EXHIBIT 4.1
ARTICLES SUPPLEMENTARY
OF
HRE PROPERTIES, INC.
HRE Properties, Inc., a Maryland corporation (the "Company"),
hereby certifies to the Maryland State Department of Assessments and Taxation
that:
FIRST: Pursuant to authority contained in Article 7 of the
Charter of the Company (the "Charter"), 350,000 shares of authorized but
unissued shares of the Company's preferred stock have been duly classified by
the Board of Directors of the Company on December 17, 1997, as authorized but
unissued shares of the Company's 8.99% Series B Senior Cumulative Preferred
Stock and the Board of Directors of the Company has set the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption thereof.
SECOND: A description of the 8.99% Series B Senior Cumulative
Preferred Stock including the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption, as set by Board of Directors of the Company is as
follows:
1. Designation and Number. A series of preferred stock,
designated the 8.99% Series B Senior Cumulative Preferred Stock (the "Series B
Preferred Stock"), is hereby established. The number of shares constituting the
Series B Preferred Stock shall be 350,000.
2. Defined Terms. The terms defined in this Section, whenever
used herein, shall, unless the context otherwise requires, have the respective
meanings hereinafter specified:
"Calculation Period" means, as of any date of determination,
the period comprised of the two most recently completed fiscal quarters of the
Company immediately preceding the fiscal quarter of the Company in which such
date of determination occurs.
"Capitalization Ratio" means, as of any date of determination,
the ratio obtained by dividing (i) the sum of (A) the aggregate amount of Debt
of the Company and (B) the aggregate amount of Preferred Stock of the Company by
(ii) the sum of (A) the aggregate amount of Debt of the Company, (B) the
aggregate amount of Preferred Stock of the Company, (C) the aggregate amount of
capital (including surplus) which in accordance with generally accepted
accounting principles would be reflected on a balance sheet of the Company in
connection with the Common Stock of the Company as of the end of the quarter
immediately preceding the fiscal quarter of the Company in which such date of
determination occurs and (D) accumulated depreciation of the Company as set
forth on the Company's balance sheet as of the end of the quarter immediately
preceding the fiscal quarter of the Company in which such date of determination
occurs.
"Capitalized Lease Obligations" of a person means any
obligation that is required to be classified and accounted for as a capital
lease on the face of a balance sheet of such person prepared in accordance with
generally accepted accounting principles; the amount of such obligation shall be
the capitalized amount thereof determined in accordance with generally accepted
accounting principles; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Change of Control" means either (i) the occurrence of any
merger or other acquisition with or by any person, entity or group as a
consequence of which a majority of the outstanding shares of Common Stock of the
Company shall be owned or acquired by such person, entity or group or (ii) the
occurrence of any event or transaction as a consequence of which the persons,
entities or organizations set forth in (A), (B) and (C), below, shall, in the
aggregate, cease to own, beneficially or of record, or cease to control the
voting or disposition or the power to direct the voting or disposition of, at
least 75% of the number of shares of Common Stock of the Company which the
persons, entities or organizations set forth in (A), (B) or (C), below, in the
aggregate, own, beneficially or of record, or control the voting or disposition
or have the power to direct the voting or disposition of, as of the date hereof
(excluding, for the avoidance of doubt, any stock options or other stock rights
which any such person, entity or organization may now own or hereafter acquire
for purposes of this definition): (A) Charles J. Urstadt; (B) any Immediate
Relative of Charles J. Urstadt (defined as his spouse, any of his children or
any of their spouses, any of his grandchildren or any of their spouses); or (C)
any trust, corporation, partnership, limited liability company or other entity
or organization controlled by Charles J. Urstadt or any Immediate Relative of
Charles J. Urstadt or in which Charles J. Urstadt or any Immediate Relative of
Charles J. Urstadt has any economic, beneficial or other interest.
"Common Stock" means the common stock, par value $.01 per
share, of the Company, any stock into which such common stock shall have been
changed or any stock resulting from any capital reorganization or
reclassification of such common stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions of any shares entitled to preference.
"De Minimis Series B Preferred Stock" means up to 100 shares
of Series B Preferred Stock to be issued at the sole discretion of the Company
subsequent to the original issuance of the Series B Preferred Stock pursuant to
the consent of the holders of the Series B Preferred Stock contained in the
Subscription Agreement.
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"Debt" of any person means, without duplication:
(i) the principal of and premium (if any) in respect
of (A) indebtedness of such person for money borrowed and (B) other
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such person is responsible or
liable;
(ii) all Capitalized Lease Obligations of such
person;
(iii) all obligations of such person issued or
assumed as the deferred purchase price of property, all conditional
sale obligations of such person and all obligations of such person
under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business);
(iv) all obligations of such person for the
reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the
ordinary course of business of such person to the extent such letters
of credit are not drawn upon or, if and to the extent drawn upon, such
drawing is reimbursed no later than the third business day following
receipt by such person of a demand for reimbursement following payment
on the letter of credit);
(v) the amount of all obligations of such person with
respect to the redemption, repayment or other repurchase of any
redeemable stock (but excluding any accrued dividends);
(vi) all obligations of the type referred to in
clauses (i) through (v) of other persons and all dividends of other
persons for the payment of which, in either case, such person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any agreement that has the economic
effect of a guarantee; and
(vii) all obligations of the type referred to in
clauses (i) through (vi) of any other person secured by any Lien on any
property or asset of such person (whether or not such obligation is
assumed by such person), the amount of such obligation being deemed to
be the lesser of the value of such property or assets and the amount of
the obligation so secured.
"Discount Rate" means, as of any date of determination, the
yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York
City time) on the second business day preceding such date of determination on
the display designated as "Page 678" on the Telerate Access Service (or such
other display as may replace Page 678 on Telerate Access Service) for actively
traded U.S. Treasury securities having a 30-year maturity as of such date
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of determination, or (ii) if such yields are not reported as of such time or the
yields reported as of such time are not ascertainable, the Treasury Constant
Maturity Series Yields reported, for the latest day for which such yields have
been so reported as of the second business day preceding the date of
determination in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury securities
having a 30-year constant maturity as of such date of determination.
"Fixed Charge Coverage Ratio" means, as of any date of
determination, the ratio obtained by dividing (i) the sum (A) of Interest
Expense for the Calculation Period and (B) Funds From Operations for the
Calculation Period by (ii) the sum of (A) Interest Expense for the Calculation
Period and (B) Preferred Dividends for the Calculation Period; provided,
however, that (x) if the Company has issued any Debt or Preferred Stock since
the beginning of the Calculation Period that remains outstanding or (y) if the
transactions giving rise to the need to calculate the Fixed Charge Coverage
Ratio is an issuance of Debt or Preferred Stock, or both (x) and (y), Interest
Expense and Preferred Dividends for the Calculation Period shall be calculated
after giving effect on a pro forma basis to such Debt or Preferred Stock as if
such Debt or Preferred Stock had been issued on the first day of the Calculation
Period and the discharge of any other Debt or Preferred Stock refinanced,
refunded, exchanged or otherwise discharged with the proceeds of such new Debt
or Preferred Stock as if any such discharge had occurred on the first day of the
Calculation Period.
"Funds From Operations" means, with respect to any fiscal
quarter, (a) the net income of the Company for that quarter, plus (b) any loss
resulting from the restructuring of Debt, or sale of property during that
period, minus (c) any gain resulting from the restructuring of Debt, or sale of
property during that period, plus (d) depreciation and amortization of
properties (including with respect to trade fixtures and tenant allowances or
improvements which are a part thereof and capitalized leasing expenses, such as
leasing commissions), and adjusted to take into account (i) the results of
operations of any unconsolidated joint venture or partnership calculated to
reflect funds from operations on the same basis and (ii) any unusual and
non-recurring items which otherwise would materially distort the comparative
measurement of Funds From Operations for different fiscal periods. Funds From
Operations shall be determined in accordance with the March 1995 White Paper on
Funds From Operations approved by the Board of Governors of the National
Association of Real Estate Investment Trusts, as in effect on the date of
issuance of the Series B Preferred Stock.
"Interest Expense" means, for any period, the total interest
expense of the Company, including (i) interest expense attributable to capital
leases, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs under hedging obligations
(including amortization of fees), (vii) interest actually paid by the Company
under any guarantee of Debt or other obligation of any other person.
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"Lien" means any mortgage, pledge, security interest,
conditional sale or other title retention agreement or other similar lien.
"Make-Whole Price" means, for any share of Series B Preferred
Stock as of any date of determination, the sum of (i) the present value as of
such date of determination of all remaining scheduled dividend payments of such
share of Series B Preferred Stock until the Tenth Anniversary Date, discounted
by the Discount Rate, (ii) the Liquidation Preference (as defined in Section 6)
and (iii) all accrued and unpaid dividends thereon to such date of
determination.
"Preferred Dividends" means dividends accrued in respect of
all Preferred Stock held by persons other than the Company.
"Preferred Stock" means, as applied to the capital stock of
the Company, capital stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of capital stock of any other class of the Company.
"Regulated Person" means any bank holding company, subsidiary
of a bank holding company or other person or entity that is subject to the Bank
Holding Company Act of 1956, as amended from time to time.
"Senior Obligations" means any (i) Debt other than accounts
payable incurred in the ordinary course of the Company's business and (ii) any
equity securities of the Company which rank senior to the Series B Preferred
Stock with respect to the payment of dividends or the distribution of assets
upon liquidation, dissolution or winding up of the Company.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency).
"Subscription Agreement" means that certain Subscription
Agreement, by and among the Company and certain holders of the Series B
Preferred Stock, dated as of January 8, 1998, as the same may be amended,
modified or supplemented from time to time in accordance with the provisions
thereof.
"Tenth Anniversary Date" means the date which is the tenth
anniversary of the date of issuance of the Series B Preferred Stock.
3. Maturity. The Series B Preferred Stock has no stated
maturity and will not be subject to any sinking fund or mandatory redemption.
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4. Rank. The Series B Preferred Stock will, with respect to
dividend rights and rights upon liquidation, dissolution or winding up of the
Company, rank (i) senior to all classes or series of Common Stock of the
Company, and to all equity securities issued by the Company ranking junior to
the Series B Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company, (ii) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Series B Preferred Stock
with respect to dividend rights or rights upon liquidation, dissolution or
winding up of the Company, and (iii) junior to all existing and future
indebtedness of the Company. Without the affirmative vote or consent of at least
two-thirds of the outstanding shares of Series B Preferred Stock, the Company
may not issue any additional shares of Series B Preferred Stock (other than
shares of De Minimis Series B Preferred Stock) or any equity securities which
rank senior to the Series B Preferred Stock with respect to dividend rights or
rights upon liquidation, dissolution or winding up of the Company. The term
"equity securities" does not include convertible debt securities, which will
rank senior to the Series B Preferred Stock prior to conversion.
5. Dividends.
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(a) Holders of shares of the Series B Preferred Stock are
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment of dividends, preferential cumulative
cash dividends at the rate of 8.99% per annum of the Liquidation Preference (the
"Initial Dividend Yield"); provided, however, that if the Company should violate
the Fixed Charge Coverage Ratio Covenant (as defined in Section 10) or the
Capitalization Ratio Covenant (as defined in Section 10), and fails to cure such
violation on or prior to the second succeeding dividend payment date, the
Initial Dividend Yield shall be increased to the 200 basis points over the
Initial Dividend Yield (the "First Default Dividend Yield") as of such second
succeeding dividend payment date. If the Company remains in violation of either
the Fixed Charge Ratio Covenant or the Capitalization Ratio Covenant on four
consecutive dividend payment dates subsequent to the initial violation of either
such covenant, the Initial Dividend Yield shall increase to the greater of (i)
the Discount Rate plus 700 basis points or (ii) 15% (the "Second Default
Dividend Yield") as of such fourth consecutive dividend payment date. The First
Default Dividend Yield and the Second Default Dividend Yield will revert back to
the Initial Dividend Yield if the Company remains in compliance with the Fixed
Charge Coverage Ratio Covenant and the Capitalization Ratio Covenant on two
consecutive dividend payment dates after such First Default Dividend Yield or
Second Default Dividend Yield takes effect.
(b) Dividends on the Series B Preferred Stock shall be
cumulative from the date of original issue and shall be payable in arrears for
each quarterly period ended January 31, April 30, July 31 and October 31 on
January 31, April 30, July 31 and October 31, respectively, of each year, or, if
any such date shall not be a business day, the next succeeding business day
(each, a "Dividend Payment Date"). The first dividend will be payable on January
31, 1998 with respect to the period commencing on the date of issue and ending
January 31, 1998 and will be for less than a full quarterly period. Any
quarterly dividend payable on the Series B
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Preferred Stock for any partial dividend period will be computed on the basis of
a 360-day year consisting of twelve 30-day months. Dividends will be payable to
holders of record as they appear in the stock records of the Company at the
close of business on the applicable record date determined each quarter by the
Board of Directors, as provided by the Maryland General Corporation Law (the
"MGCL") (each, a "Dividend Record Date").
(c) No dividends on shares of Series B Preferred Stock shall
be declared by the Board of Directors or paid or set apart for payment by the
Company at such time as the terms and provisions of any agreement of the
Company, including any agreement relating to its indebtedness, prohibits such
declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such declaration or payment shall be
restricted or prohibited by law.
(d) Notwithstanding the foregoing, dividends on the Series B
Preferred Stock will accrue whether or not the Company has earnings, whether or
not there are funds legally available for the payment of such dividends and
whether or not such dividends are declared. Accrued but unpaid dividends on the
Series B Preferred Stock will not bear interest and holders of the Series B
Preferred Stock will not be entitled to any distributions in excess of full
cumulative distributions described above. Except as set forth in the next
sentence, no dividends will be declared or paid or set apart for payment on any
capital stock of the Company or any other series of preferred stock ranking, as
to dividends, on a parity with or junior to the Series B Preferred Stock (other
than a dividend in shares of the Company's Common Stock or in shares of any
other class of stock ranking junior to the Series B Preferred Stock as to
dividends and upon liquidation) for any period unless full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof is set apart for such payment on the Series B
Preferred Stock for all past dividend periods and the then current dividend
period. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the Series B Preferred Stock and the shares of
any other series of preferred stock ranking on a parity as to dividends with the
Series B Preferred Stock, all dividends declared upon the Series B Preferred
Stock and any other series of preferred stock ranking on a parity as to
dividends with the Series B Preferred Stock shall be declared pro rata so that
the amount of dividends declared per share of Series B Preferred Stock and such
other series of preferred stock, shall in all cases bear to each other the same
ratio that accrued dividends per share on the Series B Preferred Stock and such
other series of preferred stock (which shall not include any accrual in respect
of unpaid dividends for prior dividend periods if such preferred stock does not
have a cumulative dividend) bear to each other.
(e) Except as provided in the immediately preceding paragraph
(d), unless full cumulative dividends on the Series B Preferred Stock have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for payment for all past dividend periods and
the then current dividend period, no dividends (other than in shares of Common
Stock or other shares of capital stock ranking junior to the Series B Preferred
Stock as to dividends and upon liquidation) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made upon the
Common Stock, or any
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other capital stock of the Company ranking junior to or on a parity with the
Series B Preferred Stock as to dividends or upon liquidation, nor shall any
shares of Common Stock, or any other shares of capital stock of the Company
ranking junior to or on a parity with the Series B Preferred Stock as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares) by the Company (except by conversion into
or exchange for other capital stock of the Company ranking junior to the Series
B Preferred Stock as to dividends and upon liquidation or redemption for the
purpose of preserving the Company's qualification as a real estate investment
trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the
"Code")). Holders of shares of the Series B Preferred Stock shall not be
entitled to any dividend, whether payable in cash, property or stock, in excess
of full cumulative dividends on the Series B Preferred Stock as provided above.
Any dividend payment made on shares of the Series B Preferred Stock shall first
be credited against the earliest accrued but unpaid dividend due with respect to
such shares which remains payable.
6. Liquidation Preference.
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(a) Upon any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company, the holders of shares of Series B
Preferred Stock are entitled to be paid out of the assets of the Company legally
available for distribution to its stockholders a liquidation preference of $100
per share (the "Liquidation Preference"), plus an amount equal to any accrued
and unpaid dividends to the date of payment, but without interest, before any
distribution of assets is made to holders of Common Stock or any other class or
series of capital stock of the Company that ranks junior to the Series B
Preferred Stock as to liquidation rights, but the holders of the shares of
Series B Preferred Stock will not be entitled to receive the Liquidation
Preference, plus any accrued and unpaid dividends, of such shares until the
liquidation preference of any other series or class of the Company's capital
stock hereafter issued which ranks senior as to liquidation rights to the Series
B Preferred Stock has been paid in full. The holders of Series B Preferred Stock
and all series or classes of the Company's capital stock hereafter issued which
rank on a parity as to liquidation rights with the Series B Preferred Stock are
entitled to share ratably, in accordance with the respective preferential
amounts payable on such capital stock, in any distribution (after payment of the
liquidation preference of any capital stock of the Company that ranks senior to
the Series B Preferred Stock as to liquidation rights) which is not sufficient
to pay in full the aggregate of the amounts payable thereon. Holders of Series B
Preferred Stock will be entitled to written notice of any event triggering the
right to receive such Liquidation Preference. After payment of the full amount
of the Liquidation Preference, plus any accrued and unpaid dividends to which
they are entitled, the holders of Series B Preferred Stock will have no right or
claim to any of the remaining assets of the Company. The consolidation or merger
of the Company with or into any other corporation, trust or entity or of any
other corporation with or into the Company, or the sale, lease or conveyance of
all or substantially all of the property or business of the Company, shall not
be deemed to constitute a liquidation, dissolution or winding up of the Company.
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(b) In determining whether a distribution to holders of Series
B Preferred Stock (other than upon voluntary or involuntary liquidation) by
dividend, redemption or other acquisition of shares of stock of the Company or
otherwise is permitted under the MGCL, no effect shall be given to amounts that
would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon distribution of holders of
shares of stock of the Company whose preferential rights upon dissolution are
superior to those receiving the distribution.
7. Redemption.
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(a) Subject to a redemption of shares of Series B Preferred
Stock which shall be converted to Excess Stock (as defined in Section 12)
pursuant to the Charter and a Change of Control, the Series B Preferred Stock is
not redeemable prior to the Tenth Anniversary Date. However, in order to ensure
that the Company will continue to meet the requirements for qualification as a
REIT under the Code, the Company will have the right to purchase from the holder
of shares of Series B Preferred Stock at any time any shares of Series B
Preferred Stock in excess of 7.5% of the value of the outstanding capital stock
of the Company. On and after the Tenth Anniversary Date, the Company, at its
option, upon not less than 30 nor more than 60 days' written notice, may redeem
shares of the Series B Preferred Stock, in whole or in part, at any time or from
time to time, for cash at a redemption price of $100 per share, plus all accrued
and unpaid dividends thereon to the date fixed for redemption (except with
respect to shares of Series B Preferred Stock which shall have been converted
into shares of Excess Stock pursuant to the Charter), without interest. Holders
of Series B Preferred Stock which is to be redeemed shall surrender such Series
B Preferred Stock at the place designated in such notice and shall be entitled
to the redemption price and any accrued and unpaid dividends payable upon such
redemption following such surrender. If notice of redemption of any shares of
Series B Preferred Stock has been given and if the funds necessary for such
redemption have been set aside by the Company in trust for the benefit of the
holders of any shares of Series B Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such shares
of Series B Preferred Stock, such shares of Series B Preferred Stock shall no
longer be deemed outstanding and all rights of the holders of such shares will
terminate, except the right to receive the redemption price. If less than all of
the outstanding shares of Series B Preferred Stock is to be redeemed, the Series
B Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be
practicable without creating fractional shares) or by any other equitable method
determined by the Company.
(b) Unless full cumulative dividends on all shares of Series B
Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, no shares of
Series B Preferred Stock shall be redeemed unless all outstanding shares of
Series B Preferred Stock are simultaneously redeemed and the Company shall not
purchase or otherwise acquire directly or indirectly any shares of Series B
Preferred Stock (except by exchange for capital stock of the Company ranking
junior to the Series B Preferred Stock as to dividends and upon liquidation);
provided, however, that the foregoing shall not
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prevent the purchase by the Company of Excess Stock in order to ensure that the
Company continues to meet the requirements for qualification as a REIT, or the
purchase or acquisition of shares of Series B Preferred Stock pursuant to the
Subscription Agreement or any other purchase or exchange offer made on the same
terms to holders of all outstanding shares of Series B Preferred Stock. So long
as no dividends are in arrears, the Company shall be entitled at any time and
from time to time to repurchase shares of Series B Preferred Stock in
open-market transactions duly authorized by the Board of Directors and effected
in compliance with applicable laws.
(c) Notice of redemption will be given by publication in a
newspaper of general circulation in the City of New York, such publication to be
made once a week for two successive weeks commencing not less than 30 nor more
than 60 days prior to the redemption date. A similar notice will be mailed by
the Company, postage prepaid, not less than 30 nor more than 60 days prior to
the redemption date, addressed to the respective holders of record of the Series
B Preferred Stock to be redeemed at their respective addresses as they appear on
the stock transfer records of the Company. No failure to give such notice or any
defect therein or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any shares of Series B Preferred Stock except
as to the holder to whom notice was defective or not given. Each notice shall
state: (i) the redemption date; (ii) the redemption price; (iii) the number of
shares of Series B Preferred Stock to be redeemed; (iv) the place or places
where the Series B Preferred Stock is to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will cease
to accrue on such redemption date. If less than all of the Series B Preferred
Stock held by any holder is to be redeemed, the notice mailed to such holder
shall also specify the number of shares of Series B Preferred Stock held by such
holder to be redeemed.
(d) Immediately prior to any redemption of Series B Preferred
Stock, the Company shall pay, in cash, any accumulated and unpaid dividends
through the redemption date, unless a redemption date falls after a Dividend
Record Date and prior to the corresponding Dividend Payment Date, in which case
each holder of Series B Preferred Stock at the close of business on such
Dividend Record Date shall be entitled to the dividend payable on such shares on
the corresponding Dividend Payment Date notwithstanding the redemption of such
shares before such Dividend Payment Date.
8. Change of Control.
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(a) In the event of a Change of Control of the Company, each
holder of shares of Series B Preferred Stock shall have the right, at such
holder's option, to require the Company to repurchase all or any part of such
holder's Series B Preferred Stock for cash at a repurchase price of $100 per
share, plus all accrued and unpaid dividends thereon, if any, up to the date
fixed for repurchase (except with respect to shares of Series B Preferred Stock
which shall have been converted into shares of Excess Stock pursuant to the
Charter), without interest, pursuant to the procedures described below (the
"Change of Control Put Option"), subject to the MGCL.
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(b) In connection with any Change of Control, the Company will
be required to mail to each holder of shares of Series B Preferred Stock, not
later than the date of the occurrence of such Change of Control, a notice of
such occurrence (the "Change of Control Notice"), which shall specify the
purchase price and the purchase date, which shall be no fewer than 30 business
days and no more than 40 business days from the date such notice is mailed (the
"Put Option Payment Date"), and describe the procedure that must be followed by
such holder to tender such holder's shares of Series B Preferred Stock. The
Company will be required to deliver a copy of the Change of Control Notice to
each record and known beneficial holder of shares of Series B Preferred Stock as
of the date that is 15 days prior to the date such Change of Control Notice is
mailed. To exercise the Change of Control Put Option, a holder of shares of
Series B Preferred Stock must deliver, on or before the third business day
preceding the Put Option Payment Date, written notice to the Company (or to a
paying agent designated by the Company for such purpose) of such holder's
exercise of the Change of Control Put Option, indicating the number of shares of
Series B Preferred Stock to be repurchased by the Company. Holders of shares of
Series B Preferred Stock will be entitled to withdraw, in whole or in part, any
tender of shares of Series B Preferred Stock pursuant to an exercise of the
Change of Control Put Option by delivering to the Company (or to a paying agent
designated by the Company for such purpose), on or before the second business
day preceding the Put Option Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the number of
shares of Series B Preferred Stock initially to be delivered for purchase, and a
statement that such holder is withdrawing its exercise of the Change of Control
Put Option as to all or part of such tendered shares of Series B Preferred
Stock.
(c) In the event of a Change of Control of the Company, the
Company shall have the right, at the Company's option, to redeem all or any part
of the shares of each holder of Series B Preferred Stock at (i) prior to the
Tenth Anniversary Date, the Make-Whole Price as of the date fixed for redemption
(except with respect to shares of Series B Preferred Stock which shall have been
converted into shares of Excess Stock pursuant to the Charter) and (ii) on or
subsequent to the Tenth Anniversary Date, the redemption price of $100 per
share, plus all accrued and unpaid dividends thereon, if any, without interest,
up to the date fixed for redemption (except with respect to shares of Series B
Preferred Stock which shall have been converted into shares of Excess Stock
pursuant to the Charter), in each case pursuant to the procedures applicable to
other redemptions of shares of Series B Preferred Stock.
9. Voting Rights.
-------------
(a) Holders of the Series B Preferred Stock will not have any
voting rights, except as set forth below.
(b) Whenever dividends on any shares of Series B Preferred
Stock shall be in arrears for three or more quarterly periods within any five
year period, whether or not such quarterly periods are consecutive (a "Preferred
Dividend Default"), the number of directors then constituting the Board of
Directors shall be increased by two (if not already increased by reason of a
similar arrearage with respect to any Parity Preferred (as hereinafter
defined)), and the
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holders of such shares of Series B Preferred Stock (subject to certain
restrictions in case of any Regulated Person) will be entitled to vote
separately as a class with all other series of preferred stock ranking on a
parity with the Series B Preferred Stock as to dividends or upon liquidation and
upon which like voting rights have been conferred and are exercisable ("Parity
Preferred"), in order to fill the vacancies thereby created, for the election of
a total of two additional directors of the Company (the "Preferred Stock
Directors") at a special meeting called by the Company at the request of holders
of record of at least 20% of the Series B Preferred Stock or the holders of
record of at least 20% of any series of Parity Preferred so in arrears (unless
such request is received less than 90 days before the date fixed for the next
annual meeting of stockholders) or at the next annual meeting of stockholders,
and at each subsequent annual meeting until all dividends accumulated on such
shares of Series B Preferred Stock and Parity Preferred for the past dividend
periods and the dividend for the then current dividend period shall have been
fully paid or declared and a sum sufficient for the payment thereof set aside
for payment. In the event the directors of the Company are divided into classes,
each such vacancy shall be apportioned among the classes of directors to prevent
stacking in any one class and to insure that the number of directors in each of
the classes of directors, are as nearly equal as possible. Each Preferred Stock
Director, as a qualification for election as such (and regardless of how
elected) shall submit to the Board of Directors of the Company a duly executed,
valid, binding and enforceable letter of resignation from the Board of
Directors, to be effective upon the date upon which all dividends accumulated on
such shares of Series B Preferred Stock and Parity Preferred for the past
dividend periods and the dividend for the then current dividend period shall
have been fully paid or declared and a sum sufficient for the payment thereof
set aside for payment, whereupon the terms of office of all persons elected as
Preferred Stock Directors by the holders of the Series B Preferred Stock and any
Parity Preferred shall, upon the effectiveness of their respective letters of
resignation, forthwith terminate, and the number of directors then constituting
the Board of Directors shall be reduced accordingly. A quorum for any meeting
shall exist if at least a majority of the outstanding shares of Series B
Preferred Stock and shares of Parity Preferred upon which like voting rights
have been conferred and are exercisable are represented in person or by proxy at
such meetings. Such Preferred Stock Directors shall be elected upon the
affirmative vote of a plurality of the shares of Series B Preferred Stock and
such Parity Preferred present and voting in person or by proxy at a duly called
and held meeting at which a quorum is present. If and when all accumulated
dividends and the dividend for the then current dividend period on the Series B
Preferred Stock shall have been paid in full or declared and set aside for
payment in full, the holders thereof shall be divested of the foregoing voting
rights (subject to revesting in the event of each and every Preferred Dividend
Default). Any Preferred Stock Director may be removed at any time with or
without cause by, and shall not be removed otherwise than by the vote of, the
holders of record of a majority of the outstanding shares of the Series B
Preferred Stock when they have the voting rights described above (voting
separately as a class with all series of Parity Preferred upon which like voting
rights have been conferred and are exercisable). So long as a Preferred Dividend
Default shall continue, any vacancy in the office of a Preferred Stock Director
may be filled by written consent of the Preferred Stock Director remaining in
office, or if none remains in office, by a vote of the holders of record of a
majority of the outstanding shares of Series B Preferred Stock when they have
the voting rights described above (voting separately
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as a class with all series of Parity Preferred upon which like voting rights
have been conferred and are exercisable). The Preferred Stock Directors shall
each be entitled to one vote per director on any matter properly coming before
the Board of Directors.
(c) So long as any shares of Series B Preferred Stock remain
outstanding, the Company will not, without the affirmative vote or consent of
the holders of at least two-thirds of the shares of the Series B Preferred Stock
outstanding at the time, given in person or by proxy, either in writing or at a
meeting (voting separately as a class):
(i) voluntarily terminate the status of the company as a
REIT;
(ii) amend, alter or repeal the provisions of the Charter or
these Articles Supplementary, whether by merger,
consolidation or otherwise (an "Event"), so as to
materially and adversely affect any preferences,
conversion and other rights, voting powers,
restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption
of the Series B Preferred Stock or the holders thereof
(including, without limitation, the issuance of any
additional shares of Series B Preferred Stock (other
than shares of De Minimis Series B Preferred Stock));
provided, however, that without the affirmative vote or
consent of each holder of shares of the Series B
Preferred Stock outstanding at the time, no amendment,
alteration or repeal of the provisions of the Charter or
of these Articles Supplementary may be made that will
(w) reduce the number of shares of the Series B
Preferred Stock required to consent to an amendment,
alteration or repeal of the Charter or these Articles
Supplementary pursuant to this Section 9(c)(ii), (x)
reduce the Initial Dividend Yield or the Liquidation
Preference or change the method of calculation of the
First Default Dividend Yield, the Second Default
Dividend Yield, or the Make-Whole Price, (y) change the
payment date for payment of dividends with respect to
the Series B Preferred Stock or change the period with
respect to which such dividends are paid, or (z) alter
or modify the rights of any holder of Series B Preferred
Stock pursuant to Section 8 of these Articles
Supplementary. With respect to the occurrence of any
Event set forth above, so long as the Series B Preferred
Stock (or any equivalent class or series of stock issued
by the surviving corporation in any merger or
consolidation to which the Company became a party)
remains outstanding with the terms thereof materially
unchanged, the occurrence of any such Event shall not be
deemed to materially and adversely affect any
preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption
of holders of the Series B Preferred Stock. Any increase
in the amount of the authorized Preferred Stock or the
creation or issuance of any other series of Preferred
Stock, or any increase in the amount of the authorized
shares of such
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series, in each case ranking on a parity with, or junior
to the Series B Preferred Stock with respect to payment
of dividends or the distribution of assets upon
liquidation, dissolution or winding up, shall not be
deemed to materially and adversely affect any
preferences, conversion and other rights, voting power,
restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption;
or
(iii) enter into or undertake any Senior Obligations at any
time during which the Company is in violation of the
Fixed Charge Coverage Ratio Covenant or the
Capitalization Ratio Covenant.
(d) So long as any shares of Series B Preferred Stock remain
outstanding and any holder of the Series B Preferred Stock as of the date of its
issuance continues to hold, beneficially or of record, at least 75% of the
number of shares of Series B Preferred Stock which such holder owns,
beneficially or of record, as of such date, the Company will not, without the
affirmative vote or consent of the holders of at least 85% of the shares of the
Series B Preferred Stock outstanding at the time, given in person or by proxy,
either in writing or at a meeting (voting separately as a class), amend Section
10 of these Articles Supplementary.
(e) The foregoing voting provisions will not apply if, at or
prior to the time when the act with respect to which such vote would otherwise
be required shall be effected, all outstanding shares of Series B Preferred
Stock shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been deposited in trust to effect such redemption.
(f) Notwithstanding Section 9(b), any and all shares of Series
B Preferred Stock owned by a Regulated Person which exceed 4.9% (the "Excess
Regulated Person Shares") of the total issued and outstanding shares of Series B
Preferred Stock shall not be entitled to vote for the election of Preferred
Stock Directors (and shall not be counted for purposes of determining the
percentage of holders of Series B Preferred Stock necessary to call the special
meeting described in Section 9(b) or whether a quorum is present at such a
meeting or for any other analogous purpose described in Section 9(b)) so long as
such Excess Regulated Person Shares are owned by a Regulated Person.
(g) Except as expressly stated in these Articles
Supplementary, the Series B Preferred Stock will not have any relative,
participating, optional or other special voting rights and powers, and the
consent of the holders thereof shall not be required for the taking of any
corporate action, including but not limited to, any merger or consolidation
involving the Company, the liquidation or dissolution of the Company, or a sale
of all or substantially all of the assets of the Company, or the liquidation or
dissolution of the Company, irrespective of the effect that such merger,
consolidation, sale, liquidation or dissolution may have upon the rights,
preferences or voting power of the holders of the Series B Preferred Stock.
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10. Covenants.
---------
(a) The Company agrees that so long as any share of Series B
Preferred Stock shall remain outstanding:
(i) The Company shall not permit the Fixed Charge
Coverage Ratio to be less than 1.30 (the "Fixed Charge Coverage Ratio
Covenant") or the Capitalization Ratio to exceed 0.55 (the
"Capitalization Ratio Covenant").
(ii) The Company shall not enter into or undertake
any Senior Obligation which results in a violation of the Fixed Charge
Coverage Ratio Covenant or the Capitalization Ratio Covenant,
compliance with such covenants being determined (A) in the case of the
Fixed Charge Coverage Ratio Covenant, after giving effect on a pro
forma basis to any such Senior Obligation as if such Senior Obligation
had been issued on the first day of the Calculation Period and (B) in
the case of the Capitalization Ratio Covenant, as of the end of the
fiscal quarter of the Company immediately preceding the fiscal quarter
of the Company in which such Senior Obligation is issued and
undertaken, after giving effect on a pro forma basis to any such Senior
Obligation as if such Senior Obligation had been issued on the first
day of such immediately preceding quarter.
(b) The covenants set forth in Section 10(a) are for the
exclusive benefit of the holders of the Series B Preferred Stock and may be
waived by such percentage of the shares of Series B Preferred Stock outstanding
at the time as may be required to amend such covenants pursuant to Section 9(d),
without the consent, approval or vote of any other class of stock of the
Company.
11. Conversion. The Series B Preferred Stock is not
convertible into or exchangeable for any other securities or property of the
Company.
THIRD: The classification of authorized but unissued shares as
set forth in these Articles Supplementary does not increase the authorized
capital of the Company or the aggregate par value thereof.
FOURTH: These Articles Supplementary have been approved by the
majority of the Board of Directors of the Company in the manner prescribed by
the MGCL.
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IN WITNESS WHEREOF, the undersigned, the President of the
Company acknowledges these Articles Supplementary to be the corporate act of the
Company and, as to all matters or facts required to be verified under oath, the
undersigned acknowledges that to the best of his knowledge, information and
belief, these matters and facts set forth herein are true in all material
respects and that this statement is made under the penalties for perjury.
These Articles Supplementary have been executed under seal in
the name of the Company and on its behalf by its President and attested to by
its Secretary on this 19th day of December, 1997.
ATTEST HRE PROPERTIES, INC.
By: By:
------------------------- ------------------------- (SEAL)
James R. Moore Willing L. Biddle
Secretary President
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