EXHIBIT 3.1
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
THE DECLARATION OF TRUST
OF
HARTMAN COMMERCIAL PROPERTIES REIT
APRIL 25, 2003
Hartman Commercial Properties REIT, a real estate investment trust
organized and existing under and by virtue of the Texas Real Estate Investment
Trust Act (the "Trust"), does hereby certify that:
ARTICLE ONE
The name of the real estate investment trust is Hartman Commercial
Properties REIT.
ARTICLE TWO
The Declaration of Trust of the Trust is hereby amended and restated in
its entirety and the entire text of the Amended and Restated Declaration of
Trust of the Trust is attached hereto as Exhibit A. Any amendment to the Trust's
Declaration of Trust has been effected in conformity with the provisions of the
Texas Real Estate Investment Trust Act. The complete text of the Amended and
Restated Declaration of Trust is set forth on Exhibit A attached hereto and this
text accurately copies the Trust's Declaration of Trust and all amendments to
such Declaration of Trust that are in effect on the date hereof and as further
amended by the restated Declaration of Trust approved by the shareholders of the
Trust. The Amended and Restated Declaration of Trust contains no other
alteration in any provision of the Trust's Declaration of Trust.
ARTICLE THREE
The Amended and Restated Declaration of Trust was approved and adopted
by the shareholders of the Trust on April 11, 2003. The number of shares
outstanding and entitled to vote on the approval and adoption of this Amended
and Restated Declaration of Trust was 4,907,107. The number of shares that voted
for the Amended and Restated Declaration of Trust was 3,540,156. The number of
shares that voted against the Amended and Restated Declaration of Trust was
51,156.
[signature page follows]
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IN WITNESS WHEREOF, the undersigned hereby executes these Articles of Amendment
and Restatement of Declaration of Trust on behalf of Hartman Commercial
Properties REIT as of the 25th day of April, 2003.
/s/ Allen R. Hartman
-----------------------------
Allen R. Hartman, President
STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned Notary Public, duly commissioned and
qualified within and for the State and County aforesaid, personally came and
appeared Allen R. Hartman, in his capacity as President of Hartman Commercial
Properties REIT, and acknowledged to me, Notary, in the presence of
______________________and _______________________, that he executed the
foregoing instrument in the presence of the witnesses on behalf of the said
entity, as his own free and voluntary act and deed, for the uses, purposes and
considerations therein expressed.
IN WITNESS WHEREOF, said Appearer has executed these presents together
with me, Notary, and the undersigned competent witnesses, at my office in the
County and State aforesaid, on the ___ day of April, 2003.
My commission expires:
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EXHIBIT A
AMENDED AND RESTATED DECLARATION OF TRUST
OF
HARTMAN COMMERCIAL PROPERTIES REIT
Hartman Commercial Properties Trust, a real estate investment trust
organized under the Texas Real Estate Investment Trust Act, as amended (the
"Texas REIT Act"), hereby adopts the following Amended and Restated Declaration
of Trust.
ARTICLE I
THE TRUST; DEFINITIONS
SECTION 1.1 Name. The name of the trust (the "Company") is "Hartman
Commercial Properties REIT." An assumed name certificate setting forth such name
has been filed in the manner prescribed by law.
SECTION 1.2 Resident Agent and Principal Business Address. The
street address of the Company's registered office is 1450 West Sam Houston
Parkway, Suite 100, Houston, Texas 77043. The name of the Company's registered
agent at that address is Allen R. Hartman. The address of the Company's
principal office and place of business is 1450 West Sam Houston Parkway, Suite
100, Houston, Texas 77043.
SECTION 1.3 Purpose.
(a) The purpose of the Company is to purchase, hold, lease, manage,
sell, exchange, develop, subdivide and improve real property and interests in
real property, and in general, to carry on any other business and do any other
acts in connection with the foregoing and to have and exercise all powers
conferred by the laws of the State of Texas upon real estate investment trusts
formed under the Texas REIT Act, and to do any or all of the things hereinafter
set forth to the same extent as natural persons might or could do. The term
"real property" and the term "interests in real property" for the purposes
stated herein shall not include severed mineral, oil or gas royalty interests.
The Company will not commence business until it has received for the issuance of
Shares consideration of at least $1,000 value.
(b) Without in any manner limiting the generality of the foregoing,
and in addition to all the powers conferred by the laws of the State of Texas
now or hereafter in force upon real estate investment trusts formed under the
Texas REIT Act, or any successor statute, in each case as the same may be
amended, modified or supplemented from time to time, the Company shall have the
power (i) to acquire, hold, own, develop, construct, improve, maintain, operate,
sell, lease, transfer, encumber, convey, exchange and otherwise dispose of or
deal with real and personal property directly or through one or more
subsidiaries or affiliates; (ii) to enter into any partnership, joint venture or
other similar arrangement to engage in any of the foregoing; and (iii)
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in general, to possess and exercise all the purposes, powers, rights and
privileges granted to, or conferred upon real estate investment trusts by the
laws of the State of Texas now or hereafter in force, and to exercise any powers
suitable, convenient or proper for the accomplishment of any of the purposes
herein enumerated, implied or incidental to the powers or purposes herein
specified, or which at any time may appear conducive to or expedient for the
accomplishment of any such purposes.
SECTION 1.4 Definitions. In addition to other terms defined in
throughout this Declaration of Trust, the following terms shall have the
following meanings unless the context otherwise requires:
"Acquisition Expenses" means any and all expenses incurred by the
Company, the Advisor, or any Affiliate of either in connection with the
selection or acquisition of any Property, whether or not acquired, including,
without limitation, legal fees and expenses, travel and communications expenses,
costs of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, and title insurance.
"Acquisition Fee" means 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 Company or the Advisor) in
connection with the purchase, development or construction of a Property,
including, without limitation, real estate commissions, acquisition fees,
finder's fees, selection fees, Development Fees, Construction Fees, nonrecurring
management fees, consulting fees, loan fees, points, or any other fees or
commissions of a similar nature. Excluded shall be Development Fees and
Construction Fees paid to any Person or entity not affiliated with the Advisor
in connection with the actual development and construction of any Property.
"Advisor" or "Advisors" means the Person or Persons, if any, appointed,
employed or contracted with by the Company pursuant to Section 4.1 hereof and
responsible for directing or performing the day-to-day business affairs of the
Company, including any Person to whom the Advisor subcontracts substantially all
of such functions.
"Advisory Agreement" means the agreement between the Company and the
Advisor pursuant to which the Advisor will direct or perform the day-to-day
business affairs of the Company.
"Affiliate" or "Affiliated" means, as to any Person, (i) any Person
directly or indirectly through one or more intermediaries controlling,
controlled by, or under common control with such Person; (ii) any Person,
directly or indirectly owning, controlling, or holding with power to vote ten
percent or more of the outstanding voting securities of such Person; (iii) any
officer, director, trust manager, general partner or trustee of such Person;
(iv) any Person ten percent or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held, with power to vote, by such
other Person; and (v) if such other Person is an officer, director, trust
manager, general partner, or trustee of a Person, the Person for which such
Person acts in any such capacity.
"Average Invested Assets" means, for a specified period, the average of
the aggregate book value of the assets of the Company invested, directly or
indirectly, in equity interests in and loans secured by real estate before
reserves for depreciation or bad debts or other similar non-
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cash reserves, computed by taking the average of such values at the end of each
month during such period.
"Bylaws" means the bylaws of the Company, as the same are in effect from
time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute thereto. Reference to any provision of the Code
shall mean such provision as in effect from time to time, as the same may be
amended, and any successor provision thereto, as interpreted by any applicable
regulations as in effect from time to time.
"Common Shares" is defined in Section 7.1(a).
"Company Property" means any and all property, real, personal or
otherwise, tangible or intangible, which is transferred or conveyed to the
Company (including all rents, income, profits and gains therefrom), which is
owned or held by, or for the account of, the Company.
"Competitive Real Estate Commission" means a real estate or brokerage
commission for the purchase or sale of property which is reasonable, customary,
and competitive in light of the size, type, and location of the property.
"Construction Fee" means a fee or other remuneration for acting as
general contractor and/or construction manager to construct improvements,
supervise and coordinate projects or to provide major repairs or rehabilitation
on a Property.
"Contract Price for the Property" means the amount actually paid or
allocated to the purchase, development, construction or improvement of a
property exclusive of Acquisition Fees and Acquisition Expenses.
"Development Fee" means a fee for the packaging of a Property; including
negotiating and approving plans, and undertaking to assist in obtaining zoning
and necessary variances and financing for the specific Property, either
initially or at a later date.
"Distributions" means any distributions of money or other property by
the Company to owners of Shares, including distributions that may constitute a
return of capital for federal income tax purposes. The Company will make no
distributions other than distributions of money or readily marketable securities
unless the requirements of Section 7.1(e) hereof are satisfied.
"Independent Expert" means a Person or entity with no material current
or prior business or personal relationship with the Advisor or the Trust
Managers 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 Company.
"Independent Trust Manager" means a Trust Manager who is not, and within
the last two years has not been, directly or indirectly associated with the
Advisor by virtue of (i) ownership of an interest in the Advisor or its
Affiliates, (ii) employment by the Advisor or its Affiliates, (iii) service as
an officer, trust manager or director of the Advisor or its Affiliates, (iv)
performance of services, other than as a Trust Manager, for the Company, (v)
service as a director, trust manager or trustee of more than three real estate
investment trusts advised by the Advisor, or (vi) maintenance of a material
business or professional relationship with the Advisor or any of its Affiliates.
An indirect relationship shall include circumstances in which a Trust Manager's
spouse, parents, children, siblings, mothers- or fathers-in-law, sons- or
daughters-in-law or brothers- or sisters-in-law is or has been associated with
the Advisor, any of its Affiliates or the Company. A business or professional
relationship is considered material if the gross
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revenue derived by the Trust Manager from the Advisor and Affiliates exceeds
five percent of either the Trust Manager's annual gross revenue during either of
the last two years or the Trust Manager's net worth on a fair market value
basis.
"Invested Capital" means the amount calculated by multiplying the total
number of Shares purchased by Shareholders by the issue price, reduced by the
portion of any Distribution that is attributable to net sales proceeds of any
Properties.
"Gross Proceeds" means the aggregate purchase price of all Shares sold
for the account of the Company, without deduction for Selling Commissions,
volume discounts, any marketing support and due diligence expense reimbursement
fees or other Organizational and Offering Expenses. For the purpose of computing
Gross Proceeds, the purchase price of any share for which reduced Selling
Commissions are paid to the Advisor or a Soliciting Dealer (where net proceeds
to the Company are not reduced) shall be deemed to be the full amount of the
offering price per Share.
"Joint Ventures" means those joint venture or general partnership
arrangements in which the Company is a co-venturer or general partner which are
established to acquire Properties.
"Leverage" means the aggregate amount of indebtedness of the Company for
money borrowed (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.
"Listing" means the listing of the Shares of the Company on a national
securities exchange or over-the-counter market.
"Net Assets" means the total assets of the Company (other than
intangibles), at cost, before deducting depreciation or other non-cash reserves,
less total liabilities, calculated quarterly by the Company on a basis
consistently applied.
"Net Income" means for any period, the total revenues applicable to such
period, less the total expenses applicable to such period excluding additions to
reserves for depreciation, bad debts or other similar non-cash reserves;
provided, however, Net Income for purposes of calculating total allowable
Operating Expenses shall exclude the gain from the sale of the Company's assets.
"Operating Expenses" means all costs and expenses incurred by the
Company, as determined under generally accepted accounting principles, which in
any way are related to the operation of the Company or to Company business,
including advisory expenses, but excluding (i) 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 tax incurred in connection with the issuance,
distribution, transfer, registration and Listing of the Shares, (ii) interest
payments, (iii) taxes, (iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves, (v) Acquisition Fees and Acquisition
Expenses, and (vi) real estate commissions on the Sale of property, and other
expenses connected with the acquisition and ownership of real estate interests,
mortgage loans, or other property (such as the costs of foreclosure, insurance
premiums, legal services, maintenance, repair, and improvement of property).
"Operating Partnership" means Hartman REIT Operating Partnership, L.P.,
a Delaware limited partnership.
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"Op Units" means a unit of limited partnership interest in the Operating
Partnership.
"Organizational and Offering Expenses" means any and all costs and
expenses incurred by the Company and to be paid in connection with the marketing
and distribution of Shares, including, without limitation, the following: total
underwriting and brokerage discounts and commissions (including fees of the
underwriters' attorneys), expenses for printing, engraving, amending,
supplementing, mailing and distributing costs, salaries of employees while
engaged in sales activity, all advertising and marketing expenses (including the
costs related to investor and broker-dealer sales meetings), charges of transfer
agents, registrars, trustees, escrow holders, depositories, experts, and fees,
expenses and taxes related to the filing, registration and qualification of the
sale of the securities under Federal and State laws, including accountants' and
attorneys' fees.
"Person" means an individual, corporation, partnership, association,
joint stock company, limited liability company, trust, unincorporated
association or other entity and also includes a "group" as that term is defined
in Section 13(d)(3) of the Securities Exchange Act of 1934.
"Preferred Shares" is defined in Section 7.1(a).
"Property" or "Properties" means the real properties which are acquired
by the Company, either directly or through Joint Venture arrangements, the
Operating Partnership or other partnerships.
"Real Property" or "Real Estate" means land, rights in land (including
leasehold interests), and any buildings, structures, improvements, furnishings,
fixtures and equipment located on or used in connection with land and rights or
interests in land.
"REIT" means a "real estate investment trust" as defined in Section 856
of the Code and applicable Treasury Regulations.
"REIT Provisions" means Sections 856 through 860 of the Code and any
successor or other provisions of the Code relating to real estate investment
trusts (including provisions as to the attribution of ownership of beneficial
interests therein) and the regulations promulgated thereunder.
"Restricted Initial Investment" means the first $200,000 (in the form of
20,000 OP Units of the Operating Partnership) invested by the Sponsor as a
portion of the initial capitalization of the Company (by an investment in the
Operating Partnership) contributed by the Sponsor or its Affiliates.
"Roll-up Entity" means 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" means a transaction involving the acquisition,
merger, conversion, or consolidation, directly or indirectly, of the Company and
the issuance of securities of a Roll-Up Entity. Such term does not include: (i)
a transaction involving securities of the Company that have been listed on a
national securities exchange or included for quotation on the National Market
System of the National Association of Securities Dealers Automated Quotation
System for at least 12 months; or (ii) a transaction involving the conversion to
corporate, trust, or association form of only the Company if, as a consequence
of the transaction, there will be no
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significant adverse change in Shareholder voting rights, the term of existence
of the Company, compensation to the Advisor or the investment objectives of the
Company.
"Sale" or "Sales" (i) means any transaction or series of transactions
whereby: (A) the Company sells, grants, transfers, conveys or relinquishes its
ownership of any Property or portion thereof, including the lease of any
Property consisting of the building only, and including any event with respect
to any Property which gives rise to a significant amount of insurance proceeds
or condemnation awards; (B) the Company sells, grants, transfers, conveys or
relinquishes its ownership of all or substantially all of the interest of the
Company in any Joint Venture in which it is a co-venturer or partner; (C) any
Joint Venture in which the Company as a co-venturer or partner sells, grants,
transfers, conveys or relinquishes its ownership of any Property or portion
thereof, including any event with respect to any Property which gives rise to
insurance claims or condemnation awards; or (D) the Company sells, grants,
conveys, or relinquishes its interest in any asset, or portion thereof,
including and event with respect to any asset which gives rise to a significant
amount of insurance proceeds or similar awards, but (ii) shall not include any
transaction or series of transactions specified in clause (i)(A), (i)(B), or
(i)(C) above in which the proceeds of such transaction or series of transactions
are reinvested in one or more Properties within 180 days thereafter.
"Securities" means Shares, any other stock, shares or other evidences of
equity or beneficial or other interests, voting trust certificates, bonds,
debentures, notes or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as "securities" or any certificates of interest, shares or participations
in, temporary or interim certificates for, receipts for, guarantees of, or
warrants, options or rights to subscribe to, purchase or acquire, any of the
foregoing.
"Selling Commissions" means any and all commissions payable to
underwriters, dealer managers, or other broker-dealers in connection with the
sale of Shares.
"Shareholders" means the registered holders of the Company's Shares.
"Shares" is defined in Section 7.1(a).
"Soliciting Dealers" means those broker-dealers that are members of the
National Association of Securities Dealers, Inc., or that are exempt from
broker-dealer registration, and that, in either case, enter into participating
broker or other agreements with the Advisor to sell Shares.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Company or any Person who will control,
manage or participate in the management of the Company, and any Affiliate of
such Person. Not included is any Person whose only relationship with the Company
is that of an independent property manager of Company assets, and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants, and underwriters whose only compensation
is for professional services. A Person may also be deemed a Sponsor of the
Company by:
a. taking the initiative, directly or indirectly, in
founding or organizing the business or enterprise of the Company, either
alone or in conjunction with one or more other Persons;
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b. receiving a material participation in the Company in
connection with the founding or organizing of the business of the
Company, in consideration of services or property, or both services and
property;
c. having a substantial number of relationships and
contacts with the Company;
d. possessing significant rights to control Company
properties;
e. receiving fees for providing services to the Company
which are paid on a basis that is not customary in the industry; or
f. providing goods or services to the Company on a basis
which was not negotiated at arms length with the Company.
"Successor" means any successor in interest of the Company.
"Trust Managers," "Board of Trust Managers" or "Board" means,
collectively, the individuals named in Section 2.1 so long as they continue in
office and all other individuals who have been duly elected and qualify as Trust
Managers of the Company hereunder.
"Unimproved Real Property" means Property in which the Company has an
equity interest that is not acquired for the purpose of producing rental or
other operating income, that has no development or construction in process and
for which no development or construction is planned, in good faith, to commence
within one year.
ARTICLE II
BOARD OF TRUST MANAGERS
SECTION 2.1 Number. The number of Trust Managers shall be seven. The
number of Trust Managers shall be fixed by, or in the manner provided in, the
Bylaws of the Company, and may be increased or decreased from time to time in a
manner as prescribed by the Bylaws. A Trust Manager may be removed by the vote
of the holders of two-thirds of the outstanding Shares at a special meeting of
the Shareholders called for such purpose pursuant to the Bylaws. The notice of
such meeting shall indicate that the purpose, or one of the purposes, of such
meeting is to determine if a Trust Manager should be removed. The name and
business address of the Trust Managers are as follows:
Name Business Address
---------------- --------------------------------------------
Allen R. Hartman 1450 W. Sam Houston Parkway North, Suite 100
Houston, Texas 77043
Robert W. Engel 1450 W. Sam Houston Parkway North, Suite 100
Houston, Texas 77043
Jack L. Mahaffey 1450 W. Sam Houston Parkway North, Suite 100
Houston, Texas 77043
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Name Business Address
---------------- --------------------------------------------
Chris A. Minton 1450 W. Sam Houston Parkway North, Suite 100
Houston, Texas 77043
Sam Hathorn 1450 W. Sam Houston Parkway North, Suite 100
Houston, Texas 77043
Chand Vyas 1450 W. Sam Houston Parkway North, Suite 100
Houston, Texas 77043
Allen Cecil 1450 W. Sam Houston Parkway North, Suite 100
Houston, Texas 77043
A majority of the Board of Trust Managers will be Independent Trust Managers
except for a period of 60 days after the death, removal or resignation of an
Independent Trust Manager. Any vacancies will be filled by the affirmative vote
of a majority of the remaining Trust Managers, though less than a quorum.
Independent Trust Managers shall nominate replacements for vacancies in the
Independent Trust Manager positions. No reduction in the number of Trust
Managers shall cause the removal of any Trust Manager from office prior to the
expiration of his term. Cumulative voting for the election of Trust Managers is
prohibited.
SECTION 2.2 Experience. A Trust Manager shall have had 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 Company. At least one of the Independent Trust Managers shall have three
years of relevant real estate experience.
SECTION 2.3 Committees. Subject to the Texas REIT Act and the
Bylaws, the Trust Managers may establish such committees as they deem
appropriate, in their discretion, provided that the majority of the members of
each committee are Independent Trust Managers.
SECTION 2.4 Term. Each Trust Manager shall hold office for one year,
until the next annual meeting of Shareholders, or (if longer) until his a
successor has been duly elected and qualified. Trust Managers may be elected to
an unlimited number of successive terms.
SECTION 2.5 Fiduciary Obligations. The Trust Managers serve in a
fiduciary capacity to the Company and have a fiduciary duty to the Shareholders
of the Company, including a specific fiduciary duty to supervise the
relationship of the Company with the Advisor.
SECTION 2.6 Approval by Independent Trust Managers. A majority of
Independent Trust Managers must approve all applicable matters to which Sections
2.1, 4.1, 4.2, 4.5, 4.6, 4.8, 4.9, 4.10, 5.2, 5.3, 5.4(f), 5.4(k), 7.7, 8.1 and
9.2 herein apply.
SECTION 2.7 Resignation. Any Trust Manager may resign by written
notice to the Board of Trust Managers, effective upon execution and delivery to
the Company of such written notice or upon any future date specified in the
notice.
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ARTICLE III
POWERS OF TRUST MANAGERS
SECTION 3.1 General. Subject to the express limitations herein or in
the Bylaws and to the general standard of care required of Trust Managers under
the Texas REIT Act and other applicable law, the business and affairs of the
Company shall be managed under the direction of the Board of Trust Managers and
the Trust Managers shall have full, exclusive and absolute power, control and
authority over the business of the Company. The Trust Managers have established
the written policies on investments and borrowing set forth in this Article III
and Article V hereof and shall monitor the administrative procedures, investment
operations and performance of the Company and the Advisor to assure that such
policies are carried out. The Trust Managers may take any actions that, in their
sole judgment and discretion, are necessary or desirable to conduct the business
of the Company. A majority of the Board of Trust Managers, including a majority
of Independent Trust Managers, have ratified this Declaration of Trust, which
shall be construed with a presumption in favor of the grant of power and
authority to the Trust Managers. Any construction of this Declaration of Trust
or determination made in good faith by the Trust Managers concerning their
powers and authority hereunder shall be conclusive.
SECTION 3.2 Specific Powers and Authority. Subject only to the
express limitations herein, and in addition to all other powers and authority
conferred by this Declaration of Trust, the Bylaws or applicable law, the Trust
Managers, without any vote, action or consent by the Shareholders, shall have
and may exercise, at any time or times, in the name of the Company or on its
behalf the following powers and authorities:
(a) Subject to Article V and Section 9.5 hereof, to invest in,
purchase or otherwise acquire and to hold real, personal or mixed, tangible or
intangible, property of any kind wherever located, or rights or interests
therein or in connection therewith, all without regard to whether such property,
interests or rights are authorized by law for the investment of funds held by
trustees or other fiduciaries, or whether obligations the Company acquires have
a term greater or lesser than the term of office of the Trust Managers or the
possible termination of the Company, for such consideration as the Trust
Managers may deem proper (including cash, property of any kind or Securities of
the Company).
(b) The Board of Trust Managers shall use its best efforts to
cause the Company to qualify as a REIT for U.S. federal income tax treatment in
accordance with the REIT Provisions. In furtherance of the foregoing, the Board
of Trust Managers shall use its best efforts to take such actions as are
necessary, and may take such actions as it deems desirable (in its sole
discretion), to preserve the status of the Company as a REIT; provided, however,
that in the event that the Board of Trust Managers determines, by vote of at
least two-thirds of the Trust Managers, that it no longer is in the best
interests of the Company to qualify as a REIT, the Board of Trust Managers shall
take such actions as are required by the Code, the Texas REIT Act and other
applicable law, to cause the matter of termination of qualification as a REIT to
be submitted to a vote of the Shareholders of the Company pursuant to Section
8.2.
(c) Subject to the provisions of Article VII hereof, the Texas
REIT Act and applicable law, to create and authorize and direct the issuance (on
either a pro rata or a non-pro rata basis) by the Company, in shares, units or
amounts of one or more types, series or classes, of Securities of the Company,
which may have such voting rights, dividend or interest rates,
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powers, preferences, conversion or redemption prices or other rights as the
Trust Managers may determine, without vote of or other action by the
Shareholders, to such Persons for such consideration, at such time or times and
in such manner and on such terms as the Trust Managers determine; and to
purchase or otherwise acquire, hold, cancel, reissue, sell and transfer any
Securities of the Company.
(d) To terminate the status of the Company as a REIT under the
REIT Provisions; provided, however, that the Board of Trust Managers shall take
no action to terminate the Company's status as a REIT under the REIT Provisions
until such time as (i) the Board of Trust Managers adopts a resolution
recommending that the Company terminate its status as a REIT under the REIT
Provisions, (ii) the Board of Trust Managers presents the resolution at an
annual or special meeting of the Shareholders, and (iii) such resolution is
approved by the holders of a majority of the issued and outstanding Shares.
(e) To adopt, implement and from time to time alter, amend or
repeal the Bylaws of the Company relating to the business and organization of
the Company, provided that such amendments are not inconsistent with the
provisions of this Declaration of Trust, and further provided that the Trust
Managers may not amend the Bylaws, without the affirmative vote of a majority of
the Shares, to the extent that such amendments adversely affect the rights,
preferences and privileges of Shareholders.
(f) To do all other acts and things and execute and deliver all
instruments incident to the foregoing powers, and to exercise all powers which
they deem necessary, useful or desirable to carry on the business of the Company
or to carry out the provisions of this Declaration of Trust, even if such powers
are not specifically provided hereby.
ARTICLE IV
ADVISOR
SECTION 4.1 Appointment and Initial Investment of Advisor. The Trust
Managers are responsible for setting the general policies of the Company and for
the general supervision of the Company's business. However, the Trust Managers
are not required personally to conduct the business of the Company, and they may
(but need not) appoint, employ or contract with any Person (including a Person
Affiliated with any Trust Manager) as an Advisor and may grant or delegate such
authority to the Advisor as the Trust Managers may, in their 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. The Sponsor or any Affiliate may not sell
the Restricted Initial Investment while the Sponsor remains the initial Advisor.
SECTION 4.2 Supervision of Expenses and the Advisor.
(a) The Trust Managers shall evaluate the performance of the Advisor
before entering into or renewing an advisory contract and the criteria used in
such evaluation shall be reflected in the minutes of meetings of the Board. The
Trust Managers may exercise broad discretion in allowing the Advisor to
administer and regulate the operations of the Company, to act as agent for the
Company, to execute documents on behalf of the Company and to make executive
decisions which conform to general policies and principles established by the
Trust Managers.
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The Trust Managers shall monitor the Advisor to assure that the administrative
procedures, operations and programs of the Company are in the best interests of
the Shareholders and are fulfilled.
(b) The Independent Trust Managers are responsible for reviewing the
fees and expenses of the Company at least annually or with sufficient frequency
to determine that the expenses incurred are reasonable in light of the
investment performance of the Company, its Net Assets, its Net Income and the
fees and expenses of other comparable unaffiliated companies. Each such
determination shall be reflected in the minutes of the meetings of the Board of
Trust Managers. In addition, from time to time, but at least annually, a
majority of the Independent Trust Managers and a majority of Trust Managers not
otherwise interested in the transaction must approve each transaction with the
Advisor or its Affiliates. The Independent Trust Managers also will be
responsible for reviewing the performance of the Advisor and determining that
compensation to be paid to the Advisor is reasonable in relation to the nature
and quality of services performed and the investment performance of the Company
and that the provisions of the Advisory Agreement are being carried out.
Specifically, the Independent Trust Managers will consider factors such as:
(i) the Net Assets and Net Income of the Company,
(ii) the amount of the fee paid to the Advisor in relation to
the size, composition and performance of the Company's portfolio,
(iii) the success of the Advisor in generating opportunities
that meet the investment objectives of the Company,
(iv) rates charged to comparable companies and to investors
other than comparable companies by advisors performing the same or
similar services,
(v) additional revenues realized by the Advisor and its
Affiliates through their relationship with the Company, whether paid by
the Company or by others with whom the Company does business,
(vi) the quality and extent of service and advice furnished
by the Advisor,
(vii) the performance of the investment portfolio of the
Company, including income, conservation or appreciation of capital,
frequency of problem investments and competence in dealing with distress
situations, and the quality of the portfolio of the Company relative to
the investments generated by the Advisor for its own account.
The Independent Trust Managers may also consider all other factors which they
deem relevant and the findings of the Independent Trust Managers on each of the
factors considered shall be recorded in the minutes of the Board of Trust
Managers.
(c) The Board of Trust Managers shall determine whether any
successor Advisor possesses sufficient qualifications to perform the advisory
function for the Company and whether the compensation provided for in its
contract with the Company is justified.
SECTION 4.3 Fiduciary Obligations. The Advisor has a fiduciary
responsibility to the Company and to the Shareholders.
SECTION 4.4 Termination. Either a majority of the Independent Trust
Managers or the Advisor may terminate the advisory contract on 60 days' written
notice without cause or
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penalty, and, in such event, the Advisor will cooperate with the Company and the
Trust Managers in making an orderly transition of the advisory function.
SECTION 4.5 Real Estate Commission on Sale of Property. The Company
may pay the Advisor a real estate disposition fee upon Sale of one or more
Properties, in an amount equal to the lesser of (i) one-half of a Competitive
Real Estate Commission, or (ii) three percent of the sales price of such
Property or Properties. In addition, the amount paid when added to the sums paid
to unaffiliated parties in such a capacity shall not exceed the lesser of the
Competitive Real Estate Commission or an amount equal to 6% of the sales price
of such Property or Properties. Payment of such fee shall be made only if the
Advisor provides a substantial amount of services in connection with the Sale of
a Property or Properties.
SECTION 4.6 Organizational and Offering Expenses. The Company shall
only pay reasonable Organizational and Offering Expenses and in all events such
expenses shall not exceed 15% of Gross Proceeds of any applicable offering.
SECTION 4.7 Acquisition Fees and Expenses. The Company may pay the
Advisor and its Affiliates and amount of up to 3% of the Gross Proceeds for the
review and evaluation of potential Real Property acquisitions. The Company shall
reimburse the Advisor and its Affiliates an amount of up to 0.5% of the Gross
Proceeds for Acquisition Expenses incurred by the Advisor or its Affiliates.
SECTION 4.8 Reimbursement for Operating Expenses. The Company shall
reimburse the Advisor, at the end of each fiscal quarter, for Operating Expenses
incurred by the Advisor; provided, however that the Company shall not reimburse
the Advisor at the end of any fiscal quarter for 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 year.
Within 60 days after the end of each fiscal quarter, the Advisor will reimburse
the Company for any amounts by which the Operating Expenses exceeded the 2% /
25% Guidelines for such year, unless the Independent Trust Managers determine
that such excess was justified. Within 60 days after the end of any fiscal
quarter of the Company for which Operating Expenses (for the 12 months just
ended) exceed the 2%/25% Guidelines, the Advisor shall send a written disclosure
of such fact to the Shareholders containing an explanation of the factors the
Independent Trust Managers considered in arriving at the conclusion of whether
or not such higher Operating Expenses were justified. If the Independent Trust
Managers do not determine that such excess Operating Expenses are justified, the
Advisor shall reimburse the Company within a reasonable time after the end of
such 12-month period the amount by which the Operating Expenses exceeded the
2%/25% Guidelines.
SECTION 4.9 Reimbursement Limitation. The Company shall not
reimburse the Advisor or its Affiliates for services for which the Advisor or
its Affiliates are entitled to compensation in the form of a separate fee.
SECTION 4.10 Limitation on Acquisition Fees and Acquisition Expenses.
Notwithstanding anything contained in this Article IV, the total of all
Acquisition Fees and Acquisition Expenses shall not exceed, in the aggregate, an
amount equal to 6% of the Contract Price for the Property with respect to
Properties purchased by the Company; provided, however, that a majority of the
Trust Managers (including a majority of the Independent Trust Managers) not
otherwise interested in the transaction may approve fees and expenses in excess
of this limit
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if they determine the transaction to be commercially competitive, fair and
reasonable to the Company.
ARTICLE V
INVESTMENT OBJECTIVES AND LIMITATIONS
SECTION 5.1 Investment Objectives. The Company's primary investment
objectives are: (i) to maximize cash available for Distribution; (ii) to realize
capital appreciation upon the ultimate sale of the Company's Properties; (iii)
to provide Shareholders with liquidity of their investment through the Listing
of the Shares, and (iv) to conduct the affairs of the Company in such a manner
as to continue to qualify the Company for the tax treatment provided in the REIT
Provisions. The sheltering from tax of income from other sources is not an
objective of the Company.
SECTION 5.2 Review of Objectives. The Independent Trust Managers
shall review the investment policies of the Company with sufficient frequency
and at least annually to determine that the policies being followed by the
Company at any time are in the best interests of its Shareholders. Each such
determination and the basis therefor shall be set forth in the minutes of the
meetings of the Board of Trust Managers.
SECTION 5.3 Certain Permitted Investments.
(a) The Company may invest in Properties. The Company shall
ordinarily purchase or invest in Properties based on their fair market value as
determined by a majority of the Trust Managers or, if decided by a majority of
the Independent Trust Managers, as determined by an Independent Expert.
(b) The Company may invest in Joint Ventures with the Sponsor,
Advisor, one or more Trust Managers or any Affiliate, if a majority of Trust
Managers (including a majority of Independent Trust Managers) not otherwise
interested in the transaction, approve such investment as being fair and
reasonable to the Company and on substantially the same terms and conditions as
those received by the other joint venturers.
(c) Subject to any limitations in Section 5.4(h), the Company may
invest in equity securities if a majority of Trust Managers (including a
majority of Independent Trust Managers) not otherwise interested in the
transaction approve such investment as being fair, competitive and commercially
reasonable.
SECTION 5.4 Investment Limitations. In addition to other investment
restrictions imposed by the Trust Managers from time to time, consistent with
the Company's objective of qualifying as a REIT, the following shall apply to
the Company's investments:
(a) Not more than 10% of the Company's total assets shall be
invested in Unimproved Real Property or mortgage loans on Unimproved Real
Property.
(b) The Company 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 Company's ordinary
business of investing in real estate assets and mortgages.
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(c) The Company shall not invest in or make mortgage loans unless an
appraisal is obtained concerning the underlying property except for those loans
insured or guaranteed by a government or government agency. Mortgage
indebtedness on any property shall not exceed such property's appraised value.
In cases in which a majority of Independent Trust Managers so determine, and in
all cases in which the transaction is with the Advisor, Trust Managers, or any
Affiliates, such appraisal of the underlying property must be obtained from an
Independent Expert. Such appraisal shall be maintained in the Company's records
for at least five years and shall be available for inspection and duplication by
any Shareholder. 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 Company shall not make or invest in mortgage loans,
including construction loans, on any one Property if the aggregate amount of all
mortgage loans outstanding on the Property, including the loans of the Company,
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 Company" 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.
(e) The Company shall not invest in indebtedness ("Junior Debt")
secured by a mortgage on real property which is subordinate to the lien or other
indebtedness ("Senior Debt"), except where such amount of such Junior Debt, plus
the outstanding amount of Senior Debt, does not exceed 90% of the appraised
value of such property, if after giving effect thereto, the value of all such
mortgage loans of the Company (as shown on the books of the Company in
accordance with generally accepted accounting principles, after all reasonable
reserves but before provision for depreciation) would not then exceed 25% of the
Company's Net Assets. The value of all investments in Junior Debt of the Company
which does not meet the aforementioned requirements shall be limited to 10% of
the Company's tangible assets (which would be included within the 25%
limitation).
(f) The Company shall not engage in any short sale, or borrow, on an
unsecured basis, if such borrowing will result in an Asset Coverage of less than
300%, except that such borrowing limitation shall not apply to a first mortgage
trust. "Asset Coverage," for the purpose of this Section 5.4(f) means the ratio
which the value of the total assets of an issuer, less all liabilities and
indebtedness except indebtedness for unsecured borrowings, bears to the
aggregate amount of all unsecured borrowings of such issuer.
(g) The Company shall not make or invest in any mortgage loans that
are subordinate to any mortgage, other indebtedness or equity interest of the
Advisor, the Trust Managers, the Sponsor or an Affiliate of the Company. In
addition, the Company shall not invest in any security of any entity holding
investments or engaging in activities prohibited by this Declaration of Trust.
(h) The Company shall not underwrite the Securities of other
issuers. In addition, the Company shall not invest in Securities of other
issuers, except for investments in Joint Ventures as described herein, unless a
majority of the Trust Managers (including a majority of
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Independent Trust Managers) not otherwise interested in such transaction approve
the transaction as being fair, competitive and commercially reasonable.
(i) The Company shall not issue (i) equity securities redeemable
solely at the option of the holder; (ii) non-voting or non-assessable
securities; (iii) options, warrants, or similar evidences of a right to buy its
securities (collectively, "Options") unless (1) issued to all of its
Shareholders ratably, (2) as part of a financing arrangement, or (3) as part of
a Stock Option Plan available to Trust Managers, officers or employees of the
Company or the Advisor. Options may not be issued to the Advisor, Trust Manager,
Sponsor or any Affiliate thereof except on the same terms as such Options are
sold to the general public, when applicable. Options may be issued to persons
other than the Advisor, Trust Managers, 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 that in the judgment of the
Independent Trust Managers has a market value less than the value of such Option
on the date of grant. Options issuable to the Advisor, Trust Managers, Sponsor
or any Affiliate thereof shall not exceed 10% of the outstanding Shares on the
date of grant.
(j) A majority of the Trust Managers shall authorize the
consideration to be paid for each Property, based on the fair market value of
the Property. If a majority of the Independent Trust Managers determine, or if
the Property is acquired from the Advisor, a Trust Manager, the Sponsor or their
Affiliates, such fair market value shall be determined by an Independent Expert
selected by the Independent Trust Managers.
(k) The aggregate Leverage of the Company shall be reasonable in
relation to the Net Assets of the Company and shall be reviewed by the Trust
Managers at least quarterly. The maximum amount of such Leverage shall not
exceed 75% of the Properties' aggregate value, provided, that Leverage on
individual Properties may exceed such limit, unless approved by the Independent
Trust Managers and disclosed to the Shareholders in the next quarterly report of
the Company.
(l) The Sponsor, Advisor, Trust Managers and any Affiliates thereto
shall not make loans to the Company, or to Joint Ventures, for the purpose of
acquiring Properties. Any loans to the Company by such parties for other
purposes must be approved by a majority of Trust Managers (including a majority
of Independent Trust Managers) not otherwise interested in the transaction as
fair, competitive and commercially reasonable and no less favorable to the
Company than comparable loans between unaffiliated parties.
(m) The Company shall not make loans to the Sponsor, Advisor, Trust
Managers, officers or any principal of the Company or any of its Affiliate.
(n) The Company shall not operate so as to be classified as an
"investment company" under the Investment Company Act of 1940, as amended.
(o) The Company shall not issue (i) 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; or (ii) Shares on a deferred payment basis or under similar
arrangements.
(p) The Company shall not invest in real estate contracts of sale
unless such contracts of sale are in recordable form and appropriately recorded
in the chain of title.
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The foregoing investment limitations may not be modified or eliminated without
the approval of Shareholders owning a majority of the outstanding Shares and a
majority of the Independent Trust Managers not otherwise interested in the
transaction.
ARTICLE VI
CONFLICTS OF INTEREST
SECTION 6.1 Sales and Leases to Company. The Company may purchase or
lease a Property or Properties from the Sponsor, Advisor, a Trust Manager, or
any Affiliate upon a finding by a majority of Trust Managers (including a
majority of Independent Trust Managers) not otherwise interested in the
transaction that such transaction is competitive and commercially reasonable to
the Company and at a price to the Company no greater than the cost of the asset
to such Sponsor, Advisor, Trust Manager or Affiliate, or, if the price to the
Company is in excess of such cost, that substantial justification for such
excess exists and such excess is reasonable, and there is appropriate disclosure
of the material facts concerning each such transaction. In no event shall the
cost of such asset to the Company exceed its current appraised value.
SECTION 6.2 Sales and Leases to the Sponsor, Advisor, Trust Managers
or Affiliates. An Advisor, Trust Manager or Affiliate may purchase or lease a
Property or Properties from the Company if a majority of Trust Managers
(including a majority of Independent Trust Managers) not otherwise interested in
the transaction determine that the transaction is fair and reasonable to the
Company.
SECTION 6.3 Other Transactions.
(a) No goods or services will be provided by the Advisor or its
Affiliates to the Company, except for transactions in which the Advisor or its
Affiliates provide goods or services to the Company in accordance with this
Declaration of Trust or if a majority of the Trust Managers (including a
majority of the Independent Trust Managers) not otherwise interested in such
transactions approve such transactions as fair and reasonable to the Company and
on terms and conditions not less favorable to the Company than those available
from unaffiliated third parties.
(b) The Company shall not make loans to the Sponsor, Advisor, Trust
Managers or any Affiliates thereof. The Sponsor, Advisor, Trust Managers and any
Affiliates thereof shall not make loans to the Company, or to Joint Ventures,
for the purpose of acquiring Properties. Any loans to the Company by such
parties for other purposes must be approved by a majority of the Trust Managers
(including a majority of the Independent Trust Managers) not otherwise
interested in such transaction as fair, competitive, and commercially
reasonable, and no less favorable to the Company than comparable loans between
unaffiliated parties.
SECTION 6.4 Conflict Resolution Procedures. In the event that an
investment opportunity becomes available which is suitable for both the Company
and a public or private entity with which the Advisor or its Affiliates are
affiliated, for which both entities have sufficient uninvested funds, then the
entity which has had the longest period of time elapse since it was offered an
investment opportunity will first be offered the investment opportunity. An
investment opportunity will not be considered suitable for an entity if the
2%/25% Guidelines could not be satisfied if the entity were to make the
investment. In determining whether or not
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an investment opportunity is suitable for more than one entity, the Board of
Trust Managers and the Advisor will examine such factors, among others, as the
cash requirements of each entity, the effect of the acquisition both on
diversification of each entity's investments by types of commercial office
properties and geographic area, and on diversification of the tenants of its
properties (which also may affect the need for one of the entities to prepare or
produce audited financial statements for a property or a tenant), the
anticipated cash flow of each entity, the size of the investment, the amount of
funds available to each program, and the length of time such funds have been
available for investment. If the subsequent development, such as a delay in the
closing of a property or a delay in the construction of a property, causes any
such investment, in the opinion of the Board of Trust Managers and the Advisor,
to be more appropriate for an entity other than the entity which committed to
make the investment, however, the Advisor has the right to agree that the other
entity Affiliated with the Advisors or its Affiliates may make the investment.
The Independent Trust Managers have a duty to insure that this allocation of
investment opportunities is applied fairly to the Company.
SECTION 6.5 Transactions with Affiliates. The Company shall not
engage in transactions with any 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 Trust Managers (including a
majority of the Independent Trust Managers) not Affiliated with the person who
is party to the transaction and:
(i) The transaction is fair and reasonable to the Company and
its Shareholders.
(ii) The terms of such transaction are at least as favorable as
the terms of any comparable transactions made on an arms-length basis
and known to the Trust Managers.
(iii) The total consideration is not in excess of the appraised
value of the property being acquired, if an acquisition is involved, as
determined by an Independent Expert.
(iv) Payments to the Advisor, its Affiliates and the Trust
Managers for services rendered in a capacity other than that as Advisor
or Trust Manager may only be made upon a determination that:
(a) The compensation is not in excess of their
compensation paid for any comparable services; and
(b) The compensation is not greater than the charges for
comparable services available from others who are competent and
not Affiliated with any of the parties involved.
(v) The Company will not make loans to the Advisor or other
Affiliates, or to any trust managers, director, officer or principal of
the Company or any of its Affiliates.
Transactions between the Company and its Affiliates are further subject to any
express restrictions in this Declaration of Trust or adopted by the Trust
Managers in the Bylaws or by resolution, and other applicable law.
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ARTICLE VII
SHARES
SECTION 7.1 Authorized Capital Stock.
(a) The aggregate number of shares of beneficial interest of all
classes of shares of beneficial interest that the Trust shall have authority to
issue is 450,000,000 shares, consisting of (i) 400,000,000 common shares, $0.001
par value per share ("Common Shares"), and (ii) 50,000,000 preferred shares,
$0.001 par value per share ("Preferred Shares"). Unless otherwise specified, the
term "Shares" in this Declaration of Trust shall be deemed to refer to the
Common Shares and, solely to the extent specifically required by law or as
specifically provided in any resolution or resolutions of the Trust Managers
providing for the issue of any particular series of Preferred Shares, to the
Preferred Shares. For purposes of Section 7.4 (other than Section 7.4(j)) of
this Declaration of Trust, the term Shares shall be deemed to refer to both the
Common Shares and the Preferred Shares and, for purposes of Section 7.4 (other
than Section 7.4(j)), the number of outstanding Shares shall be deemed to be
equal to the value of the Company's outstanding Shares as determined from time
to time by resolution of the Trust Managers, such determination to include an
allocation of relative value among the Common Shares and any outstanding series
of Preferred Shares.
(b) The Company may issue one or more series of Preferred Shares,
each such series to consist of such number of shares as shall be determined by
resolution of the Trust Managers creating such series. The Preferred Shares of
each such series shall have such designations, preferences, conversion, exchange
or other rights, participations, voting powers, options, restrictions,
limitations, special rights or relations, limitations as to dividends,
qualifications or terms, or conditions of redemption thereof, as shall be stated
and expressed by the Trust Managers in the resolution or resolutions providing
for the issuance of such series of Preferred Shares pursuant to the authority to
do so which is hereby expressly vested in the Trust Managers. Except as
otherwise specifically provided in any resolution or resolutions of the Trust
Managers providing for the issue of any particular series of Preferred Shares,
the number of shares of any such series so set forth in such resolution or
resolutions may be increased or decreased (but not below the number of shares of
such series then outstanding) by a resolution or resolutions likewise adopted by
the Trust Managers. Except as otherwise specifically provided in any resolution
or resolutions of the Trust Managers providing for the issue of any particular
series of Preferred Shares, Preferred Shares redeemed or otherwise acquired by
the Trust shall assume the status of authorized but unissued Preferred Shares
and shall be unclassified as to series and may thereafter, subject to the
provisions of this Article Seven and to any restrictions contained in any
resolution or resolutions of the Trust Managers providing for the issuance of
any such series of Preferred Shares, be reissued in the same manner as other
authorized but unissued Preferred Shares.
(c) All of the Common Shares shall be equal in all respects to each
other and shall have no preference, conversion, exchange or preemptive rights.
Except as otherwise specifically required by law or this Declaration of Trust,
or as specifically provided in any resolution or resolutions of the Trust
Managers providing for the issuance of any particular series of Preferred
Shares, the exclusive voting power of the Trust shall be vested in the Common
Shares. Each Common Share entitles the holder thereof to one vote at all
meetings of the Shareholders.
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(d) The Company shall issue Shares for consideration consisting of
any tangible or intangible benefit to the Company, including cash, promissory
notes, services performed, contracts for services to be performed, or other
securities of the Company, such consideration to be determined by the Trust
Managers. When issued, all Shares are non-assessable.
(e) The Trust Managers from time to time may authorize and the
Company may pay to Shareholders such Distributions in cash or other property as
the Trust Managers in their discretion shall determine. The Trust Managers shall
endeavor to authorize and the Company may pay such Distributions as shall be
necessary for the Company to qualify as a REIT; provided, however, Shareholders
shall have no right to any Distribution unless and until declared by the Trust
Managers. The exercise of the powers and rights of the Trust Managers pursuant
to this section shall be subject to the provisions of any class or series of
Shares at the time outstanding. The receipt by any Person in whose name any
Shares are registered on the records of the Company or by his duly authorized
agent shall be a sufficient discharge for all Distributions payable or
deliverable in respect of such Shares and from all liability to see to the
application thereof. Distributions in kind shall not be permitted, except for
distributions of readily marketable securities and distributions of beneficial
interests in a liquidating trust established for the dissolution of the Company
and the liquidation of its assets in accordance with the terms of these Articles
of Incorporation.
SECTION 7.2 General Nature of Shares. All Shares shall be personal
property entitling the Shareholders only to those rights provided in this
Declaration of Trust, the Texas REIT Act or in the resolution creating any class
or series of Shares. The legal ownership of the Company Property and the right
to conduct the business of the Company are vested exclusively in the Trust
Managers; the Shareholders shall have no interest therein other than the
beneficial interest in the Company conferred by their Shares and shall have no
right to compel any partition, division, dividend or Distribution of the Company
or any Company Property. The death of a Shareholder shall not terminate the
Company or give his legal representative any rights against other Shareholders,
the Trust Managers or the Company Properties, except the right, exercised in
accordance with applicable provisions of the Bylaws, to require the Company to
reflect on its books the change in ownership of the Shares. Shareholders shall
not have any preemptive or other right to purchase or subscribe for any
Securities of the Company which the Company may at any time issue or sell.
SECTION 7.3 Suitability Standards.
(a) Subject to suitability standards established by individual
states or any higher standards established by the Board, to become a Shareholder
in the Company, if such prospective Shareholder is an individual (including an
individual beneficiary of a purchasing Individual Retirement Account), or if the
prospective Shareholder is a fiduciary (such as a trustee of a trust or
corporate pension or profit sharing plan, or other tax-exempt organization, or a
custodian under a Uniform Gifts to Minors Act), such individual or fiduciary, as
the case may be, must represent to the Company, among other requirements as the
Company may require from time to time:
(i) that such individual (or, in the case of a fiduciary,
that the fiduciary account or the 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
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(ii) that such individual (or, in the case of a fiduciary,
that the fiduciary account or the 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.
(b) The Sponsor and each Person selling Shares on behalf of the
Sponsor or the Company shall make every reasonable effort to determine that the
purchase of Shares is a suitable and appropriate investment for each
Shareholder. In making this determination, the Sponsor or each Person selling
Shares on behalf of the Sponsor or the Company shall ascertain that the
prospective Shareholder:
(i) meets the minimum income and net worth standards
established for the Company;
(ii) can reasonably benefit from the Company based on the
prospective Shareholder's overall investment objectives and portfolio
structure;
(iii) is able to bear the economic risk of the investment
based on the prospective Shareholder's overall financial situation; and
(iv) has apparent understanding of: (1) the fundamental risks
of the investment; (2) the risk that the Shareholder may lose the entire
investment; (3) the lack of liquidity of Company Shares; (4) the
restrictions on transferability of Company 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
Company shall make this determination on the basis of information it has
obtained from a prospective Shareholder. Relevant information for this purpose
will include at least the age, investment objectives, investment experiences,
income, net worth, financial situation, and other investments of the prospective
Shareholder, as well as any other pertinent factors. The Sponsor or each Person
selling Shares on behalf of the Sponsor or the Company shall maintain records of
the information used to determine that an investment in Shares is suitable and
appropriate for a Shareholder. The Sponsor or each Person selling Shares on
behalf of the Sponsor or the Company shall maintain these records for at least
six years.
(c) Subject to certain individual state requirements or higher
standards established by the Board from time to time, no sale or transfer of
Shares will be permitted of a number of Shares valued at less than $1,000, and a
Shareholder shall not transfer, fractionalize or subdivide such Shares so as to
retain less than such minimum number thereof.
SECTION 7.4 Restrictions on Ownership and Transfer.
(a) For purposes of this Section 7.4:
(i) The term "Charitable Beneficiary" shall mean, with
respect to any Beneficial Trust (as defined below), one or more
organizations described in each of Section 170(b)(1)(A) (other than
clauses (vii) or (viii) thereof) and Section 170(c)(2) of the Code that
are named by the Trustee (as defined below) as the beneficiary or
beneficiaries of such Beneficial Trust, in accordance with the
provisions of Section 7.4(e)(1).
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(ii) The term "Convertible Securities" means any securities
of the Company that are convertible into Shares.
(iii) The term "individual" shall mean any natural person as
well as those organizations treated as natural persons under Section
542(a) of the Code.
(iv) The term "Market Price" means the average of the last
reported sales price of Common Shares reported on the New York Stock
Exchange on the five trading days immediately preceding the relevant
date, or if the Common Shares are not then traded on the New York Stock
Exchange, the last reported sales price of the Common Shares on the five
trading days immediately preceding the relevant date as reported on any
exchange or quotation system over which the Common Shares may be traded,
or if the Common Shares are not then traded over any exchange or
quotation system, then the market price of the Common Shares on the
relevant date as determined in good faith by the Trust Managers.
(v) The term "ownership" (including "own" or "owns") of
Shares means beneficial ownership. Beneficial ownership, for this
purpose shall be defined to include actual ownership by a Person as well
as constructive ownership by such Person after application of principles
in accordance with or by reference to Sections 544 or 856 of the Code.
(vi) The term "Permitted Transferee" shall mean any Person
designated as a Permitted Transferee in accordance with the provisions
of Section 7.4(e)(v).
(vii) The term "Purported Beneficial Transferee" shall mean,
with respect to any purported transfer that results in Excess Securities
(as defined herein), the purported beneficial transferee for whom the
Purported Record Transferee would have acquired Securities of the Trust
if such transfer had been valid under Section 7.4(b).
(viii) The term "Purported Record Transferee" shall mean, with
respect to any purported transfer which results in Excess Securities,
the Person who would have been the record holder of the Securities of
the Trust if such transfer had been valid under Section 7.4(b).
(ix) The term "Securities" means Shares and Convertible
Securities, for the purposes of this Section 7.4 only.
(b) No Person may own Shares of any class with an aggregate value in
excess of 9.8% of the aggregate value of all outstanding Shares of such class of
Shares or more than 9.8% of the number of outstanding Shares of any class of
Shares (the limitation on the ownership of outstanding Shares is referred to in
this Section 7.4 as the "Ownership Limit" and the 9.8% threshold is referred to
in this Section 7.4 as the "Percentage Limit"), and no Securities shall be
accepted, purchased, or in any manner acquired by any Person if such issuance or
transfer would result in that Person's ownership of Shares exceeding the
Percentage Limit. For purposes of determining if the Ownership Limit is exceeded
by a Person, Convertible Securities owned by such Person shall be treated as if
the Convertible Securities owned by such Person had been converted into Shares
if the effect of such treatment would be to increase the ownership percentage of
such Person in the Company. The Ownership Limit shall not apply (i) to
acquisitions of Securities by any Person that has made a tender offer for all
outstanding Shares (including Convertible Securities) in conformity with
applicable federal securities laws, (ii) to
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the acquisition of Securities of the Trust by an underwriter in a public
offering of Securities of the Company, or in any transaction involving the
issuance of Securities by the Company, in which a majority of the Trust Managers
determines that the underwriter or other Person or party initially acquiring
such Securities will timely distribute such Securities to or among others so
that, following such distribution, none of such Securities will be Excess
Securities, (iii) to the acquisition of Securities pursuant to the exercise of
employee share options, or (iv) to the acquisition of Securities pursuant to an
exception made pursuant to Section 7.4(h).
(c) Nothing in this Section 7.4 shall preclude the settlement of any
transaction in Securities entered into through the facilities of the New York
Stock Exchange. If any Securities are accepted, purchased, or in any manner
acquired by any Person which results in a violation of Section 7.4(b) or (f)
hereof, such issuance or transfer shall be valid only with respect to such
amount of Securities issued or transferred as does not result in a violation of
Section 7.4(b) or (f) hereof, and such acceptance, purchase or acquisition shall
be void ab initio with respect to the amount of Securities that results in a
violation of Section 7.4(a) or (e) hereof (the "Excess Securities"), and the
intended transferee of such Excess Securities shall acquire no rights in such
Excess Securities except as set forth in Section 7.4(e) below.
(d) Each Shareholder shall, within ten days of demand by the
Company, disclose to the Company in writing such information with respect to
his, her or its ownership of Shares as the Trust Managers in their discretion
deem necessary or appropriate in order that the Company may fully comply with
all REIT Provisions and to comply with the requirements of any taxing authority
or governmental agency. All Persons who own Shares in excess of the Percentage
Limit must disclose in writing such ownership information to the Trust no later
than January 31 of each year. Failure to provide such information, upon
reasonable request, shall result in the Securities so owned being treated as
Excess Securities pursuant to this Section 7.4 for so long as such failure
continues.
(e) The Excess Securities, and the owners thereof, shall have the
following characteristics, rights and powers:
(i) Upon any purported purchase, sale, exchange,
acquisition, disposition or other transfer or upon any change in the
capital structure of the Trust (including any redemption of Securities)
that results in Excess Securities pursuant to Section 7.4(b) or (f),
such Excess Securities shall be deemed to have been transferred to a
trust ("Beneficial Trust") for registration in the name of the trustee
named by the Company (the "Trustee") for the exclusive benefit of the
Charitable Beneficiary to whom an interest in such Excess Securities may
later be transferred pursuant to Section 7.4(e)(v). The Company shall
name a Trustee and Charitable Beneficiary of each Beneficial Trust
within five days after discovery of the existence thereof. Any such
Excess Securities so held in the Beneficial Trust shall be issued and
outstanding shares of the Company. The Purported Record Transferee (or
Purported Beneficial Transferee, if applicable) shall have no rights in
such Excess Securities except as provided in this Section 7.4(e).
(ii) The Trustee, as record holder of the Excess Securities,
shall be entitled to receive all Distributions as may be declared by the
Trust Managers on such Excess Securities, and shall hold such
Distributions in trust for the benefit of the Charitable Beneficiary.
The Purported Record Transferee (or Purported Beneficial Transferee, if
applicable) with respect to the Excess Securities shall repay to the
Trustee the amount of
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any Distributions received by it that (1) are attributable to any Excess
Securities and (2) the record date of which was on or after the date
that such shares became Excess Securities. The Company shall take all
measures that it determines reasonably necessary to recover the amount
of any such Distribution paid to the Purported Record Transferee (or
Purported Beneficial Transferee, if applicable), including, if
necessary, withholding any portion of future Distributions payable on
Excess Securities beneficially owned or constructively owned by the
Person who, but for the provisions of Section 7.4(e)(i), would
constructively own or beneficially own the Excess Securities; and, as
soon as reasonably practicable following the Trust's receipt or
withholding thereof, shall pay over to the Trustee for the benefit of
the Charitable Beneficiary the Distributions so received or withheld, as
the case may be.
(iii) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of, or any distribution of the
assets of the Company (other than a Distribution), the Trustee of each
Beneficial Trust shall be entitled to receive, ratably with each other
holder of Securities of the same class or series, that portion of the
assets of the Company which is available for distribution to the holders
of such class and series of Securities. The Trustee shall distribute to
the Purported Record Transferee the amounts received upon such
liquidation, dissolution, or winding up, or distribution, provided,
however, that the Purported Record Transferee shall not be entitled to
receive amounts pursuant to this Section 7.4(e)(iii) in excess of, in
the case of a purported transfer in which the Purported Record
Transferee gave value for Securities and which transfer resulted in the
transfer of Excess Securities to the Beneficial Trust, the price per
share or security, if any, such Purported Record Transferee paid for the
Securities and, in the case of a transfer in which the Purported Record
Transferee did not give value for such Securities (e.g., if the
Securities were received through a gift or devise) and which transfer
resulted in the transfer of Excess Securities to the Beneficial Trust,
the price per share or security equal to the Market Price on the date of
such transfer. Any remaining amount in such Beneficial Trust shall be
distributed to the Charitable Beneficiary.
(iv) The Trustee shall be entitled to vote all Excess
Securities. Any vote by a Purported Record Transferee as a holder of
Shares or Securities prior to the discovery by the Company that the
Securities are Excess Securities shall, subject to applicable law, be
rescinded and shall be void ab initio with respect to such Excess
Securities and the Purported Record Transferee shall be deemed to have
given, as of the close of business on the business day prior to the date
of the purported transfer that results in the transfer to the Beneficial
Trust of Excess Securities under Section 7.4(e)(i), an irrevocable proxy
to the Trustee to vote the Excess Securities in the manner in which the
Trustee, in its sole and absolute discretion, desires.
(v) The Trustee shall have the exclusive and absolute right
to designate a Permitted Transferee (as hereinafter defined) of any
Excess Securities. In an orderly fashion so as to not materially and
adversely affect the Market Price of the Excess Securities, the Trustee
may designate any Person as a Permitted Transferee, provided, however,
that (1) the Permitted Transferee so designated purchases the Excess
Securities for valuable consideration (whether in a public or private
sale), at a price as set forth in Section 7.4(e)(vii) and (2) the
Permitted Transferee so designated may acquire such Excess Securities
without such acquisition resulting in a transfer to a Beneficial Trust
and
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the redesignation of such Securities so acquired as Excess Securities
under Section 7.4(e)(i). Upon the designation by the Trustee of a
Permitted Transferee in accordance with the provisions of Section
7.4(e)(v), the Trustee of a Beneficial Trust shall (w) cause to be
transferred to the Permitted Transferee that number of Excess Securities
acquired by the Permitted Transferee, (x) cause to be recorded on the
books of the Company that the Permitted Transferee is the holder of
record of such number of Securities, (y) cause the Excess Securities to
be canceled, and (z) distribute to the Charitable Beneficiary any and
all amounts held with respect to the Excess Securities after making that
payment to the Purported Record Transferee pursuant to Section
7.4(e)(vi).
(vi) Any Purported Record Transferee shall be entitled
(following discovery of the Excess Securities and subsequent designation
of the Permitted Transferee in accordance with Section 7.4(e)(v)) to
receive from the Trustee upon the sale or other disposition of such
Excess Securities the lesser of (1) in the case of (A) a purported
transfer in which the Purported Record Transferee (or Purported
Beneficial Transferee, if applicable) gave value for Securities and
which transfer resulted in the transfer of Excess Securities to the
Beneficial Trust, the price per share, if any, such Purported Record
Transferee (or Purported Beneficial Transferee, if applicable) paid for
the Securities, or (B) a transfer in which the Purported Record
Transferee (or Purported Beneficial Transferee, if applicable) did not
give value for such Securities (e.g., if the Securities were received
through a gift or devise) and which transfer resulted in the transfer of
Excess Securities to the Beneficial Trust, the price per share equal to
the Market Price on the date of such transfer, and (2) the price per
share received by the Trustee of the Beneficial Trust from the sale or
other disposition of such Excess Securities in accordance with Section
7.4(e)(v) or (vii). Any amounts received by the Trustee for such Excess
Securities and in excess of such amounts to be paid the Purported Record
Transferee pursuant to Section 7.4(e)(vi) shall be distributed to the
Charitable Beneficiary in accordance with the provisions of Section
7.4(e)(v). Each Charitable Beneficiary and Purported Record Transferee
(and Purported Beneficial Transferee, if different) waives any and all
claims that each may have against the Trustee and the Beneficial Trust
arising out of the disposition of the Excess Securities, except for
claims arising out of the gross negligence or willful misconduct of, or
any failure to make payments in accordance with this Section 7.4(e) by
such Trustee or the Company.
(vii) Excess Securities shall be deemed to have been offered
for sale to the Company, or its designee, at a price per share equal to
the lesser of (1) the price per share in the transaction that created
such Excess Securities (or, in the case of devise or gift, the Market
Price at the time of such devise or gift) and (2) the Market Price on
the date the Company, or its designee, accepts such offer. The Company
shall have the right to accept such offer for a period of 90 days after
the later of (y) the date of the transfer which resulted in such Excess
Securities and (z) the date the Company determines in good faith that a
transfer resulting in Excess Securities has occurred, if the Company
does not receive a notice of such transfer pursuant to Section
7.4(e)(v).
(f) Any sale, transfer, gift, assignment, devise or other
disposition of Shares (for purposes of this Section 7.4(f), a "transfer") that,
if effective, would result in (i) the Shares of the Company being owned by less
than 100 persons (determined without reference to any rules of attribution)
shall be void ab initio as to the Shares which would otherwise be beneficially
owned
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by the transferee, (ii) the Company being "closely held" within the meaning of
Section 856(h) of the Code, shall be void ab initio as to the transfer of the
Shares that would cause the Company to be "closely held" within the meaning of
Section 856(h) of the Code, (iii) the Company owning, directly or indirectly,
10% or more of the ownership interest in any tenant or subtenant of the
Company's Properties within the meaning of Section 856(d)(2)(B) of the Code and
the Treasury Regulations thereunder, shall be void ab initio, or (iv) the
disqualification of the Company as a REIT shall be void ab initio as to the
transfer of the Shares that would cause the Company to be disqualified as a
REIT, and, in the case of each of clauses (i), (ii), (iii) and (iv) of this
Section 7.4(f), the intended transferee shall acquire no rights in such Shares,
except as may be provided by Section 7.4(e) above.
(g) If any of the restrictions on transfer set forth in this Section
7.4 are determined to be void, invalid or unenforceable by virtue of any legal
decision, statute, rule or regulation, then the intended transferee of any
Excess Securities may be deemed, at the option of the Company, to have acted as
an agent on behalf of the Company in acquiring the Excess Securities and to hold
the Excess Securities on behalf of the Company.
(h) The Percentage Limit and the Ownership Limit shall not apply to
Securities which the Trust Managers in their sole discretion may exempt from the
Percentage Limit and the Ownership Limit (i) prior to the qualification of the
Company to be taxed as a REIT under the Code or (ii) while owned by a Person who
has provided the Company with evidence and assurances acceptable to the Trust
Managers that the qualification of the Company as a REIT would not be
jeopardized thereby. Until revoked as provided by this Section 7.4(h), the
Percentage Limit and Ownership Limit shall not apply to the Advisor and its
Affiliates provided the Advisor provides assurances to the Trust Managers that
the qualification of the Company as a REIT would not be jeopardized thereby. The
Trust Managers, in their sole discretion, may at any time revoke any exception
pursuant to this Section 7.4(h) in the case of any Person, and upon such
revocation, the provisions of Section 7.4(b) shall immediately become applicable
to such Person and all Securities which such Person may own. A decision to
exempt or refuse to exempt from the Percentage Limit the ownership of certain
designated Securities, or to revoke an exemption previously granted, shall be
made by the Trust Managers in their sole discretion, based on any reason
whatsoever, including, but not limited to, the preservation of the Trust's
qualification as a REIT.
(i) Subject to the provisions of the first sentence of Section
7.4(c), nothing herein contained shall limit the ability of the Company to
impose or to seek judicial or other imposition of additional restrictions if
deemed necessary or advisable to protect the Company and the interests of its
security holders by preservation of the Trust's status as a qualified REIT under
the Code.
(j) All Persons who own 5% or more of the outstanding Shares during
any taxable year of the Company shall file with the Company an affidavit setting
forth the number of Shares during such taxable year owned directly (held of
record by such Person or by a nominee or nominees of such Person) and
constructively owned (within the meaning of Section 544 of the Code or for
purposes of Rule 13(d) of the Securities Exchange Act of 1934) by the Person
filing the affidavit. The affidavit to be filed with the Company shall set forth
all the information required to be reported in returns of shareholders under
Section 1.857-9 of the Treasury Regulations or similar provisions of any
successor Treasury Regulations and in reports to be filed under Section 13(d) of
the Securities Exchange Act of 1934. The affidavit or an
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amendment to a previously filed affidavit shall be filed with the Company
annually within 60 days after the close of the Trust's taxable year. A Person
shall have satisfied the requirements of this Section 7.4(j) if the Person
furnishes to the Company the information in such Person's possession after such
Person has made a good faith effort to determine the Shares it owns and to
acquire the information required by Section 1.857-9 of the Treasury Regulations
or similar provisions of any successor regulation.
SECTION 7.5 Severability. If any provision of this Article VII or
any application of any such provision is determined to be void, invalid or
unenforceable by any court having jurisdiction over the issue, the validity and
enforceability of the remaining provisions of this Article VII shall not be
affected and other applications of such provision shall be affected only to the
extent necessary to comply with the determination of such court.
SECTION 7.6 Repurchase of Shares. The Trust Managers may establish,
from time to time, a program or programs by which the Company voluntarily
repurchases Shares from its Shareholders, provided, however, that such
repurchase does not impair the capital or operations of the Company. The
Sponsor, Advisor, Trust Managers or any Affiliates thereof may not receive any
fees on the repurchase of Shares by the Company.
SECTION 7.7 Distribution Reinvestment Plans. The Trust Managers may
establish, from time to time, a Distribution reinvestment plan or plans.
Pursuant to such reinvestment plan, all material information regarding the
Distribution to the Shareholders and the effect of reinvesting such
distribution, including the tax consequences thereof, shall be provided to the
Shareholders at least annually, and each Shareholder participating in such
reinvestment plan shall have a reasonable opportunity to withdraw from the
reinvestment plan at least annually after receipt of the information required by
this Section 7.7.
ARTICLE VIII
SHAREHOLDERS
SECTION 8.1 Meetings of Shareholders. There shall be an annual
meeting of the Shareholders, to be held at such time and place as shall be
determined by or in the manner prescribed in the Bylaws, at which the Trust
Managers shall be elected and any other proper business may be conducted. The
annual meeting will be held on a date which is a reasonable period of time
following the distribution of the Company's annual report to Shareholders but
not less than 30 days after delivery of such report. The Trust Managers shall
take reasonable steps to insure that the annual meeting is held. Trust Managers
shall be elected (without the concurrence by the Trust Managers) by the
affirmative vote of the holders of not less than a majority of the Shares
present in person or by proxy at an annual meeting at which a quorum is present.
A quorum shall be 50% of the then outstanding Shares. Special meetings of
Shareholders may be called in the manner provided in the Bylaws, including by
the president or by a majority of the Trust Managers, and shall be called by an
officer of the Company upon written request of Shareholders 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. Upon receipt of a
written request, either in person or by mail, stating the purpose(s) of the
meeting, the Company shall provide all Shareholders within ten days after
receipt of said request, written notice, either in person or by mail, of a
meeting and the purpose of such meeting to be held on a date not less
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than 15 nor more than 60 days after the distribution of such notice, at a time
and place specified in the request, or if none is specified, at a time and place
convenient to the Shareholders. If there are no Trust Managers, the officers of
the Company shall promptly call a special meeting of the Shareholders entitled
to vote for the election of successor Trust Managers. Any meeting may be
adjourned and reconvened as the Trust Managers determine or as provided by the
Bylaws.
SECTION 8.2 Voting Rights of Shareholders. Subject to the provisions
of any class or series of Shares then outstanding and the mandatory provisions
of any applicable laws or regulations, the Shareholders shall be entitled to
vote only on the following matters; (a) election or removal of Trust Managers,
without the necessity for concurrence by the Trust Managers, as provided in
Sections 2.1, 8.1 and 10.1 of this Declaration of Trust; (b) amendment of this
Declaration of Trust, without the necessity for concurrence by the Trust
Managers, as provided in Section 10.1 hereof; (c) termination of the Company,
without the necessity for concurrence by the Trust Managers, as provided in
Section 11.2 hereof; (d) reorganization of the Company as provided in Section
10.2 hereof; (e) merger, consolidation or sale or other disposition of all or
substantially all of the Company Property, as provided in Section 10.3 hereof;
and (f) termination of the Company's status as a real estate investment trust
under the REIT Provisions, as provided in Section 3.2(b) hereof. The
Shareholders may terminate the status of the Company as a REIT under the Code by
a vote of a majority of the Shares outstanding and entitled to vote. Except with
respect to the foregoing matters, no action taken by the Shareholders at any
meeting shall in any way bind the Trust Managers.
SECTION 8.3 Voting Limitations on Shares Held by the Advisor, Trust
Managers and Affiliates. With respect to Shares owned by the Advisor, the Trust
Managers, or any of their Affiliates, neither the Advisor, the Trust Managers,
nor any of their Affiliates may vote or consent on matters submitted to the
Shareholders regarding the removal of the Advisor, Trust Managers or any of
their Affiliates or any transaction between the Company and any of them. In
determining the requisite percentage in interest of Shares necessary to approve
a matter on which the Advisor, Trust Managers and any of their Affiliates may
not vote or consent, any Shares owned by any of them shall not be included.
SECTION 8.4 Right of Inspection. Any Shareholder and any designated
representative thereof shall be permitted access to all records of the Company
at all reasonable times, and may inspect and copy any of them for a reasonable
charge. Inspection of the Company books and records by the office or agency
administering the securities laws of a jurisdiction shall be provided upon
reasonable notice and during normal business hours.
SECTION 8.5 Access to Shareholder List.
(a) An alphabetical list of the names, addresses and telephone
numbers of the Shareholders of the Company, along with the number of Shares held
by each of them (the "Shareholder List"), shall be maintained as part of the
books and records of the Company and shall be available for inspection by any
Shareholder or the Shareholder's designated agent at the home office of the
Company upon the request of the Shareholder. The Shareholder 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 Shareholder so requesting
within ten days of the request. The copy of the Shareholder 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 Company may impose a
reasonable charge for expenses incurred in reproduction pursuant to the
Shareholder request. A
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Shareholder may request a copy of the Shareholder List in connection with
matters relating to Shareholders' voting rights, and the exercise of Shareholder
rights under federal proxy laws.
(b) If the Advisor or Trust Managers neglect or refuse to exhibit,
produce or mail a copy of the Shareholder List as requested, the Advisor and the
Trust Managers shall be liable to any Shareholder requesting the list for the
costs, including attorneys' fees, incurred by that Shareholder for compelling
the production of the Shareholder List, and for actual damages suffered by any
Shareholder by reason of such refusal or neglect. It shall be a defense that the
actual purpose and reason for the requests for inspection or for a copy of the
Shareholder List is to secure such list of Shareholders or other information for
the purpose of selling such list or copies thereof, or of using the same for a
commercial purpose other than in the interest of the applicant as a Shareholder
relative to the affairs of the Company. The Company may require the Shareholder
requesting the Shareholder List to represent that the list is not requested for
a commercial purpose unrelated to the Shareholder's interest in the Company. The
remedies provided hereunder to Shareholders requesting copies of the Shareholder
List are in addition, to and shall not in any way limit, other remedies
available to Shareholders under federal law, or the laws of any state.
SECTION 8.6 Reports. The Trust Managers, including the Independent
Trust Managers, shall take reasonable steps to insure that the Company shall
cause to be prepared and mailed or delivered to each Shareholder as of a record
date after the end of the fiscal year and each holder of other publicly-held
securities of the Company 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 which shall include: (i) financial statements
prepared in accordance with generally accepted accounting principles which are
audited and reported on by independent certified public accountants; (ii) the
ratio of the costs of raising capital during the period to the capital raised;
(iii) 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 Company and
including fees or charges paid to the Advisor and any Affiliate of the Advisor
by third parties doing business with the Company; (iv) the Operating Expenses of
the Company, stated as a percentage of Average Invested Assets and as a
percentage of its Net Income; (v) a report from the Independent Trust Managers
that the policies being followed by the Company are in the best interests of its
Shareholders and the basis for such determination; (vi) separately stated, full
disclosure of all material terms, factors, and circumstances surrounding any and
all transactions involving the Company, Trust Managers, Advisors, Sponsors and
any Affiliate thereof occurring in the year for which the annual report is made,
and the Independent Trust Managers shall be specifically charged with a duty to
examine and comment in the report on the fairness of such transactions; and
(vii) Distributions to the Shareholders for the period, identifying the source
of such Distributions, and if such information is not available at the time of
the distribution, a written explanation of the relevant circumstances will
accompany the Distributions (with the statement as to the source of
Distributions to be sent to Shareholders not later than 60 days after the end of
the fiscal year in which the distribution was made).
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ARTICLE IX
LIABILITY OF SHAREHOLDERS, TRUST MANAGERS, ADVISORS AND
AFFILIATES; INDEMNIFICATION
SECTION 9.1 Limitation of Shareholder Liability. No Shareholder
shall be liable for any debt, claim, demand, judgment or obligation of any kind
of, against or with respect to the Company by reason of his being a Shareholder,
nor shall any Shareholder be subject to any personal liability whatsoever, in
tort, contract or otherwise, to any Person in connection with the Company
Property or the affairs of the Company by reason of his being a Shareholder.
When the Board feels its is necessary or appropriate, the Company shall include
a clause in its contracts which provides that Shareholders shall not be
personally liable for obligations entered into on behalf of the Company.
SECTION 9.2 Limitation of Liability and Indemnification.
(a) In this Section 9.2:
(i) "Indemnitee" means (1) any present or former Trust
Manager or officer of the Company, (2) any person who while serving in
any of the capacities referred to in clause (1) hereof served at the
Company's request as a trust manager, director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another real estate investment trust or foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit
plan or other enterprise and (3) any person nominated or designated by
(or pursuant to authority granted by) the Trust Managers or any
committee thereof to serve in any of the capacities referred to in
clauses (1) or (2) hereof.
(ii) "Official Capacity" means (1) when used with respect to
a Trust Manager, the office of Trust Manager of the Company and (2) when
used with respect to a person other than a Trust Manager, the elective
or appointive office of the Company held by such person or the
employment or agency relationship undertaken by such person on behalf of
the Company or Operating Partnership, but in each case does not include
service for any other real estate investment trust or foreign or
domestic corporation or any partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise.
(iii) "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or
proceeding, and any inquiry or investigation that could lead to such an
action, suit or proceeding.
(b) The Company shall indemnify every Indemnitee against all
judgments, penalties (including excise and similar taxes), fines, amounts paid
in settlement and reasonable expenses actually incurred by the Indemnitee in
connection with any Proceeding in which he or she was, is or is threatened to be
named defendant or respondent, or in which he or she was or is a witness without
being named a defendant or respondent, by reason, in whole or in part, of his or
her serving or having served, or having been nominated or designated to serve,
in any of the capacities referred to in Section 9.2(a)(i), to the fullest extent
that indemnification is permitted by the Texas REIT Act as the same exists or
may hereafter be amended (but, in the case of any such
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amendment, only to the extent that such amendment permits the Company to provide
broader indemnification rights than the law permitted the Company to provide
prior to such amendment) or any other applicable laws presently or hereinafter
in effect, provided,
(i) that the Indemnity determined, in good faith, that the
course of conduct which caused the loss or liability was in the best
interests of the Company, and
(ii) the Company shall not indemnify or hold harmless the
Indemnitee if: (1) in the case that the Indemnitee is a Trust Manager
(other than an Independent Trust Manager) or an Advisor, the loss or
liability was the result of negligence or misconduct by the Indemnitee,
or (2) in the case that the Indemnitee is an Independent Trust Manager,
the loss or liability was the result of gross negligence or willful
misconduct by the Indemnitee.
The Company shall not provide indemnification for any loss, liability or expense
arising from or out of an alleged violation of federal or state securities laws
by such party unless at least one of the following conditions are met:
(X) there has been a successful adjudication on the merits
of each count involving alleged securities law violations as to the
Indemnitee,
(Y) such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction as to the Indemnitee; or
(Z) 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 Company were offered or sold as to indemnification for
violations of securities laws.
Any indemnification of expenses or agreement to hold harmless may be paid only
out of the Net Assets of the Company and no portion may be recoverable from the
Shareholders. An Indemnitee shall be deemed to have been found liable in respect
of any claim, issue or matter only after the Indemnitee shall have been so
adjudged by a court of competent jurisdiction after exhaustion of all appeals
therefrom. Reasonable expenses shall include, without limitation, all court
costs and all fees and disbursements of attorneys for the Indemnitee.
(c) Reasonable expenses (including court costs and attorneys' fees)
incurred by an Indemnitee who was or is a witness or was, is or is threatened to
be made a named defendant or respondent in a Proceeding, shall be paid or
reimbursed by the Company at reasonable intervals in advance of the final
disposition of such Proceeding after receipt by the Company of a written
undertaking by or on behalf of such Indemnitee to repay the amount paid or
reimbursed by the Company, together with the applicable legal rate of interest,
if it shall ultimately be determined that he or she is not entitled to be
indemnified by the Company as authorized in this Section 9.2. Such written
undertaking shall be an unlimited obligation of the Indemnitee but need not be
secured and it may be accepted without reference to financial ability to make
repayment. Notwithstanding any other provision of this Section 9.2, the Company
may pay or reimburse expenses incurred by an Indemnitee in connection with his
or her appearance as a witness or other participation in a Proceeding at a time
when he or she is not named a defendant or
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respondent in the Proceeding. The Company may only pay or reimburse expenses and
other costs for Indemnitees in the event (i) the applicable Proceeding relates
to acts or omissions with respect to the performance of duties or services on
behalf of the Company and (ii) the Proceeding was initiated by a third party who
is not a shareholder of the Company or, if by a shareholder of the Company
acting in his or her capacity as such, a court of competent jurisdiction
approves such advancement or payment.
(d) The indemnification provided by this Section 9.2 shall (i) not
be deemed exclusive of, or to preclude, any other rights to which those seeking
indemnification may at any time be entitled under the Company's Bylaws, any law,
agreement or vote of Shareholders or disinterested Trust Managers, or otherwise,
or under any policy or policies of insurance purchased and maintained by the
Company on behalf of any Indemnitee, both as to action in his or her Official
Capacity and as to action in any other capacity, (ii) continue as to a person
who has ceased to be in the capacity by reason of which he or she was an
Indemnitee with respect to matters arising during the period he or she was in
such capacity, and (iii) inure to the benefit of the heirs, executors and
administrators of such a person.
(e) The provisions of this Section 9.2 are for the benefit of, and
may be enforced by, each Indemnitee the same as if set forth in their entirety
in a written instrument duly executed and delivered by the Company and such
Indemnitee. The provisions of this Section 9.2 constitute a continuing offer to
all present and future Indemnitees. The Company, by its adoption of this
Declaration of Trust, (i) acknowledges and agrees that each Indemnitee of the
Company has relied upon and will continue to rely upon the provisions of this
Section 9.2 in becoming and serving in any of the capacities referred to in
paragraph (a)(i) of this Section 9.2, (ii) waives reliance upon, and all notice
of acceptance of, such provisions by such Indemnitees and (iii) acknowledges and
agrees that no present or future Indemnitee shall be prejudiced in his or her
right to enforce the provisions of this Section 9.2 in accordance with their
terms by any act or failure to act on the part of the Company.
(f) No amendment, modification or repeal of this Section 9.2 or any
provision of this Section 9.2 shall in any manner terminate, reduce or impair
the right of any past, present or future Indemnitees to be indemnified by the
Company, nor the obligation of the Company to indemnify any such Indemnitees,
under and in accordance with the provisions of this Section 9.2 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may be
asserted.
(g) The indemnification provided by this Section 9.2 shall be
subject to all valid and applicable laws and, in the event this Section 9.2 or
any of the provisions hereof or the indemnification contemplated hereby are
found to be inconsistent with or contrary to any such laws, such laws shall be
deemed to control and this Section 9.2 shall be regarded as modified
accordingly, and, as so modified, to continue in full force and effect.
SECTION 9.3 Limitation of Liability; Express Exculpatory Clauses in
Instruments.
(a) No Trust Manager or officer of the Company shall be liable to
the Company for any act, omission, loss, damage, or expense arising from the
performance of his or her duties under the Company save only for his or her own
willful misfeasance or willful malfeasance or gross negligence. In discharging
their duties to the Company, Trust Managers and officers of the
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Company shall be entitled to rely upon experts and other matters as provided in
the Texas REIT Act and the Company's Bylaws.
(b) In addition to, and in no respect whatsoever in limitation of,
paragraph (a) of this Section 9.3, the liability of each Trust Manager for
monetary damages shall be eliminated to the fullest extent permitted under the
laws of the State of Texas, as the same exist or may be hereafter amended (but,
in the case of any such amendment, only to the extent that such amendment
permits broader elimination or limitation of liability of a Trust Manager than
said law permitted prior to such amendment), and no Trust Manager shall be
liable to the Company or its Shareholders for monetary damages except to the
extent, and only to the extent, such elimination or limitation of liability is
expressly prohibited under the laws of the State of Texas, as the same exist or
may be hereafter amended (but, in the case of any such amendment, only to the
extent that such amendment permits broader elimination or limitation of
liability of a Trust Manager than said law permitted prior to such amendment).
If after the date hereof the laws of the State of Texas are amended to authorize
broader elimination or limitation of liability of a Trust Manager, upon the
effective date of such amendment the liability of a Trust Manager shall without
further act also be eliminated and limited to such broader extent to the fullest
extent not prohibited by the laws of the State of Texas as so amended. This
Section 9.3 shall be deemed to be a contract with each Trust Manager who serves
as such at any time while such provisions are in effect, and each such Trust
Manager shall be deemed to be serving as such in reliance on the provisions of
this Section 9.3. No repeal or amendment of this Declaration of Trust shall
adversely affect any right or any elimination or limitation of liability of a
Trust Manager existing at the time of the repeal or amendment.
(c) Neither the Shareholders nor the Trust Managers, officers,
employees or agents of the Company shall be liable under any written instrument
creating an obligation of the Company by reason of their being Shareholders,
Trust Managers, officers, employees or agents of the Company, and all Persons
shall look solely to the Company Property 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 Shareholder, Trust
Manager, officer, employee or agent liable thereunder to any third party, nor
shall the Trust Managers or any officer, employee or agent of the Company be
liable to anyone as a result of such omission.
ARTICLE X
AMENDMENT; REORGANIZATION; MERGER, ETC.
SECTION 10.1 Amendment.
(a) Subject to the Texas REIT Act and Section 10.1(c), this
Declaration of Trust may be amended, without the necessity for concurrence by
the Trust Managers, by the affirmative vote of the holders of not less than a
majority of the Shares then outstanding and entitled to vote thereon, except
that:
(i) Section 10.1 and Section 10.2 hereof may not be amended
(or any other provision of this Declaration of Trust be amended or any
provision of this Declaration of Trust be added that would have the
effect of amending such sections) except by the
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affirmative vote of Shareholders holding at least 80% of outstanding
Shares entitled to vote thereon;
(ii) Section 2.1 (insofar as the same relates solely to the
designation of the number and removal of Trust Managers) may not be
amended or repealed (or provisions approved that are inconsistent
therewith) except by the affirmative vote of Shareholders holding at
least 80% of outstanding Shares entitled to vote thereon;
(iii) Section 7.4 (relating to the Share ownership
requirements) may not be amended or repealed (or provisions approved
that are inconsistent therewith) except by the affirmative vote of
Shareholders holding at least 80% of outstanding Shares entitled to vote
thereon; and
(iv) no term or provision of the Declaration of Trust may be
added, amended or repealed in any respect that would, in the
determination of the Trust Managers, cause the Company not to qualify as
REIT under the Code.
(b) The Trust Managers, by a majority vote, may amend provisions of
this Declaration of Trust from time to time as necessary to enable the Company
to qualify as a REIT under the REIT Provisions. With the exception of the
foregoing, the Trust Managers may not amend this Declaration of Trust.
(c) No amendment to this Declaration of Trust may reduce amounts
payable upon the liquidation of the Company or eliminate voting of any
outstanding class of Shares of the Company unless approved by the affirmative
vote of the holders of not less than 67% of the Shares then outstanding and
entitled to vote thereon.
SECTION 10.2 Reorganization. Subject to the provisions of any class
or series of Shares at the time outstanding, the Trust Managers shall have the
power (i) to cause the organization of a Person to take over the Company
Property and to carry on the affairs of the Company, or (ii) merge the Company
into, or sell, convey and transfer the Company Property to, any such Person in
exchange for securities thereof or beneficial interests therein, and the
assumption by the transferee of the liabilities of the Company, and upon the
occurrence of (i) or (ii) above terminate the Company and deliver such
securities or beneficial interests ratably among the Shareholders according to
the respective rights of the class or series of Shares held by them provided,
however, that any such action shall have been approved, at a meeting of the
Shareholders called for that purpose, by the affirmative vote of the holders of
not less than a majority of the Shares then outstanding and entitled to vote
thereon.
SECTION 10.3 Merger, Consolidation or Sale of Company Property.
(a) Subject to the provisions of any class or series of Shares at
the time outstanding, the Trust Managers shall have the power to
(i) merge the Company into another entity,
(ii) consolidate the Company with one or more other entities
into a new entity;
(iii) sell or otherwise dispose of all or substantially all of
the Company Property; or
(iv) dissolve or liquidate the Company;
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provided, however, that such action shall have been approved, at a meeting of
the Shareholders called for that purpose, by the affirmative vote of the holders
of not less than a majority of the Shares then outstanding and entitled to vote
thereon. Any such transaction involving an Affiliate of the Company or the
Advisor also must be approved by a majority of the Trust Managers (including a
majority of the Independent Trust Managers) not otherwise interested in such
transaction as fair and reasonable to the Company and on terms and conditions
not less favorable to the Company than those available from unaffiliated third
parties.
(b) In connection with any proposed Roll-Up Transaction, an
appraisal of all Properties shall be obtained from an Independent Expert. The
Properties shall be appraised on a consistent basis, and the appraisal shall be
based on the evaluation of all relevant information and shall indicate the value
of the Properties as of a date immediately prior to the announcement of the
proposed Roll-Up Transaction. The appraisal shall assume an orderly liquidation
of Properties 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 Company and the Shareholders. A summary of the appraisal, indicating all
material assumptions underlying the appraisal, shall be included in a report to
Shareholders 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 Shareholders who vote against the proposed Roll-Up
Transaction the choice of:
(i) accepting the securities of a Roll-Up Entity offered in
the proposed Roll-Up Transaction; or
(ii) one of the following:
(1) remaining as Shareholders of the Company and
preserving their interests therein on the same terms and
conditions as existed previously; or
(2) receiving cash in an amount equal to the
Shareholder's pro rata share of the appraised value of the Net
Assets of the Company.
(c) The Company is prohibited from participating in any proposed
Roll-Up Transaction:
(i) which would result in the Shareholders having democracy
rights in a Roll-Up Entity that are less than the rights provided for in
Sections 8.1, 8.2, 8.4, and 9.1 of this Declaration of Trust;
(ii) which 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 which 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;
(iii) in which investor's rights to access of records of the
Roll-Up Entity will be less than those described in Sections 8.5 and 8.6
hereof; or
(iv) in which any of the costs of the Roll-Up Transaction
would be borne by the Company if the Roll-Up Transaction is not approved
by the Shareholders.
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ARTICLE XI
DURATION OF COMPANY
The Company shall continue perpetually unless dissolved pursuant to the
provisions contained herein or pursuant to any applicable provision of the Texas
REIT Act. The Company may be terminated at any time, without the necessity for
concurrence by the Board of Trust Managers, by the vote or written consent of a
majority of the outstanding Shares.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Governing Law. These Articles of Incorporation are
executed by the undersigned Trust Managers and delivered in the State of Texas
with reference to the laws thereof, and the rights of all parties and the
validity, construction and effect of every provision hereof shall be subject to
and construed according to the laws of the State of Texas without regard to
conflicts of laws provisions thereof.
SECTION 12.2 Provisions in Conflict with Law or Regulations.
If any provision of this Declaration of Trust or any application of any
provision is determined to be invalid by any federal or state court having
jurisdiction over the issue, the validity of the remaining provisions shall not
be affected and other applications of such provision shall be affected only to
the extent necessary to comply with the determination of such court. In lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Declaration of Trust, a legal, valid and
enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible, and the parties hereto request the
court or any arbitrator to whom disputes relating to this Declaration of Trust
are submitted to reform the otherwise illegal, invalid or unenforceable
provision in accordance with this Section 12.2.
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