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EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
SPECIALTY MORTGAGE TRUST, INC.
Specialty Mortgage Trust, Inc., a Maryland corporation, having its
principal office in Baltimore City, Maryland (hereinafter referred to as the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
ARTICLE I
INCORPORATOR
The undersigned, Phillip R. Pollock, whose address is c/o Tobin & Tobin,
One Montgomery Street, 15th Floor, San Francisco, California 94104, being at
least 18 years of age, does hereby act as an incorporator, under and by virtue
of the General Laws of the State of Maryland authorizing the formation of
corporations and with the intention of forming a corporation.
ARTICLE II
NAME
The name of the corporation (which is hereinafter called the
"Corporation") is:
Specialty Mortgage Trust, Inc.
ARTICLE III
PURPOSES
The purpose for which the Corporation is formed is to transact any or all
lawful business, not required to be specifically stated in the Charter, for
which corporations may be incorporated under the MGCL.
ARTICLE IV
PRINCIPAL OFFICE
The present address of the principal office of the Corporation in this
State is:
The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
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ARTICLE V
RESIDENT AGENT
The name and address of the resident agent of the Corporation are:
The Corporation Trust Incorporated
32 South Street
Baltimore, Maryland 21202
Said resident agent is a Maryland corporation.
ARTICLE VI
CAPITAL STOCK
A. The total number of shares of Capital Stock of all classes which the
Corporation has authority to issue is fifty million (50,000,000) shares of
Capital Stock, par value one cent ($0.01) per share, amounting in aggregate par
value to Five Hundred Thousand Dollars ($500,000.00). All of such shares are
initially classified as "Common Stock." The Board of Directors may classify and
reclassify any unissued shares of Capital Stock, whether now or hereafter
authorized, by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares of
Capital Stock. All persons who acquire shares of Capital Stock or securities
exercisable for or convertible into shares of Capital Stock shall acquire such
shares subject to the provisions of the Charter (including Article XI) and
Bylaws of the Corporation.
B. The following is a description of the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the Common Stock of the Corporation:
(1) Each share of Common Stock shall have one vote, and, except as
otherwise provided in respect of any class of Capital Stock hereafter classified
or reclassified, the exclusive voting power for all purposes shall be vested in
the holders of the Common Stock.
(2) Subject to the provisions of law and any preferences of any
class of Capital Stock hereafter classified or reclassified, dividends,
including dividends payable in shares of the Corporation's Capital Stock, may be
paid on the Common Stock
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of the Corporation at such time and in such amounts as the Board of Directors
may deem advisable.
(3) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Common
Stock shall be entitled, after payment or provision for payment of the debts and
other liabilities of the Corporation and the amount to which the holders of any
class of Capital Stock hereafter classified or reclassified having a preference
on distributions in the liquidation, dissolution or winding up of the
Corporation shall be entitled, together with the holders of any other class of
Capital Stock hereafter classified or reclassified not having a preference on
distributions in the liquidation, dissolution or winding up of the Corporation,
to share ratably in the remaining net assets of the Corporation.
C. Subject to the foregoing, the power of the Board of Directors to
classify and reclassify any of the shares of Capital Stock shall include,
without limitation, subject to the provisions of the Charter, authority to
classify or reclassify any unissued shares of such Capital Stock into a class or
classes of preferred stock, preference stock, special stock, or other stock, and
to divide and classify shares of any class into one or more series of such
class, by determining, fixing or altering one or more of the following:
(1) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided that, unless
otherwise prohibited by the terms of such or any other class or series, the
number of shares of any class or series may be decreased by the Board of
Directors in connection with any classification or reclassification of unissued
shares and the number of shares of such class or series may be increased by the
Board of Directors in connection with any such classification or
reclassification, and any shares of any class or series which have been
redeemed, purchased, otherwise acquired or converted into shares of Common Stock
or any other class or series shall become part of the authorized Capital Stock
and be subject to classification and reclassification as provided in this
subparagraph.
(2) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on shares of
such class or series, whether any such dividends shall rank senior or junior to
or on a parity with the dividends payable on any other class or series of
Capital Stock, and the status of any such dividends as cumulative, cumulative to
a limited extent or noncumulative and as participating or nonparticipating.
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(3) Whether or not shares of such class or series shall have voting
rights in addition to any voting rights provided by law and, if so, the terms of
such voting rights.
(4) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions thereof,
including provision for adjustment of the conversion or exchange rate in such
events or at such times as the Board of Directors shall determine.
(5) Whether or not shares of such class or series shall be subject
to redemption and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates; and whether or not there shall be
any sinking fund or purchase account in respect thereof, and if so, the terms
thereof.
(6) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation, which rights may vary depending
upon whether such liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates, and whether such
rights shall rank senior or junior to or on a parity with such rights of any
other class or series of Capital Stock.
(7) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of dividends or
making of distributions on, or the acquisition of, or the use of moneys for
purchase or redemption of, any Capital Stock of the Corporation, or upon any
other action of the Corporation, including action under this subparagraph, and,
if so, the terms and conditions thereof.
(8) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of such class or
series, not inconsistent with law and the Charter.
D. For the purposes hereof and of any Articles Supplementary hereto
providing for the classification or reclassification of any shares of Capital
Stock or of any other Charter document of the Corporation (unless otherwise
provided in any such Articles or document), any class or series of Capital Stock
of the Corporation shall be deemed to rank:
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(1) prior to another class or series either as to dividends or upon
liquidation, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable on liquidation, dissolution or
winding up, as the case may be, in preference or priority to holders of such
other class or series;
(2) on a parity with another class or series either as to dividends
or upon liquidation, whether or not the dividend rates, dividend payment dates
or redemption or liquidation price per share thereof be different from those of
such others, if the holders of such class or series of stock shall be entitled
to receipt of dividends or amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in proportion to their respective dividend
rates or redemption or liquidation prices, without preference or priority over
the holders of such other class or series; and
(3) junior to another class or series either as to dividends or upon
liquidation, if the rights of the holders of such class or series shall be
subject or subordinate to the rights of the holders of such other class or
series in respect of the receipt of dividends or the amounts distributable upon
liquidation, dissolution or winding up, as the case may be.
ARTICLE VII
DIRECTORS
A. The number of directors of the Corporation shall be three, which number
may be increased or decreased pursuant to the Bylaws of the Corporation, but
shall never be less than the minimum number permitted by the General Laws of the
State of Maryland now or hereafter in force.
B. The directors shall be divided into three classes as follows: (1) the
term of office of Class I shall be until the 1998 annual meeting of stockholders
and until their successors shall be elected and have qualified and thereafter
shall be for three years and until their successors shall be elected and have
qualified; (2) the term of office of Class II shall be until the 1999 annual
meeting of stockholders and until their successors shall be elected and have
qualified and thereafter shall be for three years and until their successors
shall be elected and have qualified; and (3) the term of office of Class III
shall be until the 2000 annual meeting of stockholders and until their
successors shall be elected and have qualified and thereafter shall be for three
years and until their successors shall be elected and have qualified. If the
number of directors is changed, any increase or
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decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible. A director elected by
stockholders shall hold office until the annual meeting for the year in which
his or her term expires and until his or her successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
C. The names of the directors who will serve until the first annual
meeting of stockholders and until their successors are elected and qualify
are as follows:
<TABLE>
<S> <C>
Nello Gonfiantini III Class I
George E. Bull Class II
Roger M. Peltyn Class III
</TABLE>
D. Subject to the rights of the holders of any class of preferred stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office, or other cause shall be filled by the required vote of the stockholders
or the directors then in office. A director so chosen by the stockholders shall
hold office for the balance of the term then remaining. A director so chosen by
the remaining directors shall hold office until the next annual meeting of
stockholders, at which time the stockholders shall elect a director to hold
office for the balance of the term then remaining. No decrease in the number of
directors constituting the Board of Directors shall affect the tenure of office
of any director.
E. Whenever the holders of any one or more series of preferred stock of
the Corporation shall have the right, voting separately as a class, to elect one
or more directors of the Corporation, the Board of Directors shall consist of
such directors so elected in addition to the number of directors fixed as
provided in paragraph A of this Article VII or in the Bylaws. Notwithstanding
the foregoing, and except as otherwise may be required by law, whenever the
holders of any one or more series of preferred stock of the Corporation shall
have the right, voting separately as a class, to elect one or more directors of
the Corporation, the terms of the director or directors elected by such holders
shall expire at the next succeeding annual meeting of stockholders.
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F. Subject to the rights of the holders of any class separately entitled
to elect one or more directors, any director, or the entire Board of Directors,
may be removed from office at any time, but only for cause and then only by the
affirmative vote of the holders of at least a majority of the combined voting
power of all classes of shares of capital stock entitled to vote in the election
for directors voting together as a single class.
ARTICLE VIII
PREEMPTIVE RIGHTS
No holder of any Capital Stock or any other securities of the Corporation,
whether now or hereafter authorized, shall have a preemptive right to subscribe
for or purchase any Capital Stock or any other securities of the Corporation
other than such, if any, as the Board of Directors, in its sole discretion, may
determine and at such price or prices and upon such other terms as the Board of
Directors, in its sole discretion, may determine and at such price or prices and
upon such other terms as the Board of Directors, in its sole discretion, may
fix; and any Capital Stock or other securities which the Board of Directors may
determine to offer for subscription may, as the Board of Directors in its sole
discretion shall determine, be offered to the holders of any class, series or
type of Capital Stock or other securities at the time outstanding to the
exclusion of the holders of any or all other classes, series or types of Capital
Stock or other securities at the time outstanding.
ARTICLE IX
INDEMNIFICATION
The Corporation shall indemnify (A) its directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law and (B) other employees and agents to such
extent as shall be authorized by the Board of Directors or the Corporation's
Bylaws and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such Bylaws, resolutions or contracts
implementing such provisions or such further indemnification arrangements as may
be permitted by law. No amendment of the Charter of the Corporation or repeal of
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any of its provisions shall limit or eliminate the right to indemnification
provided hereunder with respect to acts or omissions occurring prior to such
amendment or repeal.
ARTICLE X
PERSONAL LIABILITY
To the fullest extent permitted by Maryland statutory or decisional law,
as amended or interpreted, no director or officer of this Corporation shall be
personally liable to the Corporation or its stockholders for money damages. No
amendment of the Charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the benefits provided to directors and officers under
this provision with respect to any act or omission which occurred prior to such
amendment or repeal.
ARTICLE XI
RESTRICTION ON TRANSFER, ACQUISITION AND REDEMPTION OF SHARES
Section 11.1 Definitions. For the purpose of this Article XI, the
following terms shall have the following meanings:
Aggregate Stock Ownership Limit. The term "Aggregate Stock Ownership
Limit" shall mean not more than 9.8 percent in value of the aggregate of the
outstanding shares of Capital Stock. The value of the outstanding shares of
Capital Stock shall be determined by the Board of Directors of the Corporation
in good faith, which determination shall be conclusive for all purposes hereof.
Beneficial Ownership. The term "Beneficial Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and shall
include interests that would be treated as owned through the application of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," Beneficially Owns" and "Beneficially Owned" shall have
the correlative meanings.
Business Day. The term "Business Day" shall mean any day, other than
a Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City are authorized or required by law, regulation or
executive order to close.
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Charitable Beneficiary. The term "Charitable Beneficiary" shall mean
one or more beneficiaries of the Trust as determined pursuant to Section 11.3.6,
provided that each such organization must be described in Section 501(c)(3) of
the Code and contributions to each such organization must be eligible for
deduction under each Sections 170(b)(1)(A) (without regard to clauses (vii) or
(viii) thereof), 2055 and 2522 of the Code, provided selecting such beneficiary
or beneficiaries would not violate Section 11.2.1(a) hereof.
Code. The term "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
Common Stock Ownership Limit. The term "Common Stock Ownership
Limit" shall mean not more than 9.8 percent (in value or in number of shares,
whichever is more restrictive) of the aggregate of the outstanding shares of
Common Stock of the Corporation. The number and value of outstanding shares of
Common Stock of the Corporation shall be determined by the Board of Directors of
the Corporation in good faith, which determination shall be conclusive for all
purposes hereof.
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and shall
include interests that would be treated as owned through the application of
Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The
terms "Constructive Owner," "Constructively Owns" and "Constructively Owned"
shall have the correlative meanings.
Excepted Holder. The term "Excepted Holder" shall mean a stockholder
of the Corporation for whom an Excepted Holder Limit is created by the Charter
or by the Board of Directors pursuant to Section 11.2.7.
Excepted Holder Limit. The term "Excepted Holder Limit" shall mean,
provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of Directors pursuant to Section 11.2.7,
and subject to adjustment pursuant to Section 11.2.8, the percentage limit
established by the Board of Directors pursuant to Section 11.2.7.
Initial Date. The term "Initial Date" shall mean the date upon which
the Corporation shall close its initial issuance of shares of Capital Stock to
investors for an aggregate amount of gross proceeds of at least $15 million.
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Market Price. The term "Market Price" on any date shall mean, with
respect to any class or series of outstanding shares of Capital Stock, the
Closing Price for such Capital Stock on such date. The "Closing Price" on any
date shall mean the last sale price for such Capital Stock, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, for such Capital Stock, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the NYSE or, if such Capital Stock
is not listed or admitted to trading on the NYSE, as reported on the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which such Capital Stock is listed
or admitted to trading or, if such Capital Stock is not listed or admitted to
trading on any national securities exchange, the last quoted price, or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System, or, if such system is no longer in
use, the principal other automated quotation system that may then be in use or,
if such Capital Stock is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in such Capital Stock selected by the Board of Directors of the
Corporation or, in the event that no trading price is available for such Capital
Stock, the fair market value of the Capital Stock, as determined in good faith
by the Board of Directors of the Corporation.
NYSE. The term "NYSE" shall mean the New York Stock Exchange.
Person. The term "Person" shall mean an individual, corporation,
joint venture, limited liability company, unincorporated organization,
partnership, estate, state or political subdivision thereof, government agency,
trust (including a trust qualified under Sections 401(a) or 501(c)(17) of the
Code), a portion of a trust permanently set aside for or to be used exclusively
for the purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity, but does not include an Underwriter participating in an
offering of Common Stock, Preferred Stock, and/or convertible securities of the
Corporation, provided that the ownership of such Common Stock, Preferred Stock
and/or convertible securities by such Underwriter would not result in the
Corporation being "closely held" within the meaning of Section 856(h) of the
Code and would not otherwise result in the Corporation's failure to qualify as a
REIT.
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Prohibited Owner. The term "Prohibited Owner" shall mean, with
respect to any purported Transfer, any Person who, but for the provisions of
Section 11.2.1, would Beneficially Own or Constructively Own shares of Capital
Stock, and if appropriate in the context, shall also mean any Person who would
have been the record owner of the shares that the Prohibited Owner would have so
owned.
REIT. The term "REIT" shall mean a real estate investment trust
within the meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction Termination
Date" shall mean the first day after the Initial Date on which the Corporation
determines that it is no longer in the best interests of the Corporation to
attempt to, or continue to, qualify as a REIT or that compliance with the
restrictions and limitations on Beneficial Ownership, Constructive Ownership and
Transfers of shares of Capital Stock set forth herein is no longer required in
order for the Corporation to qualify as a REIT.
Transfer. The term "Transfer" shall mean any issuance, sale,
transfer, gift, assignment, devise or other disposition, as well as any other
event that causes any Person to acquire Beneficial Ownership or Constructive
Ownership, or any agreement to take any such actions or cause any such events,
of Capital Stock or the right to vote or receive dividends on Capital Stock,
including (a) the granting or exercise of any option or warrant (or any
disposition of any option or warrant), (b) any disposition of any securities or
rights convertible into or exchangeable for Capital Stock or any interest in
Capital Stock or any exercise of any such conversion or exchange right and (c)
Transfers of interests in other entities that result in changes in Beneficial or
Constructive Ownership of Capital Stock; in each case, whether voluntary or
involuntary, whether owned of record, Constructively Owned or Beneficially Owned
and whether by operation of law or otherwise. The terms "Transferring" and
"Transferred" shall have the correlative meanings.
Trust. The term "Trust" shall mean any trust provided for in Section
11.3.1.
Trustee. The term "Trustee" shall mean the Person unaffiliated with
the Corporation, a Prohibited Owner and any Charitable Beneficiary, that is
appointed by the Corporation to serve as trustee of the Trust, and any successor
or trustee appointed by the Trustee.
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Underwriter. The term "Underwriter" shall mean a securities firm or
other similar entity only in its capacity as a party of an underwriting
agreement with the Corporation entered into with the intent of such firm or
other entity acquiring securities of the Corporation for resale.
Section 11.2 Capital Stock.
Section 11.2.1 Ownership Limitations. Subject to Section 11.2.10,
during the period commencing on the Initial Date and prior to the Restriction
Termination Date:
(a) Basic Restrictions.
(i) (1) No Person, other than an Excepted Holder, shall
Beneficially Own or Constructively Own shares of Capital Stock in excess of the
Aggregate Stock Ownership Limit, (2) no Person, other than an Excepted Holder,
shall Beneficially Own or Constructively Own shares of Common Stock in excess of
the Common Stock Ownership Limit and (3) no Excepted Holder shall Beneficially
Own or Constructively Own shares of Capital Stock in excess of the Excepted
Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially Own or Constructively
Own shares of Capital Stock to the extent that such Beneficial or Constructive
Ownership of Capital Stock would result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code (without regard to whether the
ownership interest is held during the last half of a taxable year), or otherwise
failing to qualify as a REIT (including, but not limited to, Beneficial
Ownership or Constructive Ownership that would result in the Corporation owning
(actually or Constructively) an interest in a tenant that is described in
Section 856(d)(2)(B) of the Code if the income derived by the Corporation from
such tenant would cause the Corporation to fail to satisfy any of the gross
income requirements of Section 856(c) of the Code).
(iii) Any Transfer of shares of Capital Stock that, if
effective, would result in any person Beneficially Owning or Constructively
Owning any shares of Capital Stock in violation of Section 11.2.1(a) or Section
11.2.1(a)(ii) shall be null and void ab initio, and the purported transferee or
purported owner shall acquire no rights to, or economic interest in, any Capital
Stock held in violation of these restrictions.
(iv) Notwithstanding any other provisions contained
herein, any Transfer of shares of Capital Stock (whether or not such Transfer is
the result of a transaction entered into
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through the facilities of the NYSE or any other national securities exchange or
automated inter-dealer quotation system) that, if effective, would result in the
Capital Stock being beneficially owned by less than 100 Persons (determined
under the principles of Section 856(a)(5) of the Code) shall be null and void ab
initio, and the intended transferee shall acquire no rights in such shares of
Capital Stock.
(b) Transfer in Trust. If, notwithstanding the other
provisions contained in this Article XI, there is a purported Transfer, change
in capital structure or other event such that any person would Beneficially Own
or Constructively Own Shares of Capital Stock in violation of Section
11.2.1(a)(i) or Section 11.2.1(a)(ii), or if effective, any Transfer of shares
of Capital Stock occurs which, if effective, would result in any Person
Beneficially Owning or Constructively Owning shares of Capital Stock in
violation of Section 11.2.1(a)(i) or (ii),
(i) then that number of shares of the Capital Stock the
Beneficial or Constructive Ownership of which otherwise would
cause such Person to violate Section 11.2.1(a)(i) or (ii)
(rounded to the nearest whole shares) shall be automatically
transferred to a Trust for the benefit of a Charitable
Beneficiary, as described in Section 11.3, effective on the
close of business on the Business Day prior to the date of
such Transfer or other event, and such Person shall acquire no
rights in such shares; and
(ii) upon the transfer of a share of Capital Stock to
the Trust described in clause (i) of this subsection
11.2.1(b), such share shall have such voting, dividend,
liquidation and other rights, and shall be subject to such
terms and limitations, as set forth in Section 11.3 of this
Article XI.
Section 11.2.2 Remedies for Breach. If the Board of Directors of the
Corporation or any duly authorized committee thereof shall at any time determine
in good faith that a Transfer or other event has taken place that results in a
violation of Section 11.2.1 or that a Person intends to acquire or has attempted
to acquire Beneficial or Constructive Ownership of any shares of Capital Stock
in violation of Section 11.2.1 (whether or not such violation is intended), the
Board of Directors or a committee thereof shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer or other
event, including, without limitation, causing the Corporation to
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redeem shares, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer or other event;
provided, however, that any Transfers or attempted Transfers or other events in
violation of Section 11.2.1 shall be null and void and shall automatically
result in the transfer to the Trust described above, and, where applicable, such
Transfer (or other event) shall be void ab initio as provided above irrespective
of any action (or non-action) by the Board of Directors or a committee thereof.
Section 11.2.3 Notice of Restricted Transfer. Any Person who
acquires or attempts or intends to acquire Beneficial Ownership or Constructive
Ownership of shares of Capital Stock that will or may violate Section 11.2.1(a),
or any Person who would have owned shares of Capital Stock that resulted in a
transfer to the Trust pursuant to the provisions of Section 11.2.1(b) shall
immediately give written notice to the Corporation of such event, or in the case
of such proposed or attempted transaction, give at least 15 days prior written
notice, and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such
Transfer on the Corporation's status as a REIT.
Section 11.2.4 Owners Required to Provide Information. From the
Initial Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding shares of Capital Stock, within 30 days after the
end of each taxable year, shall give written notice to the Corporation stating
the name and address of such owner, the number of shares of Capital Stock
Beneficially Owned and a description of the manner in which such shares are
held. Each such owner shall provide to the Corporation such additional
information as the Corporation may request in order to determine the effect, if
any, of such Beneficial Ownership on the Corporation's status as a REIT and
ensure compliance with the Aggregate Stock Ownership Limit.
(b) each Person who is a Beneficial or Constructive Owner of
Capital Stock and each Person (including the stockholder of record) who is
holding Capital Stock for a Beneficial or Constructive Owner shall provide to
the Corporation such information as the Corporation may request, in good faith,
in order to determine the Corporation's status as a REIT and to comply with
requirements of any taxing authority or governmental authority or to determine
such compliance.
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Section 11.2.5 Remedies Not Limited. Nothing contained in this
Section 11.2 shall limit the authority of the Board of Directors of the
Corporation to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of its stockholders in preserving the
Corporation's status as a REIT and to ensure compliance with Section 11.2.1(a).
Section 11.2.6 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 11.2, Section 11.3, or any
definition contained in Section 11.1, the Board of Directors of the Corporation
shall have the power to determine the application of the provisions of this
Section 11.2 or Section 11.3 with respect to any situation based on the facts
known to it. In the event Section 11.2 or 11.3 requires an action by the Board
of Directors and the Charter fails to provide specific guidance with respect to
such action, the Board of Directors shall have the power to determine the action
to be taken so long as such action is not contrary to the provisions of Sections
11.1, 11.2 or 11.3.
Section 11.2.7 Exceptions.
(a) Subject to Section 11.2.1(a)(ii), the Board of Directors
of the Corporation, in its sole discretion, may exempt a Person from the
Aggregate Stock Ownership Limit and the Common Stock Ownership Limit, as the
case may be, and may establish or increase an Excepted Holder Limit for such
Person, if:
(i) the Board of Directors obtains such representations
and undertakings from such Person as are reasonably necessary
to ascertain that no individual's Beneficial or Constructive
Ownership of such shares of Capital Stock will violate Section
11.2.1(a)(ii);
(ii) such Person does not and represents that it will
not own, actually or Constructively, an interest in a tenant
of the Corporation (or a tenant of any entity owned or
controlled by the Corporation) that would cause the
Corporation to own, actually or Constructively, more than a
9.9% interest (as set forth in Section 856(d)(2)(B) of the
Code) in such tenant and the Board of Directors obtains such
representations and undertakings from such Person as are
reasonably necessary to ascertain this fact (for this purpose,
a tenant from whom the Corporation (or an entity owned or
controlled by the Corporation)
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derives (and is expected to continue to derive) a sufficiently
small amount of revenue such that, in the opinion of the Board
of Directors of the Corporation, rent from such tenant would
not adversely affect the Corporation's ability to qualify as a
REIT, shall not be treated as a tenant of the Corporation);
and
(iii) such Person agrees that any violation or attempted
violation of such representations or undertakings (or other
action which is contrary to the restrictions contained in
Sections 11.2.1 through 11.2.6) will result in such shares of
Capital Stock being automatically transferred to a Trust in
accordance with Sections 11.2.1(b) and 11.3.
(b) Prior to granting any exception pursuant to Section
11.2.7(a), the Board of Directors of the Corporation may require a ruling from
the Internal Revenue Service, or an opinion of counsel, in either case in form
and substance satisfactory to the Board of Directors in its sole discretion, as
it may deem necessary or advisable in order to determine or ensure the
Corporation's status as a REIT. Notwithstanding the receipt of any ruling or
opinion, the Board of Directors may impose such conditions or restrictions as it
deems appropriate in connection with granting such exception.
(c) The Board of Directors may only reduce the Excepted Holder
Limit for an Excepted Holder: (1) with the written consent of such Excepted
Holder at any time, or (2) pursuant to the terms and conditions of the
agreements and understandings entered into with such Excepted Holder in
connection with the establishment of the Excepted Holder Limit for that Excepted
Holder. No Excepted Holder Limit shall be reduced to a percentage that is less
than the Common Stock Ownership Limit.
Section 11.2.8 Increase in Aggregate Stock Ownership and Common
Stock Ownership Limits. The Board of Directors may from time to time increase or
decrease the Common Stock Ownership Limit and the Aggregate Stock Ownership
Limit; provided, however, that:
(a) Any decrease may be made only prospectively as to
subsequent holders (other than a decrease as a result of a retroactive change in
existing law, in which case such decrease shall be effective immediately);
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(b) Neither ownership limitation may be increased if, after
giving effect to such increase, five Persons could Beneficially Own or
Constructively Own, in the aggregate, more than 50.0% in value of the shares of
Capital Stock then outstanding; and
(c) Prior to the modification of either of the ownership
limitations, the Board of Directors of the Corporation may require such opinions
of counsel, affidavits, undertakings or agreements as it may deem necessary or
advisable in order to determine or ensure the Corporation's status as a REIT.
Section 11.2.9 Legend. Each certificate for shares of Capital Stock
or securities exercisable or exchangeable for or convertible into shares of
Capital Stock shall bear the following legend:
The securities represented by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and Transfer
for the purpose of the Corporation's maintenance of its status as a
Real Estate Investment Trust under the Internal Revenue Code of
1986, as amended (the "Code"). Subject to certain further
restrictions and except as expressly provided in the Corporation's
Charter, (i) no Person may Beneficially or Constructively Own shares
of the Corporation's Common Stock in excess of 9.8 percent (in value
or number of shares) of the outstanding shares of Common Stock of
the Corporation unless such Person is an Excepted Holder (in which
case the Excepted Holder Limit shall be applicable); (ii) no Person
may Beneficially or Constructively Own shares of Capital Stock of
the Corporation in excess of 9.8 percent of the value of the total
outstanding shares of Capital Stock of the Corporation, unless such
Person is an Excepted Holder (in which case the Excepted Holder
Limit shall be applicable); (iii) no Person may Beneficially or
Constructively Own Capital Stock that would result in the
Corporation being "closely held" under Section 856(h) of the Code or
otherwise cause the Corporation to fail to qualify as a REIT; and
(iv) no Person may Transfer shares of Capital Stock if such Transfer
would result in the Capital Stock of the Corporation being
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owned by fewer than 100 Persons. Any Person who Beneficially or
Constructively Owns or attempts to Beneficially or Constructively
Own shares of Capital Stock which causes or will cause a Person to
Beneficially or Constructively Own shares of Capital Stock in excess
or in violation of the above limitations must immediately notify the
Corporation. Attempted transfers of ownership in violation of these
restrictions shall be null and void ab initio. In addition, if any
of the restrictions on transfer or ownership are violated, the
shares of Capital Stock represented hereby may be automatically
transferred to a Trustee of a Trust for the benefit of one or more
Charitable Beneficiaries. In addition, upon the occurrence of
certain events, attempted Transfers in violation of the restrictions
described above may be void ab initio. All capitalized terms in this
legend have the meanings defined in the Charter of the Corporation,
as the same may be amended from time to time, a copy of which,
including the restrictions on transfer and ownership, will be
furnished to each holder of Capital Stock of the Corporation on
request and without charge.
Section 11.2.10 Settlements Permitted. Nothing contained in this
Article XI or in any provision hereof shall preclude the settlement of any
transaction entered into through the facilities of the NYSE or any other
national securities exchange or automated inter-dealer quotation system.
Although settlement of any transaction is permitted, any transferee in such
transaction shall be subject to all the provisions and limitations set forth in
this Article XI.
Section 11.3 Transfer of Capital Stock in Trust.
Section 11.3.1 Ownership in Trust. Upon any purported Transfer or
other event described in Section 11.2.1(b) that would result in a transfer of
shares of Capital Stock to a Trust, such shares of Capital Stock shall be deemed
to have been transferred to the Trustee as trustee of a Trust for the exclusive
benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee
shall be deemed to be effective as of the close of business on the Business Day
prior to the purported Transfer or other event that results in the transfer to
the Trust pursuant to
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Section 11.2.1(b). The Trustee shall be appointed by the Corporation and shall
be a Person unaffiliated with the Corporation, any Prohibited Owner and any
Charitable Beneficiary. Each Charitable Beneficiary shall be designated by the
Trustee as provided in Section 11.3.6.
Section 11.3.2 Status of Shares Held by the Trustee. Shares of
Capital Stock held by the Trustee shall be issued and outstanding shares of
Capital Stock of the Company. The Prohibited Owner shall have no rights in the
shares held by the Trustee. The Prohibited Owner shall not benefit economically
from ownership of any shares held in trust by the Trustee, shall have no rights
to dividends and shall not possess any rights to vote or other rights
attributable to the shares held in the Trust.
Section 11.3.3 Dividend and Voting Rights. The Trustee shall have
all voting rights and rights to dividends or other distributions with respect to
shares of Capital Stock held in the Trust, which rights shall be exercised for
the exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by the Corporation that the shares of
Capital Stock have been transferred to the Trustee shall be paid with respect to
such shares of Capital Stock to the Trustee upon demand and any dividend or
other distribution authorized but unpaid shall be paid when due to the Trustee.
Any dividends or distributions so paid over to the Trustee shall be held in
trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting
rights with respect to shares held in the Trust and, subject to Maryland law,
effective as of the date that the shares of Capital Stock have been transferred
to the Trustee, the Trustee shall have the authority (at the Trustee's sole
discretion) (i) to rescind as void any vote cast by a Prohibited Owner prior to
the discovery by the Corporation that the shares of Capital Stock have been
transferred to the Trustee and (ii) to recast such vote in accordance with the
desires of the Trustee acting for the benefit of the Charitable Beneficiary.
Notwithstanding the provisions of this Article XI, until the Corporation has
received notification that shares of Capital Stock have been transferred into a
Trust, the Corporation shall be entitled to rely on its share transfer and other
stockholder records for purposes of preparing lists of stockholders entitled to
vote at meetings, determining the validity and authority of proxies and
otherwise conducting votes of stockholders.
Section 11.3.4 Sale of Shares by Trustee. Within 20 days of
receiving notice from the Corporation that shares of Capital Stock have been
transferred to the Trust, the Trustee of the Trust shall sell the shares held in
the Trust to a person, designated by the Trustee, whose ownership of the shares
will not
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violate the ownership limitations set forth in Section 11.2.1(a). Upon such
sale, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner and to the Charitable Beneficiary as provided in this Section
11.3.4. The Prohibited Owner shall receive the lesser of (1) the price paid by
the Prohibited Owner for the shares or, if the Prohibited Owner did not give
value for the shares in connection with the event causing the shares to be held
in the Trust (e.g., in the case of a gift, devise or other such transaction),
the Market Price of the shares on the day of the event causing the shares to be
held in the Trust and (2) the price per share received by the Trustee from the
sale or other disposition of the shares held in the Trust. Any net sales
proceeds in excess of the amount payable to the Prohibited Owner shall be
immediately paid to the Charitable Beneficiary. If, prior to the discovery by
the Corporation that shares of Capital Stock have been transferred to the
Trustee, such shares are sold by a Prohibited Owner, then (i) such shares shall
be deemed to have been sold on behalf of the Trust and (ii) to the extent that
the Prohibited Owner received an amount for such shares that exceeds the amount
that such Prohibited Owner was entitled to receive pursuant to this Section
11.3.4, such excess shall be paid to the Trustee upon demand.
Section 11.3.5 Purchase Right in Stock Transferred to the Trustee.
Shares of Capital Stock transferred to the Trustee shall be deemed to have been
offered for sale to the Corporation, or its designee, at a price per share equal
to the lesser of (i) the price per share in the transaction that resulted in
such transfer to the Trust (or, in the case of a devise or gift, the Market
Price at the time of such devise or gift) and (ii) the Market Price on the date
the Corporation, or its designee, accepts such offer. The Corporation shall have
the right to accept such offer until the Trustee has sold the shares held in the
Trust pursuant to Section 11.3.4. Upon such sale to the Corporation, the
interest of the Charitable Beneficiary in the shares sold shall terminate and
the Trustee shall distribute the net proceeds of the sale to the Prohibited
Owner.
Section 11.3.6 Designation of Charitable Beneficiaries. The Trustee
shall designate one or more nonprofit organizations to be the Charitable
Beneficiary of the interest in the Trust such that (i) the shares of Capital
Stock held in the Trust would not violate the restrictions set forth in Section
11.2.1(a) in the hands of such Charitable Beneficiary and (ii) each such
organization must be described in Section 501(c)(3) of the Code and
contributions to each such organization must be eligible for deduction under
each of Sections 170(b)(1)(A)
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(without regard to clauses (vii) or (viii) thereof), 2055 and 2522 of the Code.
ARTICLE XII
DIRECTOR DISCRETION
With respect to any proposed merger, acquisition, business combination or
other similar transaction or proposal, a director of the Corporation, in
determining what is in the best interests of the Corporation, shall consider the
interest of the stockholders of the Corporation and, in his or her discretion,
may consider (i) the interests of the Corporation's employees, suppliers,
creditors and customers, (ii) the economy of the nation, (iii) community and
societal interests and (iv) the long-term as well as short-term interests of the
Corporation and its stockholders, including the possibility that these interests
may be best served by the continued independence of the Corporation. Pursuant to
this provision, the Board of Directors may consider numerous judgmental or
subjective factors affecting a proposal, including certain nonfinancial matters,
and on the basis of these considerations may oppose a business combination or
other transaction which, as an exclusively financial matter, might be attractive
to some, or a majority, of the Corporation's stockholders.
ARTICLE XIII
MAJORITY VOTE
Notwithstanding any provision of law requiring the authorization of any
action by a greater proportion than a majority of the total number of shares of
all classes of Capital Stock or of the total number of shares of any class of
Capital Stock, such action shall be valid and effective if authorized by the
affirmative vote of the holders of a majority of the total number of shares of
all classes outstanding and entitled to vote thereon, except as otherwise
provided in the Charter.
ARTICLE XIV
SHARE ISSUANCE
The Board of Directors is hereby empowered to authorize the issuance from
time to time of shares of its Capital Stock of any class, whether now or
hereafter authorized, or securities exercisable or exchangeable for or
convertible into shares of its Capital Stock of any class or classes, whether
now or hereafter authorized, for such consideration as may be deemed advisable
by the Board of Directors and without any action by the stockholders.
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ARTICLE XV
CHARTER AMENDMENTS
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in the Charter, including any amendments changing the terms
or contract rights, as expressly set forth in the Charter, of any of its
outstanding stock by classification, reclassification or otherwise, by a
majority of the directors' adopting a resolution setting forth the proposed
change, declaring its advisability, and either calling a special meeting of the
stockholders entitled to vote on the proposed change, or directing the proposed
change to be considered at the next annual stockholders meeting. Unless
otherwise provided herein, the proposed change will be effective only if it is
adopted upon the affirmative vote of the holders of not less than a majority of
the aggregate votes entitled to be cast thereon (considered for this purpose as
a single class); provided, however, that any amendment to, repeal of or adoption
of any provision inconsistent with Article VII or this Article XV will be
effective only if it is also advised by at least two-thirds of the Board of
Directors and adopted upon the affirmative vote of the holders of not less than
two-thirds of the aggregate votes entitled to be cast thereon (considered for
this purpose as a single class).
ARTICLE XVI
DIRECTORS' POWERS
The enumeration and definition of particular powers of the Board of
Directors included in the foregoing Articles shall in no way be limited or
restricted by reference to or inference from the terms of any other Article of
the Charter of the Corporation, or construed as or deemed by inference or
otherwise in any manner to exclude or limit any powers conferred upon the Board
of Directors under the General Laws of the State of Maryland now or hereafter in
force.
The Board of Directors of the Corporation shall, consistent with
applicable law, have power in its sole discretion to determine from time to time
in accordance with sound accounting practice or other reasonable valuation
methods what constitutes annual or other net profits, earnings, surplus, or net
assets in excess of capital; to fix and vary from time to time the amount to be
reserved as working capital, or determine that retained earnings or surplus
shall remain in the hands of the Corporation; to set apart out of funds of the
Corporation such reserve or
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reserves in such amount or amounts and for such proper purpose or purposes as it
shall determine and to abolish any such reserve or any part thereof; to
distribute and pay distributions or dividends in Capital Stock, cash or other
securities or property, out of surplus or any other funds or amounts legally
available therefor, at such times and to the stockholders of record on such
dates as it may, from time to time, determine; and to determine whether and to
what extent and at what times and places and under what conditions and
regulations the books, accounts and documents of the Corporation, or any of
them, shall be open to the inspection of stockholders, except as otherwise
provided by statute or by the Bylaws, and, except as so provided, no stockholder
shall have any right to inspect any book, account or document of the Corporation
unless authorized to do so by resolution of the Board of Directors.
For any stockholder proposal to be presented in connection with an annual
meeting of stockholders of the Corporation, including any proposal relating to
the nomination of a director to be elected to the Board of Directors of the
Corporation, the stockholders must have given timely written notice thereof in
writing to the Secretary of the Corporation in the manner and containing the
information required by the Bylaws. Stockholder proposals to be presented in
connection with a special meeting of stockholders will be presented by the
Corporation only to the extent required by Section 2-502 of the MGCL and the
Bylaws.
ARTICLE XVII
DURATION
The duration of the Corporation shall be perpetual.
ARTICLE XVIII
DEFINITIONS
The following terms shall have the meanings provided below when used in
the Charter:
Board of Directors. The term "Board of Directors" shall mean the board of
directors of the Corporation, as it may be constituted from time to time.
Bylaws. The term "Bylaws" shall mean the Corporation's bylaws adopted by
the Board of Directors, as they may be amended from time to time.
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Capital Stock. The term "Capital Stock" shall mean all classes or series
of stock of the Corporation, including, without limitation, Common Stock and
Preferred Stock.
Charter. The term "Charter" shall mean the charter of the Corporation, as
that term is defined in the MGCL.
Corporation. The term "Corporation" shall mean the corporation formed by
these Articles of Incorporation, as they may be amended from time to time.
MGCL. The term "MGCL" shall mean the Maryland General Corporation Law, as
amended from time to time.
IN WITNESS WHEREOF, the undersigned incorporator of Specialty Mortgage
Trust, Inc. has signed the foregoing Articles of Incorporation and acknowledges
such Articles to be his act.
Dated this 20th day of October, 1997.
/s/ Phillip R. Pollock
--------------------------------------
Phillip R. Pollock,
Incorporator
