not actually owned) by such Person, pro rata among the Persons who
actually own such shares of Capital Stock based upon the relative number of the
shares of Capital Stock held by each such Person.
SECTION 6.2.7. Exceptions.
(a) Subject to Section 6.2.1(a)(ii), the board of directors, in its sole
discretion, may exempt a Person (prospectively or retroactively) from the
Aggregate Stock Ownership Limit and the Common Stock Ownership Limit, as the
case may be, and may establish or increase an Excepted Holder Limit for such
Person if:
(i) the board of directors obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain
that no Person's Beneficial Ownership or Constructive Ownership of such
shares of Capital Stock will violate Section 6.2.1(a)(ii);
(ii) such Person does not and represents that it will not own,
actually or Constructively, an interest in a tenant of the Corporation (or
a tenant of any entity owned or controlled by the Corporation) that would
cause the Corporation to own, actually or Constructively, more than a 9.9%
interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant
and the board of directors obtains such representations and undertakings
from such
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Person as are reasonably necessary to ascertain this fact (for this
purpose, a tenant from whom the Corporation (or an entity owned or
controlled by the Corporation) derives (and is expected to continue to
derive) a sufficiently small amount of revenue such that, in the opinion
of the board of directors, rent from such tenant would not adversely
affect the Corporation's ability to qualify as a REIT shall not be treated
as a tenant of the Corporation); and
(iii) such Person agrees that any violation or attempted violation
of such representations or undertakings (or other action which is contrary
to the restrictions contained in Sections 6.2.1 through 6.2.6) will result
in such shares of Capital Stock being automatically transferred to a Trust
in accordance with Section 6.2.1(b) and Section 6.3.
(b) Prior to granting any exception pursuant to Section 6.2.7(a), the
board of directors may require a ruling from the Internal Revenue Service or an
opinion of counsel, in either case, in form and substance satisfactory to the
board of directors in its sole discretion, as it may deem necessary or advisable
in order to determine or ensure the Corporation's status as a REIT.
Notwithstanding the receipt of any ruling or opinion, the board of directors may
impose such conditions or restrictions as it deems appropriate in connection
with granting such exception.
(c) Subject to Section 6.2.1(a)(ii), an underwriter which participates in
a public offering or a private placement of Capital Stock (or securities
convertible into or exchangeable for Capital Stock) may Beneficially Own or
Constructively Own shares of Capital Stock (or securities convertible into or
exchangeable for Capital Stock) in excess of the Aggregate Stock Ownership
Limit, the Common Stock Ownership Limit or both such limits, but only to the
extent necessary to facilitate such public offering or private placement.
(d) The board of directors may only reduce the Excepted Holder Limit for
an Excepted Holder: (i) with the written consent of such Excepted Holder at any
time or (ii) pursuant to the terms and conditions of the agreements and
undertakings entered into with such Excepted Holder in connection with the
establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted
Holder Limit shall be reduced to a percentage that is less than the Common Stock
Ownership Limit.
SECTION 6.2.8. Increase in Aggregate Stock Ownership Limit and Common
Stock Ownership Limit. The board of directors may from time to time increase the
Common Stock Ownership Limit and the Aggregate Stock Ownership Limit for one or
more Persons and decrease the Common Stock Ownership Limit and the Aggregate
Stock Ownership Limit for all other Persons; provided, however, that the
decreased Common Stock Ownership Limit and/or Aggregate Stock Ownership Limit
will not be effective for any Person whose percentage ownership in shares of
Capital Stock is in excess of such decreased Common Stock Ownership Limit and/or
Aggregate Stock Ownership Limit until such time as such Person's percentage of
shares of Capital Stock equals or falls below the decreased Common Stock
Ownership Limit and/or Aggregate Stock Ownership Limit, but any further
acquisition of shares of Capital Stock in excess of such percentage ownership of
shares of Capital Stock will be in violation of the Common Stock Ownership Limit
and/or Aggregate Stock Ownership Limit and, provided further, that the new
Common Stock Ownership Limit and/or Aggregate Stock Ownership Limit would not
allow five or fewer Persons to Beneficially Own more than 49.9% in value of the
outstanding shares of Capital Stock.
SECTION 6.2.9. Legend. Any certificate representing shares of Capital
Stock shall bear substantially the following legend:
The shares represented by this certificate are subject to
restrictions on Beneficial Ownership, Constructive Ownership and Transfer
for the purpose, among others, of the Corporation's maintenance of its
status as a Real Estate Investment Trust (a "REIT") under the Internal
Revenue Code of 1986, as amended (the "Code"), and for certain other
purposes under the Code and the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). Subject to certain further restrictions and
except as expressly provided in the Corporation's Charter, no Person: (a)
may Beneficially Own or Constructively Own shares of the Corporation's
Common Stock in excess of 9.9% (in value or number of shares) of the
outstanding shares of Common Stock of the Corporation unless such Person
is an Excepted Holder (in which case the Excepted Holder Limit for such
Excepted Holder shall be applicable); (b) may Beneficially Own or
Constructively Own shares of Capital Stock of the Corporation in excess of
9.9% of the value of the total outstanding shares of Capital Stock of the
Corporation, unless such Person is an Excepted Holder (in which case the
Excepted Holder Limit for such Excepted Holder shall be
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applicable); (c) may Beneficially Own or Constructively Own Capital Stock
that would result in the Corporation being "closely held" under Section
856(h) of the Code or otherwise cause the Corporation to fail to qualify
as a REIT; (d) other than as provided in the Corporation's Charter, may
Transfer shares of Capital Stock if such Transfer would result in the
Capital Stock of the Corporation being owned by fewer than 100 Persons; or
(e) Beneficially Own shares of Capital Stock of the Corporation that would
result in 25% or more of any class of Capital Stock of the Corporation
being Beneficially Owned by one or more ERISA Investors. Any Person who
Beneficially Owns or Constructively Owns or attempts to Beneficially Own
or Constructively Own shares of Capital Stock which causes or will cause a
Person to Beneficially Own or Constructively Own shares of Capital Stock
in excess or in violation of the above limitations must immediately notify
the Corporation. If any of the restrictions on Transfer or ownership are
violated, the shares of Capital Stock represented hereby will be
automatically transferred to a Trustee of a Trust for the benefit of one
or more Charitable Beneficiaries. In addition, the Corporation may redeem
shares upon the terms and conditions specified by the board of directors
in its sole discretion if the board of directors determines that ownership
or a Transfer or other event may violate the restrictions described above.
Furthermore, upon the occurrence of certain events, attempted Transfers in
violation of the restrictions described above may be void ab initio. All
capitalized terms in this legend have the meanings defined in the Charter
of the Corporation, as the same may be amended from time to time, a copy
of which, including the restrictions on Transfer and ownership, will be
furnished to each holder of Capital Stock of the Corporation on request
and without charge directed to the Secretary of the Corporation at its
principal office.
Instead of the foregoing legend, the certificate may state that the
Corporation will furnish a full statement about certain restrictions on
transferability to a stockholder on request and without charge. Such statement
shall also be sent to stockholders who are issued shares without a certificate.
SECTION 6.3. Transfer of Capital Stock in Trust.
SECTION 6.3.1. Ownership in Trust. Upon any purported Transfer or other
event described in Section 6.2.1(b) that would result in a transfer of shares of
Capital Stock to a Trust, such shares of Capital Stock shall be deemed to have
been transferred to the Trustee as trustee of a Trust for the exclusive benefit
of one or more Charitable Beneficiaries. Such transfer to the Trustee shall be
deemed to be effective as of the close of business on the Business Day prior to
the purported Transfer or other event that results in the transfer to the Trust
pursuant to Section 6.2.1(b). The Trustee shall be appointed by the Corporation
and shall be a Person unaffiliated with the Corporation and any Prohibited
Owner. Each Charitable Beneficiary shall be designated by the Corporation as
provided in Section 6.3.6.
SECTION 6.3.2. Status of Shares Held by the Trustee. Shares of Capital
Stock held by the Trustee shall continue to be issued and outstanding shares of
Capital Stock of the Corporation. The Prohibited Owner shall have no rights in
the shares held by the Trustee. The Prohibited Owner shall not benefit
economically from ownership of any shares held in trust by the Trustee and shall
have no rights to dividends or other distributions and shall not possess any
rights to vote or other rights attributable to the shares held in the Trust.
SECTION 6.3.3. Dividend and Voting Rights. The Trustee shall have all
voting rights and rights to dividends or other distributions with respect to
shares of Capital Stock held in the Trust, which rights shall be exercised for
the exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by the Corporation that the shares of
Capital Stock have been transferred to the Trustee shall be paid by the
recipient of such dividend or distribution to the Trustee upon demand, and any
dividend or other distribution authorized but unpaid shall be paid when due to
the Trustee. Any dividend or distribution so paid to the Trustee shall be held
in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to shares held in the Trust, and, subject to Maryland
law, effective as of the date that the shares of Capital Stock have been
transferred to the Trustee, the Trustee shall have the authority with respect to
the shares held in the Trust (at the Trustee's sole discretion) (a) to rescind
as void any vote cast by a Prohibited Owner prior to the discovery by the
Corporation that the shares of Capital Stock have been transferred to the
Trustee and (b) to recast such vote in accordance with the desires of the
Trustee acting for the benefit of the Charitable Beneficiary; provided, however,
that if the Corporation has already taken irreversible corporate action, then
the Trustee shall not have the authority to rescind and recast such vote.
Notwithstanding the provisions of this Article VI, until the Corporation has
received notification that shares of Capital Stock have been transferred into a
Trust, the Corporation shall be entitled to rely on its share transfer and other
stockholder records for purposes of preparing lists of stockholders entitled to
vote at meetings, determining the validity and authority of proxies and
otherwise conducting votes of stockholders.
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SECTION 6.3.4. Sale of Shares by Trustee. Within 20 days of receiving
notice from the Corporation that shares of Capital Stock have been transferred
to the Trust, the Trustee of the Trust shall sell the shares held in the Trust
to a person, designated by the Trustee, whose ownership of the shares will not
violate the ownership limitations set forth in Section 6.2.1(a). Upon such sale,
the interest of the Charitable Beneficiary in the shares sold shall terminate
and the Trustee shall distribute the net proceeds of the sale to the Prohibited
Owner and to the Charitable Beneficiary as provided in this Section 6.3.4. The
Prohibited Owner shall receive the lesser of (a) the price paid by the
Prohibited Owner for the shares or, if the Prohibited Owner did not give value
for the shares in connection with the event causing the shares to be held in the
Trust (e.g., in the case of a gift, devise or other such transaction), the
Market Price of the shares on the day of the event causing the shares to be held
in the Trust and (b) the price per share received by the Trustee (net of any
commissions and other expenses of sale) from the sale or other disposition of
the shares held in the Trust. The Trustee may reduce the amount payable to the
Prohibited Owner by the amount of dividends and distributions which have been
paid to the Prohibited Owner and are owed by the Prohibited Owner to the Trustee
pursuant to Section 6.3.3. Any net sale proceeds in excess of the amount payable
to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary.
If, prior to the discovery by the Corporation that shares of Capital Stock have
been transferred to the Trustee, such shares are sold by a Prohibited Owner,
then (i) such shares shall be deemed to have been sold on behalf of the Trust
and (ii) to the extent that the Prohibited Owner received an amount for such
shares that exceeds the amount that such Prohibited Owner was entitled to
receive pursuant to this Section 6.3.4, such excess shall be paid to the Trustee
upon demand.
SECTION 6.3.5. Purchase Right in Stock Transferred to the Trustee. Shares
of Capital Stock transferred to the Trustee shall be deemed to have been offered
for sale to the Corporation, or its designee, at a price per share equal to the
lesser of (a) the price per share in the transaction that resulted in such
transfer to the Trust (or, in the case of a devise or gift, the Market Price at
the time of such devise or gift) and (b) the Market Price on the date the
Corporation, or its designee, accepts such offer. The Corporation may reduce the
amount payable to the Prohibited Owner by the amount of dividends and
distributions which have been paid by the Prohibited Owner and are owed by the
Prohibited Owner to the Trustee pursuant to Section 6.3.3. The Corporation may
pay the amount of such reduction to the Trustee for the benefit of the
Charitable Beneficiary. The Corporation shall have the right to accept such
offer until the Trustee has sold the shares held in the Trust pursuant to
Section 6.3.4. Upon such a sale to the Corporation, the interest of the
Charitable Beneficiary in the shares sold shall terminate and the Trustee shall
distribute the net proceeds of the sale to the Prohibited Owner.
SECTION 6.3.6. Designation of Charitable Beneficiaries. By written notice
to the Trustee, the Corporation shall designate one or more nonprofit
organizations to be the Charitable Beneficiary of the interest in the Trust such
that (a) the shares of Capital Stock held in the Trust would not violate the
restrictions set forth in Section 6.2.1(a) in the hands of such Charitable
Beneficiary and (b) each such organization must be described in Section
501(c)(3) of the Code and contributions to each such organization must be
eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the
Code.
SECTION 6.4. Restrictions on Ownership and Transfer of Shares of Capital
Stock by Benefit Plans.
SECTION 6.4.1. Ownership Limitations Notwithstanding any other provisions
in the Charter, if and to the extent that any class or series of shares of
Capital Stock do not constitute "publicly offered securities," (as defined in
Section 2510.3-101 of the Department of Labor regulations, or any successor
regulation thereto) then Benefit Plan Investors may not, on any date, hold,
individually or in the aggregate, 25% or more of the value of such class or
series of shares of Capital Stock. For purposes of determining whether Benefit
Plan Investors hold, individually or in the aggregate, 25% or more of the value
of such class or series of shares of Capital Stock, the value of shares of
Capital Stock of such class held by any director or officer of the Corporation,
or any other Person who has discretionary authority or control with respect to
the assets of the Corporation, or the Advisor or its affiliates, as defined in
the Plan Asset Regulations, shall be disregarded.
SECTION 6.4.2. Remedies for Violations by Benefit Plan Investors. If the
board of directors or its designee (including any duly authorized committee of
the board) shall at any time determine in good faith that (a) a Transfer or
other event has taken place that results in a violation of Section 6.4.1 or will
otherwise result in the underlying assets and property of the Corporation
becoming assets of any ERISA Investor or (b) that a Person intends to acquire or
has attempted to acquire or hold shares of Capital Stock in a manner that will
result in a violation of Section 6.4.1
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or will otherwise result in the underlying assets and property of the
Corporation becoming assets of any ERISA Investor, the board of directors or its
designee shall take such action as it deems advisable to mitigate, prevent or
cure the consequences that might result to the Corporation from such Transfer or
other event, including, without limitation, refusing to give effect to or
preventing such Transfer or event through redemption of such shares of Capital
Stock or refusal to give effect to the Transfer or event on the books of the
Corporation or instituting proceedings to enjoin such Transfer or other event.
SECTION 6.4.3. Information on Benefit Plan Status. Any Person who acquires
or attempts or intends to acquire or hold shares of Capital Stock shall provide
to the Corporation such information as the Corporation may request in order to
determine whether such acquisition or holding has resulted or will result a in
violation of Section 6.4.1 or otherwise has resulted or will result in the
underlying assets and property of the Corporation becoming assets of any ERISA
Investor, including the name and address of any Person for whom a nominee holds
shares of Capital Stock and whether the underlying assets of such Person include
assets of any Benefit Plan Investor.
SECTION 6.5. Settlement. Nothing in this Article VI shall preclude the
settlement of any transaction entered into through the facilities of any
national securities exchange or automated inter-dealer quotation system. The
fact that the settlement of any transaction is so permitted shall not negate the
effect of any other provision of this Article VI and any transferee in such a
transaction shall be subject to all of the provisions and limitations set forth
in this Article VI.
SECTION 6.6. Enforcement. The Corporation is authorized specifically to
seek equitable relief, including injunctive relief, to enforce the provisions of
this Article VI.
SECTION 6.7. Non-Waiver. No delay or failure on the part of the
Corporation or the board of directors in exercising any right hereunder shall
operate as a waiver of any right of the Corporation or the board of directors,
as the case may be, except to the extent specifically waived in writing.
ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
SECTION 7.1. Number of Directors. The business and affairs of the
Corporation shall be managed under the direction of the board of directors The
number of directors of the Corporation shall be six (6), which number may be
increased or decreased from time to time pursuant to the bylaws but shall never
be less than three (3). A majority of the board of directors will be Independent
Directors except for a period up to 60 days after the death, removal or
resignation of an Independent Director pending the election of such Independent
Director's successor. No reduction in the number of directors shall cause the
removal of any director from office prior to the expiration of his term, except
as may otherwise be provided in the terms of any Preferred Stock issued by the
Corporation. The names of the directors who shall serve on the board until the
first annual meeting of the stockholders and until their successors are duly
elected and qualify are:
Louis J. Rogers
Stanley J. Olander, Jr.
Glenn W. Bunting
Robert A. Gary, IV
W. Brand Inlow
D. Fleet Wallace
These directors may increase the number of directors and fill any vacancy,
whether resulting from an increase in the number of directors or otherwise, on
the board of directors prior to the first annual meeting of stockholders in the
manner provided in the bylaws.
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The Corporation elects, at such time as it becomes eligible to make the
election provided for under Section 3-802(b) of the MGCL, that, except as may be
provided by the board of directors in setting the terms of any class or series,
any and all vacancies on the board of directors may be filled only by the
affirmative vote of a majority of the remaining directors in office, even if the
remaining directors do not constitute a quorum, and any director elected to fill
a vacancy shall serve for the remainder of the full term of the directorship in
which such vacancy occurred. Notwithstanding the foregoing sentence, Independent
Directors shall nominate replacements for vacancies among the Independent
Directors' positions.
SECTION 7.2. Experience. Each director shall have at least three years of
relevant experience demonstrating the knowledge and experience required to
successfully acquire and manage the type of assets being acquired by the
Corporation. At least one of the Independent Directors shall have three years of
relevant real estate experience.
SECTION 7.3. Committees. The board may establish such committees as it
deems appropriate, in its discretion, provided that the majority of the members
of each committee are Independent Directors.
SECTION 7.4. Term. Except as may otherwise be provided in the terms of any
shares of Preferred Stock issued by the Corporation, each director shall hold
office for one year, until the next annual meeting of stockholders and until his
or her successor is duly elected and qualifies. Directors may be elected to an
unlimited number of successive terms.
SECTION 7.5. Fiduciary Obligations. The directors serve in a fiduciary
capacity to the Corporation and have a fiduciary duty to its stockholders. The
directors have a fiduciary duty to the stockholders to supervise the
relationship between the Corporation and the Advisor.
SECTION 7.6. Rights of Objecting Stockholders. Holders of shares of
Capital Stock shall not be entitled to exercise any rights of an objecting
stockholder provided for under Title 3, Subtitle 2 of the MGCL unless the board,
upon the affirmative vote of a majority of the entire board, shall determine
that such rights shall apply, with respect to all or any classes or series of
Capital Stock, to a particular transaction or all transactions occurring after
the date of such approval in connection with which holders of such shares of
Capital Stock would otherwise be entitled to exercise such rights.
SECTION 7.7. Ratification of Charter. Before the initial public offering
of the Common Stock, the board of directors, including a majority of the
Independent Directors, shall have reviewed and ratified the Charter by majority
vote.
SECTION 7.8. REIT Qualification. If the Corporation elects to qualify for
federal income tax treatment as a REIT, the board of directors shall use its
reasonable best efforts to take such actions as are necessary or appropriate to
preserve the status of the Corporation as a REIT; however, if the board of
directors determines that it is no longer in the best interests of the
Corporation to continue to be qualified as a REIT, the board of directors may
revoke or otherwise terminate the Corporation's REIT election pursuant to
Section 856(g) of the Code. The board of directors also may determine that
compliance with any restriction or limitation on ownership and transfers of
Capital Stock set forth in Article VI is no longer required for REIT
qualification.
SECTION 7.9. Determinations by the Board. The determination as to any of
the following matters, made in good faith by or pursuant to the direction of the
board of directors consistent with the Charter shall be final and conclusive and
shall be binding upon the Corporation and every holder of shares of its Capital
Stock: (a) the amount of the net income of the Corporation for any period and
the amount of assets at any time legally available for the payment of dividends,
redemption of its Capital Stock or the payment of other distributions on its
Capital Stock; (b) the amount of paid-in surplus, net assets, other surplus,
annual or other cash flow, funds from operations, net profit, net assets in
excess of capital, undivided profits or excess of profits over losses on sales
of assets; (c) the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged); (d) any
interpretation of the terms, preferences, conversion or other rights, voting
powers or rights, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption of any class
or series of shares of Capital Stock; (e) the fair value, or any sale, bid or
asked price to be applied in determining the fair value, of any asset owned or
held by the Corporation or any shares of Capital Stock;
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(f) the number of shares of class of Capital Stock; (g) any matter relating to
the acquisition, holding and disposition of any assets by the Corporation; or
(h) any other matter relating to the business and affairs of the Corporation or
required by the Charter or bylaws or otherwise to be determined by the board of
directors.
SECTION 7.10. Removal of Directors. Subject to the rights of holders of
one or more classes or series of shares of Preferred Stock to elect or remove
one or more directors, any director, or the entire board of directors, may be
removed from office at any time, but only by the affirmative vote of at least a
majority of the votes entitled to be cast generally in the election of
directors.
SECTION 7.11. Authorization by Board of Stock Issuance. The board of
directors may authorize the issuance from time to time of shares of Capital
Stock of any class or series, whether now or hereafter authorized, or securities
or rights convertible into shares of Capital Stock of any class or series,
whether now or hereafter authorized, for such consideration as the board of
directors may deem advisable (or without consideration in the case of a stock
split or stock dividend), subject to such restrictions or limitations, if any as
may be set forth in the Charter or bylaws.
ARTICLE VIII
ADVISOR
SECTION 7.12. Certain Approvals by Independent Directors. A majority of
Independent Directors must approve all board actions to which this Section 7.12
and Sections 5.9, 7.7, 8.1, 8.2, 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 9.1, 9.3(g),
9.3(h), 11.1, 12.2(b) and 12.3 herein relate.
SECTION 8.1. Appointment and Initial Investment of the Advisor. The board
is responsible for setting the general policies of the Corporation and for the
general supervision of its business conducted by officers, agents, employees,
advisors or independent contractors of the Corporation. However, the board is
not required personally to conduct the business of the Corporation, and it may
(but need not) appoint, employ or contract with any Person (including a Person
Affiliated with any director) as an Advisor and may grant or delegate such
authority to the Advisor as the board may, in its sole discretion, deem
necessary or desirable. The term of retention of any Advisor shall not exceed
one year, although there is no limit to the number of times that a particular
Advisor may be retained. Before the initial public offering of the Corporation,
the Advisor shall have made the Initial Investment. The Advisor or any such
Affiliate may not sell the interest in the Corporation acquired with its Initial
Investment while the Advisor remains an Advisor but may transfer the interest in
the Corporation acquired with its Initial Investment to its Affiliates. Such
Affiliates will be subject to the restrictions on transfer in the preceding
sentence while the Advisor remains an Advisor.
SECTION 8.2. Supervision of the Advisor. The board of directors shall
evaluate the performance of the Advisor before entering into or renewing an
Advisory Agreement, and the criteria used in such evaluation shall be reflected
in the minutes of the meetings of the board of directors. The board of directors
may exercise broad discretion in allowing the Advisor to administer and regulate
the operations of the Corporation, to act as agent for the Corporation, to
execute documents on behalf of the Corporation and to make executive decisions
that conform to general policies and principles established by the board. The
board of directors, including a majority of the Independent Directors, shall
determine at least annually that the expenses incurred by the Corporation are
reasonable in light of the investment performance of the Corporation, its Net
Assets, its Net Income and the fees and expenses of other comparable
unaffiliated REITs. Each such determination shall be reflected in the minutes of
the meetings of the board. The board of directors, including a majority of the
Independent Directors, shall determine from time to time and at least annually
that the compensation to be paid to the Advisor is reasonable in relation to the
nature and quality of services performed and that such compensation is within
the limits prescribed by the Charter. The board of directors, including a
majority of the Independent Directors, shall also supervise the performance of
the Advisor and the compensation paid to the Advisor by the Corporation to
determine that the provisions of the Advisory Agreement are being met. Each such
determination shall be based on factors such as (a) the amount of the fee paid
to the Advisor in relation to the size, composition and performance of the
Corporation's portfolio; (b) the success of the Advisor in generating
opportunities that meet the investment objectives of the Corporation; (c) rates
charged to other REITs and to investors other than REITs by advisors performing
the same or similar services; (d) additional revenues realized by the Advisor
and its Affiliates through their relationship with the Corporation, including
loan administration, underwriting or broker commissions, servicing, engineering,
inspection and other fees, whether paid
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by the Corporation or by others with whom the Corporation does business; (e) the
quality and extent of service and advice furnished by the Advisor; (f) the
performance of the Corporation's portfolio, including income, conservation or
appreciation of capital, frequency of problem investments and competence in
dealing with distress situations; and (g) the quality of the Corporation's
portfolio relative to the investments generated by the Advisor for its own
account. The board of directors, including a majority of the Independent
Directors, may also consider all other factors that it deems relevant, and its
findings on each of the factors considered shall be recorded in the minutes of
the board of directors. The board shall determine whether any successor Advisor
possesses sufficient qualifications to perform the advisory function for the
Corporation and whether the compensation provided for in its contract with the
Corporation is justified.
SECTION 8.3. Fiduciary Obligations. The Advisor shall have a fiduciary
responsibility and duty to the Corporation and its stockholders.
SECTION 8.4. Termination. Either a majority of the Independent Directors
or the Advisor may terminate the Advisory Agreement on 60 days' written notice
without cause or penalty, and, in such event, the Advisor will cooperate with
the Corporation and the board of directors in making an orderly transition of
the advisory function.
SECTION 8.5. Disposition Fee. Unless otherwise provided in any resolutions
adopted by the board of directors, if the Advisor or its Affiliates or a
director or Sponsor provides a substantial amount of the services in the effort
to sell a property of the Corporation, that Person may receive an amount equal
to the lesser of (a) one-half of the customary Competitive Real Estate
Commission or (b) 1.75% of the sales price of such property or properties. In
addition, the amount paid when added to all other real estate commissions paid
to unaffiliated parties in connection with such sale shall not exceed an amount
equal to the lesser of the Competitive Real Estate Commission or an amount equal
to 6% of the sales price of such property or properties.
SECTION 8.6. Incentive Fees. Unless otherwise provided in any resolutions
adopted by the board of directors, the Corporation may pay the Advisor an
interest in the gain from the sale of properties, for which full consideration
is not paid in cash or property of equivalent value, provided the amount or
percentage of such interest is reasonable. Such an interest in gain from the
sale of properties shall be considered presumptively reasonable if it does not
exceed 15% of the balance of such net proceeds remaining after payment to
stockholders, in the aggregate, of an amount equal to 100% of the Invested
Capital, plus an amount equal to at least six percent of the Invested Capital
per annum cumulative. In the case of multiple Advisors, such Advisor and any of
their Affiliates shall be allowed such fees provided such fees are distributed
by a proportional method reasonably designed to reflect the value added to the
Corporation assets by each respective Advisor or any Affiliate.
SECTION 8.7. Organizational and Offering Expenses Limitation. Unless
otherwise provided in any resolutions adopted by the board of directors, the
Corporation shall reimburse the Advisor and its Affiliates for Organizational
and Offering Expenses incurred by the Advisor or its Affiliates; provided,
however, that the total amount of all Organizational and Offering Expenses shall
be reasonable and shall in no event exceed 15% of the Gross Proceeds of the
offering.
SECTION 8.8. Real Estate Commissions or Acquisition Fees. Unless otherwise
provided in any resolutions adopted by the board of directors, the total of all
Real Estate Commissions or Acquisition Fees and Acquisition Expenses shall be
reasonable and shall not exceed an amount equal to 6% of the Contract Purchase
Price; provided, however, that the majority of the Independent Directors may
approve fees and expenses in excess of this limit if they determine the
transaction to be commercially competitive, fair and reasonable to the
Corporation.
SECTION 8.9. Reimbursement for Total Operating Expenses. Unless otherwise
provided in any resolutions adopted by the board of directors, the Corporation
may reimburse the Advisor, at the end of each fiscal quarter, for Total
Operating Expenses incurred by the Advisor; provided, however, that the
Corporation shall not reimburse the Advisor at the end of any fiscal quarter for
Total Operating Expenses that, in the four consecutive fiscal quarters then
ended, exceed the greater of 2% of Average Invested Assets or 25% of Net Income
(the "2%/25% Guidelines") for such years. The Independent Directors shall have
the responsibility of limiting Total Operating Expenses to amounts that do not
exceed the 2%/25% Guidelines unless they have made a finding that, based on such
unusual and non-recurring factors that they deem sufficient, a higher level of
expenses (an "Excess Amount") is justified. Any such finding and the reasons in
support thereof shall be reflected in the minutes of the meetings. Within 60
days
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after the end of any fiscal quarter of the Corporation for which there is an
Excess Amount for the 12 months then ended that the Independent Directors
concludes was justified and reimbursable to the Advisor, there shall be sent to
the Common Stockholders a written disclosure of such fact, together with an
explanation of the factors the Independent Directors considered in determining
that such Excess Amount was justified. In the event that the Independent
Directors do not determine that excess expenses are justified, the Advisor shall
reimburse the Corporation at the end of the 12-month period the amount by which
the aggregate annual expenses paid or incurred by the Corporation exceeded the
2%/25% Guidelines.
ARTICLE IX
INVESTMENT OBJECTIVES AND LIMITATIONS
SECTION 9.1. Investment Objectives. The board of directors shall establish
written policies on investments and borrowing and shall monitor the
administrative procedures, investment operations and performance of the
Corporation and the Advisor to assure that such policies are carried out. The
board of directors shall review the investment policies of the Corporation with
sufficient frequency (not less often than annually) to determine that the
policies being followed by the Corporation are in the best interests of the
Common Stockholders. Each such determination and the basis therefor shall be set
forth in the minutes of the meetings of the board of directors.
SECTION 9.2. Certain Permitted Investments. Until such time as the shares
of Capital Stock are Listed, the following investment limitations shall apply.
The Corporation may invest in joint ventures with the Sponsor, Advisor, one or
more directors or any Affiliate, only if a majority of directors (including a
majority of Independent Directors) not otherwise interested in the transaction,
approve such investment as being fair and reasonable to the Corporation and on
substantially the same terms and conditions as those received by the other joint
venturers. Subject to any limitations in Section 9.3, the Corporation may invest
in equity securities only if a majority of directors (including a majority of
Independent Directors) not otherwise interested in the transaction approve such
investment as being fair, competitive and commercially reasonable.
SECTION 9.3. Investment Limitations. Until such time as the shares of
Capital Stock are Listed, the following investment limitations shall apply. In
addition to other investment restrictions imposed by the board from time to
time, consistent with the Corporation's objective of qualifying as a REIT, the
following shall apply to the Corporation's investments:
(a) Not more than 10% of the Corporation's total assets shall be
invested in unimproved real property.
(b) The Corporation shall not invest in commodities or commodity
future contracts. This limitation is not intended to apply to futures
contracts, when used solely for hedging purposes in connection with the
Corporation's ordinary business of investing in real estate assets.
(c) The Corporation shall not invest in or make any mortgage unless
an appraisal is obtained concerning the underlying property except for
those loans insured or guaranteed by a government or government agency. In
cases in which a majority of Independent Directors so determine, and in
all cases in which the transaction is with the Advisor, Sponsor,
directors, or any Affiliates thereof, such appraisal of the underlying
property must be obtained from an Independent Expert. Such appraisal shall
be maintained in the Corporation's records for at least five years and
shall be available for inspection and duplication by any stockholder. In
addition to the appraisal, a mortgagee's or owner's title insurance policy
or commitment as to the priority of the mortgage or condition of the title
must be obtained.
(d) The Corporation shall not make or invest in any mortgage on any
one property if the aggregate amount of all mortgage loans outstanding on
the property, including the loans of the Corporation, would exceed an
amount equal to 85% of the appraised value of the property as determined
by appraisal unless substantial justification exists because of the
presence of other underwriting criteria. For purposes of this subsection,
the "aggregate amount of all mortgage loans outstanding on the property,
including the loans of the Corporation" shall include all interest
(excluding contingent participation in income and/or appreciation in value
of the mortgaged property), the current payment of which may be deferred
pursuant to the terms of such loans, to the extent that deferred interest
on each loan exceeds five percent per annum of the principal balance of
the loan.
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(e) The Corporation shall not invest in indebtedness secured by a
mortgage on real property which is subordinate to the lien or other
indebtedness of the Advisor, any director, the Sponsor or any Affiliate of
the Corporation.
(f) The Corporation shall not issue (i) equity securities redeemable
solely at the option of the holder (except that stockholders may offer
their shares of Common Stock to the Corporation pursuant to any redemption
plan adopted by the board on terms outlined in the prospectus relating to
any offering, as such plan is thereafter amended in accordance with its
terms); (ii) debt securities unless the historical debt service coverage
(in the most recently completed fiscal year) as adjusted for known changes
is sufficient to properly service that higher level of debt; (iii) equity
securities on a deferred payment basis or under similar arrangements; or
(iv) options or warrants to the Advisor, directors, Sponsor or any
Affiliate thereof except on the same terms as such options or warrants are
sold to the general public. Options or warrants may be issued to persons
other than the Advisor, directors, Sponsor or any Affiliate thereof, but
not at exercise prices less than the fair market value of the underlying
securities on the date of grant and not for consideration (which may
include services) that in the judgment of the Independent Directors has a
market value less than the value of such option or warrant on the date of
grant. Options or warrants issuable to the Advisor, directors, Sponsor or
any Affiliate thereof shall not exceed 10% of the outstanding shares of
Capital Stock on the date of grant. The voting rights per share of Capital
Stock (other than any publicly held share of Capital Stock) sold in a
private offering shall not exceed the voting rights which bear the same
relationship to the voting rights of a publicly held share of Capital
Stock as the consideration paid to the Corporation for each privately
offered share of Capital Stock bears to the book value of each outstanding
publicly held share of Capital Stock.
(g) A majority of the directors shall authorize the consideration to
be paid for each property, ordinarily based on the fair market value of
the property. If a majority of the Independent Directors determine, or if
the property is acquired from the Advisor, a director, the Sponsor or
their Affiliates, such fair market value shall be determined by a
qualified Independent Expert selected by the Independent Directors.
(h) The aggregate Leverage shall be reasonable in relation to the
Net Assets and shall be reviewed by the board at least quarterly. The
maximum amount of such Leverage shall not exceed 300% of the Net Assets as
of the date of any borrowing. Notwithstanding the foregoing, Leverage may
exceed such limit if any excess in borrowing over such 300% level is
approved by a majority of the Independent Directors and disclosed in the
next quarterly report of the Corporation, along with the justification for
such excess.
(i) The Corporation will continually review its investment activity
to attempt to ensure that it is not classified as an "investment company"
under the Investment Company Act of 1940, as amended.
(j) The Corporation will not make any investment that the
Corporation believes will be inconsistent with its objectives of
qualifying and remaining qualified as a REIT unless and until the board
determines, in its sole discretion, that REIT qualification is not in the
best interests of the Corporation.
(k) The Corporation shall not invest in real estate contracts of
sale.
SECTION 9.4. Limitations on Roll-Up Transactions. In connection with any
proposed Roll-Up Transaction, an appraisal of all of the Corporation's assets
shall be obtained from a competent Independent Expert. The appraisal shall be
based on the evaluation of all relevant information and shall indicate the value
of the assets as of a date immediately prior to the announcement of the proposed
Roll-Up Transaction. The appraisal shall assume an orderly liquidation of the
assets over a 12-month period. The terms of the engagement of the Independent
Expert shall clearly state that the engagement is for the benefit of the
Corporation and its stockholders. A summary of the appraisal, indicating all
material assumptions underlying the appraisal, shall be included in a report to
stockholders in connection with a proposed Roll-Up Transaction. In connection
with a proposed Roll-Up Transaction, the Person sponsoring the Roll-Up
Transaction shall offer to each Common Stockholder who votes against the
proposed Roll-Up Transaction the choice of:
(a) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up Transaction; or
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(b) one of the following:
(i) remaining as a Common Stockholder of the Corporation and
preserving its interests therein on the same terms and conditions as
existed previously; or
(ii) receiving cash in an amount equal to the stockholder's
pro rata share of the appraised value of the Net Assets of the
Corporation.
The Corporation is prohibited from participating in any proposed Roll-Up
Transaction:
(a) that would result in the Common Stockholders having voting
rights in a Roll-Up Entity that are less than the rights set forth in
Article XI hereof;
(b) that includes provisions that would operate as a material
impediment to, or frustration of, the accumulation of shares by any
purchaser of the securities of the Roll-Up Entity (except to the minimum
extent necessary to preserve the tax status of the Roll-Up Entity), or
that would limit the ability of an investor to exercise the voting rights
of its securities of the Roll-Up Entity on the basis of the number of
shares held by that investor;
(c) in which investors' rights of access to the records of the
Roll-Up Entity will be less than those described in Section 11.5 and
Section 11.6 hereof; or
(d) in which any of the costs of the Roll-Up Transaction would be
borne by the Corporation if the Roll-Up Transaction is not approved by the
Common Stockholders.
ARTICLE X
CONFLICTS OF INTEREST
SECTION 10.1. Sales and Leases to the Corporation. The Corporation may
purchase or lease a property or properties from the Sponsor, the Advisor, a
director, or any Affiliate thereof upon a finding by a majority of directors
(including a majority of Independent Directors) not otherwise interested in the
transaction that such transaction is fair and reasonable to the Corporation and
at a price to the Corporation no greater than the cost of the property to such
Sponsor, Advisor, director or Affiliate, or, if the price to the Corporation is
in excess of such cost, that substantial justification for such excess exists
and such excess is reasonable. In no event shall the purchase price of any
property to the Corporation exceed its current appraised value.
SECTION 10.2. Sales and Leases to the Sponsor, Advisor, Directors or
Affiliates. An Advisor, Sponsor, director or Affiliate thereof may purchase or
lease properties from the Corporation if a majority of directors (including a
majority of Independent Directors) not otherwise interested in the transaction
determine that the transaction is fair and reasonable to the Corporation.
SECTION 10.3. Other Transactions.
(a) No goods or services will be provided by the Advisor or its Affiliates
to the Corporation unless a majority of the directors (including a majority of
the Independent Directors) not otherwise interested in such transaction approve
such transaction as fair and reasonable to the Corporation and on terms and
conditions not less favorable to the Corporation than those available from
unaffiliated third parties.
(b) The Corporation shall not make loans to the Sponsor, Advisor,
directors or any Affiliates thereof except loans to wholly owned subsidiaries of
the Corporation. The Sponsor, Advisor, directors and any Affiliates thereof
shall not make loans to the Corporation, or to joint ventures in which the
Corporation is a co-venturer, unless approved by a majority of the directors
(including a majority of the Independent Directors) not otherwise interested in
such transaction as fair, competitive and commercially reasonable, and no less
favorable to the Corporation than comparable loans between unaffiliated parties.
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SECTION 10.4. Right of First Opportunity. The Advisor also is obligated to
provide the Corporation with the first opportunity to purchase any Class A
income-producing apartment communities which satisfy the Corporation's
investment objectives, as determined from time to time by the board of
directors, placed under contract by the Advisor or its Affiliates, provided that
the board of directors votes to make the purchase within seven (7) days of being
offered such property by the Advisor.
ARTICLE XI
STOCKHOLDERS
SECTION 11.1 Meetings of Stockholders. There shall be an annual meeting of
the stockholders, to be held at such time and place as shall be determined by or
in the manner prescribed in the bylaws, at which the directors shall be elected
and any other proper business may be conducted. The annual meeting will be held
on a date that is a reasonable period of time (not less than 30 days) following
the distribution of the Corporation's annual report to stockholders. The
directors, including the independent directors, shall take reasonable steps to
ensure this requirement is met. The holders of a majority of shares of Capital
Stock present in person or by proxy, at an annual meeting at which a quorum is
present, may, without the necessity for concurrence by the board, vote to elect
the directors. A quorum shall be 50% of the then outstanding shares of Common
Stock. Special meetings of stockholders may be called in the manner provided in
the bylaws, including by the president or by a majority of the directors or a
majority of the Independent Directors, and shall be called by an officer of the
Corporation upon written request of Common Stockholders holding in the aggregate
not less than 10% of the outstanding shares entitled to be cast on any issue
proposed to be considered at any such special meeting. Notice of any special
meeting of stockholders shall be given as provided in the bylaws and the special
meeting shall be held not less than 15 days nor more than 60 days after the
delivery of such notice. If the meeting is called by written request of
stockholders as described in this Section 11.1, the special meeting shall be
held at the time and place specified in the stockholder request; provided,
however, that if none is so specified, at such time and place convenient to the
stockholders. If there are no directors, the officers of the Corporation shall
promptly call a special meeting of the stockholders entitled to vote for the
election of successor directors. Any meeting may be adjourned and reconvened as
the board may determine or as otherwise provided in the bylaws.
SECTION 11.2. Extraordinary Actions. Notwithstanding any provision of law
permitting or requiring any action to be taken or approved by the affirmative
vote of the holders of shares entitled to cast a greater number of votes, any
such action shall be effective and valid if taken or approved by the affirmative
vote of holders of shares entitled to cast a majority of all the votes entitled
to be cast on the matter.
SECTION 11.3. Voting Rights of Stockholders. Subject to the provisions of
any class or series of shares of Capital Stock then outstanding and the
mandatory provisions of any applicable laws or regulations, the stockholders
shall be entitled to vote only on the following matters: (a) election or removal
of directors, without the necessity for concurrence by the board, as provided in
Sections 11.1, 7.4 and 7.10 hereof; (b) amendment of the Charter as provided in
this Section 11.3 and Article XIII hereof, without the necessity for concurrence
by the board; (c) liquidation or dissolution of the Corporation, without the
necessity for concurrence by the board; (d) merger, reorganization or
consolidation of the Corporation, except that where the merger is effected
through a wholly-owned subsidiary of the Corporation and the consideration to be
paid by the Corporation in the merger consists solely of cash, the merger may be
approved solely by the board unless a party to the merger is an Affiliate of the
Sponsor; (e) the sale or other disposition of all or substantially all of the
Corporation's assets; and (f) such other matters with respect to which the board
of directors has adopted a resolution declaring that a proposed action is
advisable and directing that the matter be submitted to the stockholders for
approval or ratification. Except with respect to the foregoing matters, no
action taken by the stockholders at any meeting shall in any way bind the board.
Without the approval of a majority of the shares entitled to vote on the matter,
the board may not (a) amend the Charter to adversely affect the rights,
preferences and privileges of the shareholders of Capital Stock; (b) amend
Charter provisions relating to director qualifications, fiduciary duties,
liability and indemnification, conflicts of interest, investment policies or
investment restrictions; (c) liquidate or dissolve the Corporation other than
before the initial investment in property; (d) sell all or substantially all of
the Corporation's assets other than in the ordinary course of business or as
otherwise permitted by law; or (e) cause the merger or reorganization of the
Corporation except that where the merger is effected through a wholly-owned
subsidiary of the Corporation and the consideration to be paid by the
Corporation in the merger consists solely of cash, the merger may be approved
solely by the board unless a party to the merger is an Affiliate of the Sponsor.
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SECTION 11.4. Voting Limitations on Shares Held by the Advisor, Directors
and Affiliates. No shares of Common Stock may be transferred or issued to the
Advisor, a director, or any Affiliate thereof unless such prospective
stockholder agrees that it will not vote or consent on matters submitted to the
stockholders regarding (a) the removal of such Advisor, director or any of its
Affiliates or (b) any transaction between the Corporation and any such Advisor,
director or any of its Affiliates. To the extent permitted by the MGCL, in
determining the requisite percentage in interest of shares necessary to approve
a matter on which the Advisor, a director and any of their Affiliates may not
vote or consent, any shares owned by any of them shall not be included.
SECTION 11.5. Right of Inspection. Any stockholder and any designated
representative thereof shall be permitted access to the records of the
Corporation to which it is entitled under applicable law at all reasonable times
and may inspect and copy any such records for a reasonable charge. Inspection of
the Corporation's books and records by the office or agency administering the
securities laws of a jurisdiction shall be permitted upon reasonable notice and
during normal business hours.
SECTION 11.6. Access to Stockholder List. An alphabetical list of the
names, addresses and telephone numbers of the Common Stockholders, along with
the number of shares of Capital Stock held by each of them (the "Stockholder
List"), shall be maintained as part of the books and records of the Corporation
and shall be available for inspection by any Common Stockholder or the
stockholder's designated agent at the home office of the Corporation upon the
request of the Common Stockholder. The Stockholder List shall be updated at
least quarterly to reflect changes in the information contained therein. A copy
of such list shall be mailed to any Common Stockholder so requesting within 10
days of receipt by the Corporation of the request. The copy of the Stockholder
List shall be printed in alphabetical order, on white paper and in a readily
readable type size (in no event smaller than 10-point type). The Corporation may
impose a reasonable charge for expenses incurred in reproduction pursuant to the
stockholder request. A Common Stockholder may request a copy of the Stockholder
List in connection with matters relating to stockholders' voting rights, the
exercise of stockholder rights under federal proxy laws.
If the Advisor or the board neglects or refuses to exhibit, produce or
mail a copy of the Stockholder List as requested, the Advisor or the board, as
the case may be, shall be liable to any Common Stockholder requesting the list
for the costs, including reasonable attorneys' fees incurred by that stockholder
for compelling the production of the Stockholder List and for actual damages
suffered by any Common Stockholder by reason of such refusal or neglect. It
shall be a defense that the actual purpose and reason for the request for
inspection or for a copy of the Stockholder List is to secure such list of
stockholders or other information for the purpose of selling such list or copies
thereof or using the same for a commercial purpose other than in the interest of
the applicant as a stockholder relative to the affairs of the Corporation. The
Corporation may require the stockholder requesting the Stockholder List to
represent that the list is not requested for a commercial purpose unrelated to
the stockholder's interest in the Corporation. The remedies provided hereunder
to stockholders requesting copies of the Stockholder List are in addition to and
shall not in any way limit other remedies available to stockholders under
federal law or the laws of any state.
SECTION 11.7. Reports. The directors, including the Independent Directors,
shall take reasonable steps to insure that the Corporation shall cause to be
prepared and mailed or delivered to each Common Stockholder as of a record date
after the end of the fiscal year and each holder of other publicly held
securities of the Corporation within 120 days after the end of the fiscal year
to which it relates an annual report for each fiscal year ending after the
initial public offering of its securities that shall include: (a) financial
statements prepared in accordance with generally accepted accounting principles
that are audited and reported on by independent certified public accountants;
(b) the ratio of the costs of raising capital during the period to the capital
raised; (c) the aggregate amount of advisory fees and the aggregate amount of
other fees paid to the Advisor and any Affiliate of the Advisor by the
Corporation, including fees or charges paid to the Advisor and any Affiliate of
the Advisor by third parties doing business with the Corporation; (d) the Total
Operating Expenses of the Corporation, stated as a percentage of Average
Invested Assets and as a percentage of its Net Income; (e) a report from the
Independent Directors that the policies being followed by the Corporation are in
the best interests of its Common Stockholders and the basis for such
determination; and (f) separately stated, full disclosure of all material terms,
factors and circumstances surrounding any and all transactions involving the
Corporation, directors, Advisors, Sponsors and any Affiliate thereof occurring
in the year for which the annual report is made, and the Independent Directors
shall be specifically charged with a
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duty to examine and comment in the report on the fairness of such transactions.
The board of directors, including the Independent Directors, shall take
reasonable steps to ensure that the requirements of this Section 11.7 are met.
Such report may be delivered by any reasonable means, including by delivery of a
written or electronic notice that indicates how the report may be accessed on
the Corporation's web address.
ARTICLE XII
LIABILITY LIMITATION, INDEMNIFICATION AND
TRANSACTIONS WITH THE CORPORATION
SECTION 12.1. Limitation of Stockholder Liability. No stockholder shall be
liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Corporation by reason of his being a stockholder,
nor shall any stockholder be subject to any personal liability whatsoever, in
tort, contract or otherwise, to any Person in connection with the Corporation's
assets or the affairs of the Corporation by reason of his being a stockholder.
The shares of Common Stock shall be non-assessable by the Corporation.
SECTION 12.2. Limitation of Director and Officer Liability;
Indemnification.
(a) Subject to any applicable conditions set forth under Maryland law or
in paragraph (b) below, (i) no director or officer of the Corporation shall be
liable to the Corporation or its stockholders for money damages and (ii) the
Corporation shall indemnify and pay or reimburse reasonable expenses in advance
of the final disposition of a proceeding to (A) any individual who is a present
or former director or officer of the Corporation; (B) any individual who, while
a director or officer of the Corporation and at the request of the Corporation,
serves or has served as a director, officer, partner or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise; or (C) the Advisor or any of its Affiliates acting as an agent
of the Corporation and their respective officers, directors, managers and
employees, from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his service in such
capacity. Neither the amendment nor repeal of this paragraph (a) of Section
12.2, nor the adoption or amendment of any other provision of the Charter or
bylaws inconsistent with this paragraph (a) of Section 12.2, shall apply to or
affect in any respect the applicability of the preceding sentences with respect
to any act or failure to act that occurred prior to such amendment, repeal or
adoption.
(b) Notwithstanding anything to the contrary contained in clause (i) or
(ii) of paragraph (a) above, the Corporation shall not provide for
indemnification of or hold harmless a director, an Advisor or any Affiliate of
an Advisor (the "Indemnitee") for any liability or loss suffered by any of them,
unless all of the following conditions are met:
(i) the Indemnitee has determined, in good faith, that the course of
conduct that caused the loss or liability was in the best interests of the
Corporation;
(ii) the Indemnitee was acting on behalf of or performing services
for the Corporation;
(iii) such liability or loss was not the result of (A) negligence or
misconduct, in the case that the Indemnitee is a director (other than an
Independent Director), an Advisor or an Affiliate of an Advisor or (B)
gross negligence or willful misconduct, in the case that the Indemnitee is
an Independent Director;
(iv) such indemnification or agreement to hold harmless is
recoverable only out of Net Assets and not from stockholders; and
(v) with respect to losses, liabilities or expenses arising from or
out of an alleged violation of federal or state securities laws, one or
more of the following conditions are met: (A) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the Indemnitee; (B) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
Indemnitee; or (C) a court of competent jurisdiction approves a settlement
of the claims against the Indemnitee and finds that indemnification of the
settlement and the related costs should be made, and the court considering
the request for indemnification has been advised of the position of the
Securities and Exchange Commission and of the published position of any
state securities regulatory authority in which securities of the
Corporation were offered or sold as to indemnification for violations of
securities laws.
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SECTION 12.3. Payment of Expenses. The Corporation shall pay or reimburse
reasonable legal expenses and other costs incurred by an Indemnitee in advance
of final disposition of a proceeding if all of the following are satisfied: (i)
the proceeding relates to acts or omissions with respect to the performance of
duties or services on behalf of the Corporation, (ii) the Indemnitee provides
the Corporation with written affirmation of the Indemnitee's good faith belief
that the Indemnitee has met the standard of conduct necessary for
indemnification by the Corporation as authorized by Section 12.2 hereof, (iii)
the legal proceeding was initiated by a third party who is not a stockholder or,
if by a stockholder of the Corporation acting in his or her capacity as such, a
court of competent jurisdiction approves such advancement, and (iv) the
Indemnitee provides the Corporation with a written agreement to repay the amount
paid or reimbursed by the Corporation, together with the applicable legal rate
of interest thereon, if it is ultimately determined that the Indemnitee did not
comply with the requisite standard of conduct and is not entitled to
indemnification. Any indemnification payment or reimbursement of expenses will
be furnished in accordance with the procedures in Section 2-418(e) of the MGCL
or any successor statute.
SECTION 12.4. Express Exculpatory Clauses in Instruments. Neither the
stockholders nor the directors, officers, employees or agents of the Corporation
shall be liable under any written instrument creating an obligation of the
Corporation by reason of their being stockholders, directors, officers,
employees or agents of the Corporation, and all Persons shall look solely to the
Corporation's assets for the payment of any claim under or for the performance
of that instrument. The omission of the foregoing exculpatory language from any
instrument shall not affect the validity or enforceability of such instrument
and shall not render any stockholder, director, officer, employee or agent
liable thereunder to any third party, nor shall the directors or any officer,
employee or agent of the Corporation be liable to anyone as a result of such
omission.
SECTION 12.5. Transactions with Affiliates. The Corporation shall not
engage in transactions with the Advisor, the Sponsor, a director or any of the
Corporation's Affiliates, except to the extent that each such transaction has,
after disclosure of such affiliation, been approved or ratified by the
affirmative vote of a majority of the directors (including a majority of the
Independent Directors) not Affiliated with the Person who is party to the
transaction and:
(a) The transaction is fair and reasonable to the Corporation.
(b) The terms and conditions of such transaction are not less
favorable to the Corporation than those available from unaffiliated third
parties.
(c) If an acquisition is involved, the total consideration is not in
excess of the appraised value of the Property being acquired, as
determined by an Independent Appraiser.
ARTICLE XIII
AMENDMENT
The Corporation reserves the right from time to time to make any amendment
to the Charter, now or hereafter authorized by law, including any amendment
altering the terms or contract rights, as expressly set forth in the Charter, of
any outstanding shares of Capital Stock. All rights and powers conferred by the
Charter on stockholders, directors and officers are granted subject to this
reservation. Except for any amendments permitted to be made without stockholder
approval by specific provision in the Charter, any amendment to the Charter
shall be valid only if approved by the affirmative vote of a majority of all
votes entitled to be cast on the matter, including without limitation, (1) any
amendment which would adversely affect the rights, preferences and privileges of
the stockholders and (2) any amendment to Article IX, Article X, Article XII,
Sections 7.2, 7.5 and 7.10 and this Article XIII (or any other amendment of the
Charter that would have the effect of amending such sections).
THIRD: The amendment and restatement of the Charter of the Corporation as
hereinabove set forth were duly advised by the board of directors and approved
by the sole stockholder of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation is
as set forth in Article III of the foregoing amendment and restatement of the
Charter.
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FIFTH: The name and address of the Corporation's current resident agent
are as set forth in Article III of the foregoing amendment and restatement of
the Charter.
SIXTH: The number of directors of the Corporation and the names of those
currently in office are as set forth in Section 7.1 of the foregoing amendment
and restatement of the Charter.
SEVENTH: The total number of shares of stock which the Corporation had
authority to issue immediately prior to this amendment and restatement was
100,000 shares of Common Stock $0.01 par value per share. The aggregate par
value of all shares of stock having par value was $1,000.
EIGHTH: The total number of shares of stock which the Corporation has
authority to issue pursuant to the foregoing amendment and restatement of the
charter is 350,000,000, consisting of 300,000,000 shares of Common Stock, $0.01
par value per share, and 50,000,000 shares of Preferred Stock, $0.01 par value
per share. The aggregate par value of all authorized shares of stock having par
value is $3,500,000.
NINTH: The undersigned President acknowledges the foregoing amendment and
restatement of the Charter to be the corporate act of the Corporation and as to
all matters and facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties of perjury.
IN WITNESS WHEREOF, NNN Apartment REIT, Inc. has caused the foregoing
amendment and restatement of the Charter to be signed in its name and on its
behalf by its President and attested to by its Secretary on this 18th day of
July, 2006.
ATTEST: NNN APARTMENT REIT, INC.
/s/ Andrea R. Biller By: /s/ Louis J. Rogers
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Name: Andrea R. Biller Name: Louis J. Rogers
Title: Secretary Title: President
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