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File No. 0-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12 (g) of the
Securities Exchange Act of 1934
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PRIMECORE MORTGAGE TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
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Maryland 94-3324992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
99 El Camino Real
Menlo Park, CA 94025
(Address of principal offices)
(650) 328-3060
(Registrant's telephone number, including area code)
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Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Class A Convertible Preferred Stock, par value $0.01 per share
(Title of class)
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Table of Contents
10-12G
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Item 1. Business....................................................... 1
Item 2. Financial Information.......................................... 11
Item 3. Properties..................................................... 16
Item 4. Security Ownership of Certain Beneficial Owners and 17
Management.....................................................
Item 5. Directors and Executive Officers............................... 17
Item 6. Executive Compensation......................................... 19
Item 7. Certain Relationships and Related Transactions................. 19
Item 8. Legal Proceedings.............................................. 19
Item 9. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters................................ 20
Item 10. Recent Sales of Unregistered Securities........................ 20
Item 11. Description of Registrant's Securities to be Registered........ 21
Item 12. Indemnification of Directors and Officers...................... 26
Item 13. Financial Statements and Supplementary Data.................... 28
Item 14. Changes in and Disagreements with Accountants on Accounting and 28
Financial Disclosure...........................................
Item 15. Financial Statements and Exhibits.............................. 28
Index to Exhibits.............................................. 28
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Item 1. Business.
We are a corporation doing business as a real estate investment trust
(REIT). We incorporated in Maryland on March 18, 1999, and began operations May
1, 1999. We make and hold primarily short-term construction loans secured by
single family residential real property in the greater San Francisco Bay Area.
We also make and hold mortgage loans secured by mixed use commercial property.
Our founders are Michael Heren, Susan Fox and Michael Rider who serve as our
directors and executive officers. Ms. Fox also owns and, together with Messrs.
Heren and Rider, manages Primecore Funding Group, Inc., an affiliate. Primecore
Funding Group, Inc. serves as manager of the REIT pursuant to a management
agreement. The management agreement dated March 30, 1999 is attached as Exhibit
5.
Our manager originates and services the mortgage loans that we make. Our
manager bears all operating expenses connected with originating and managing
our mortgage loan portfolio and receives a monthly management fee.
At March 31, 2000, our manager serviced our portfolio of fixed rate mortgage
loans, each secured by real property located in Northern California, with an
aggregate balance of approximately $195,746,027, representing funds advanced on
loan commitments to both related and unrelated parties totaling $410,822,842
and mortgage note interest rates ranging from 11% to 13%. Loan origination fees
are charged to borrowers and are typically 4% of the loan commitment amounts.
Revenue from origination fees is earned over the term of a specific loan, but
is recognized when received for financial accounting purposes. Most loans are
written with 12 to 18 month maturity dates.
We have issued three classes of securities: (1) common stock; (2) Class A
Convertible Preferred stock; and (3) Series A short term notes. We are
registering only our Class A Convertible Preferred stock, and discuss our
common stock and debt securities for information purposes only.
Business Strategies
We make single-family and mixed-use acquisition, development and
construction loans that earn a risk-adjusted yield which meets our investment
goals, and conduct, through our manager, centralized loan underwriting and
pricing, project evaluation, loan funding and loan servicing to maintain
control of the risks of operating a construction mortgage lending operation and
managing a portfolio of short-term construction mortgage loans.
Competitive Conditions
Our manager's principal competition in the business of originating and
servicing construction mortgage loans are banks, thrifts and other independent
wholesale mortgage lenders, and other mortgage acquisition companies. While
most of these entities have significantly greater resources, we compete
effectively and generate relatively attractive rates of return for shareholders
due to: (1) our tax advantaged status as a REIT; (2) our Manager's experience
in the Northern California construction lending market, and (3) the freedom
from some regulatory-related administrative costs.
Dividend Policy and Distributions
We intend to distribute at least 95 percent of our net taxable income each
year to qualify for the tax benefits accorded to REITs. Although we currently
make dividend distributions monthly, this is subject to change at the
discretion of our Board of Directors. For so long as shares of preferred stock
remain outstanding, only holders of our preferred stock will receive dividends;
and there will be no cash dividends declared or paid on our common stock.
Our loans are considered investments in real estate under development for
financial reporting purposes; they are considered loans for income tax
purposes.
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We distribute dividends based on our taxable income. We do not use net
income according to Generally Accepted Accounting Principles (GAAP) to
determine dividend distributions. Our taxable income differs from GAAP net
income primarily because interest income is accrued on our outstanding loan
balances for tax purposes, but under GAAP, no income is recognized until we
receive cash from repayment of our loans. Consequently, although under GAAP we
may report net losses, we use our tax basis income to determine the
availability and amount of dividends to distribute.
Since we began operations on May 1, 1999, and as of December 31, 1999, we
have paid monthly dividends to our shareholders of Class A Convertible
Preferred stock of $.75 per share, representing an annualized rate of return of
approximately 11.3%. We have declared and paid dividends of $.28 per share for
the three months ended March 31, 2000, which also represents an annualized rate
of return of approximately 11.3%. We expect that comparable cash dividends will
continue to be paid. We also expect to continue to report net losses according
to GAAP until revenues from completed real estate projects reduce our retained
deficit. See notes to our financial statements, particularly notes 1, 2, 3 and
4.
Mortgage Lending
Loan Originations. Our business involves funding and holding construction
mortgage loans made to borrowers primarily in the San Francisco Bay Area. We
fund non-owner occupied, single-family residential construction loans,
generally of less than $2.5 million per loan. We also make land acquisition and
development loans and small multifamily, generally less than 20 units, and
residential and mixed-use construction mortgage loans. Our customers are
developers and contractors who require a construction loan to finance the
acquisition and development or renovation of their property. We believe the San
Francisco Bay Area construction mortgage market will continue to grow and
generate relatively attractive risk-adjusted returns over the long term.
Construction loans are loans made for the renovation of developed property,
and for the development of undeveloped property. Construction loans made and
held by us, or acquired at our formation, are primarily secured by first deeds
of trust on real property. These loans are generally for terms of from 12 to 18
months. Our manager disburses our funds on work in progress, verified by
invoices from the builder. In addition, our manager requires the submission of
signed labor and material lien releases by the builder in connection with each
completed phase of the project before making any periodic disbursements of a
loan.
On our behalf and during the course of its business, our manager
continuously evaluates prospective construction loans. Our manager expects to
generate mortgage loan originations from referrals from real estate and
mortgage loan brokers, referrals from existing customers, new loans made to
existing customers and personal solicitations of new borrowers.
Potential construction loans are evaluated by our manager to determine if
the loan is of a type typically made by us, if the security for the loan and
the loan-to-value ratio meets our investment standards, and if the loan can be
priced in a manner to meet our investment criteria and objectives. Our manager
will generally rely on its own analysis and not on third party appraisals in
determining whether or not to originate a particular construction loan.
We do not ordinarily invest in construction loans with a maturity of more
than 18 months. All loans provide for monthly payments of interest only and a
payment of principal in full at the end of the loan term. Although we do not
limit the amount of our investment in any single construction loan, generally
our lending criteria is 60% loan to completed value for first deeds of trust,
and if there is other debt, 75% loan to value inclusive of all debt, based on
completion value. A borrower is generally required to obtain a lenders policy
of title insurance to insure priority of our deed of trust and the condition of
title. We expect that in excess of 85% of our mortgage loan balances will be
secured by first deeds of trust on the underlying real property.
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Most of the loans we make require the borrower to make a "balloon payment"
on the principal amount and accrued interest upon maturity of the loan. To the
extent that a borrower has an obligation to pay a mortgage loan in a large lump
sum payment, its ability to satisfy this obligation may be dependent upon its
ability to obtain suitable refinancing, obtain a sufficient sales price for the
property or otherwise raise a substantial cash amount. An increase in interest
rates may have an adverse effect on a borrower's ability to obtain refinancing
or to pay the required monthly interest payments. As a result, these loans may
involve a higher risk of default than fully amortizing loans.
Junior mortgage loans. Second, third and wraparound mortgage loans are
secured by deeds of trust on single-family residences that are already subject
to prior mortgage debt. A wraparound loan is a junior mortgage loan having a
principal amount equal to the outstanding balance under the prior mortgage
loans plus the amount actually to be advanced. Under a wraparound loan, we
generally make principal and interest payments on behalf of the borrower to the
holders of the prior mortgage loans. Junior mortgage loans generally have lower
qualifying loan-to-value ratios.
Other REIT qualified investments. As part of the acquisition of a particular
loan, or through a foreclosure we may acquire an equity interest in the real
property securing the loan in the form of a shared appreciation interest or
other equity participation. We also may invest our funds directly in real
property, if in the opinion of our Board of Directors it is in our best
interest. We may also purchase the stock of other mortgage REITs or similar
companies if we believe that they will yield attractive returns on capital and
otherwise not violate any requirements for maintaining our status as a REIT. We
do not, however, presently intend to make these investments.
Managing the Mortgage Loan Portfolio
Our plan for the balance of fiscal year 2000, and going forward, is to build
and hold a portfolio of construction mortgage loans for investment that
generates a net interest margin over time and allows us to take full advantage
of our REIT status. The focus of our manager's servicing operation is to manage
credit risk to protect our investment in the construction mortgage loans. The
underwriting decision to provide a loan to an applicant is based primarily upon
the loan-to-value ratio for the underlying collateral, the applicant's credit
history, including payment history on existing credit, and an evaluation of the
applicant's ability to repay the loan. Thereafter, our manager uses early
intervention, aggressive collection and loss mitigation techniques in the
servicing process.
Collateral valuation. Collateral valuation receives special attention in the
underwriting of our construction loans. Our manager places great emphasis on
the ability of our collateral to protect against losses in the event of default
by borrowers. In determining the adequacy of the mortgaged property as
collateral, an evaluation is made of each property or project considered for
financing. The evaluation is based on the market value of comparable
properties, the estimated rental income, if applicable, and the cost of
replacement. The projected, completion value of the property must currently
support, or support in the event of default, repayment of the outstanding loan
balance.
Quality control. Ongoing quality control reviews are conducted by our
manager to ensure that all construction mortgage loans meet our quality
standards. The type and extent of the reviews depends on the characteristics of
the loan. Our manager also performs property value comparisons as part of the
quality control process as well as compliance reviews to ensure adherence to
all state and federal regulations. Some of the compliance reviews may be
outsourced if our manager does not have adequate internal staff to perform
those reviews.
Servicing. Our manager has an established operation for servicing
construction loans. Servicing includes collecting and remitting loan payments,
making required advances, accounting for principal and interest, holding escrow
or impound funds for payment of taxes and insurance, making required
inspections of the property, contacting delinquent borrowers and supervising
foreclosures and property disposition in the event of defaults.
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Credit risk management. We believe that the servicing of our mortgage loans
will be the most effective method of managing our credit risk. Our manager's
focus as a servicer of our mortgage loans will be more on effective credit risk
management than on cost control. Our manager is not a low cost servicer, but
instead puts the proper resources to work to mitigate losses on the loans it
services. If properly managed from both an underwriting and a servicing
standpoint, we believe we should be able to keep the level of delinquencies and
losses in our mortgage loans at a minimum.
Sales of construction mortgage loans. We generally hold mortgage loans to
maturity. In addition, the REIT provisions of the Code limit in some respects
our ability to sell mortgage loans. We may decide to sell assets from time to
time, however, for a number of reasons, including, without limitation: (1) to
dispose of an asset as to which credit risk concerns have arisen; (2) to reduce
interest rate risk; (3) or to re-structure our balance sheet when our
management deems it advisable. We will select any mortgage loans to be sold
according to the particular purpose the sale will serve. Our Board of Directors
has not adopted a policy that would restrict management's authority to
determine the timing of sales or the selection of mortgage loans to be sold.
Significant borrowers. As of December 31, 1999, approximately 28% of our
loans had been made to affiliates. No unaffiliated borrower had loans exceeding
10% of our total loans outstanding as of that date.
Using Leverage to Finance Construction Mortgage Loans
We may finance the funding of our mortgage loans through credit facilities
such as bank warehouse credit lines.
We may also employ a debt financing strategy to increase our investment in
mortgage loans. By using our mortgage loans as collateral to borrow funds, we
will be able to invest in mortgage loans with greater value than their equity.
Our financing strategy is designed to maintain a cushion of equity sufficient
to provide required liquidity to respond to the effects under our borrowing
arrangements of interest rate movements and changes in market value of our
mortgage loans. The current policy of our Board of Directors, however, limits
the use of our mortgage loan portfolio as collateral to a maximum of 40% of the
outstanding value of our funded loans at any time. We intend to limit
borrowings not secured by our mortgage loan portfolio to a maximum of 20% of
our total assets. We therefore limit our overall debt to 60% of our assets.
Our goal is to strike a balance between the under-utilization of leverage,
which reduces potential returns to shareholders, and the over-utilization of
leverage, which could reduce our ability to meet our obligations during adverse
market conditions.
Risk Factors
An investment in our stock involves a high degree of risk. The following is
a discussion of risk factors that we believe are material at this time.
There are Risks Specific to Construction Mortgage Lending and to Managing a
Construction Loan Portfolio.
We face loss exposure due to the credit risks of construction mortgage
lending.
Real estate security. As a REIT, we are subject to the usual risks of real
estate lending. Many of the risks of holding mortgage loans reflect the risks
of investing directly in the real estate securing the mortgage loans. This may
be especially true in the case of a relatively small or less diverse pool of
mortgage loans. If there is a default on the mortgage loan, the ultimate extent
of our loss, if any, may only be determined after a foreclosure of the mortgage
encumbering the property and, if we take title to the property, upon
liquidation of the property. Factors such as the title to the property or its
physical condition, including environmental considerations, may make a third
party unwilling to purchase the property at a foreclosure sale or for a price
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sufficient to satisfy the obligations with respect to the related mortgage
loan. Foreclosure laws may protract the foreclosure process. In addition, a
project may be only partially completed or the condition of a property may
deteriorate during the pendency of foreclosure proceedings. Some borrowers may
become subject to bankruptcy proceedings, in which case the amount and timing
of amounts due may be materially adversely affected. Even if the real property
provides adequate security for the mortgage loan, substantial delays could be
encountered in connection with the liquidation of a defaulted mortgage loan and
a corresponding delay in the receipt and reinvestment of principal and interest
payments could occur.
Loans on properties under construction or not yet constructed. A mortgage
loan made to an owner or developer to finance a property that is under
construction or not yet constructed will generally involve greater risks than a
property that has been constructed. There can be no assurance that the
improvements to be constructed can be accomplished with available funds or in a
timely manner. Although a project is usually refinanced upon completion, sale
of the completed project sometimes provides the funds for repayment of a
construction mortgage loan. Since market value cannot be accurately determined
until a property is sold in the marketplace, the market valuation of a proposed
construction project can be especially speculative.
Real estate market conditions. Our business may be adversely affected by
periods of economic slowdown or recession, which may be accompanied by
declining real estate values. Any material decline in real estate values
reduces the ability of borrowers to use real estate equity to support
borrowings and increases the loan-to-value ratios of mortgage loans previously
made, thereby weakening collateral coverage and increasing the possibility of a
loss in the event of default. In addition, delinquencies, foreclosures and
losses generally increase during economic slowdowns and recessions.
Balloon loans. Most of the loans in our portfolio will require the borrower
to make a "balloon payment" on the principal amount upon maturity of the loan.
To the extent that a borrower has an obligation to pay a mortgage loan in a
large lump sum payment, their ability to satisfy this obligation may be
dependent upon their ability to obtain suitable refinancing or otherwise raise
a substantial cash amount. An increase in interest rates over the mortgage rate
applicable at the time the loan was originated may have an adverse effect on
the borrower's ability to obtain refinancing or to pay the required monthly
payments. As a result, these loans may involve a higher risk of default than
fully amortizing loans.
Risk of lack of geographic, industry or borrower diversification. Properties
securing repayment of the mortgage loans are located primarily in the San
Francisco Bay Area. Since the properties secured by the mortgage loans are
located in the same geographical region, these mortgage loans may be subject to
a greater risk of delinquency or default. Similar adverse economic, political
or business developments and natural hazard risks may affect this region. Also,
since borrowers will not be required to purchase earthquake insurance, and
properties are in the San Francisco Bay Area, known for its earthquake
activity, mortgage loans will be subject to greater risk of loss than
properties located in more stable geologic areas. If the region's real estate
market should experience an overall decline in property values, the rates of
delinquency, foreclosure, bankruptcy and loss on the mortgage loans may be
expected to increase substantially, as compared to rates in a stable or
improving real estate market.
Environmental liabilities. Some properties securing mortgage loans may be
contaminated by hazardous substances. As a result, the value of the real
property may be diminished. If we are forced to foreclose on a defaulted
mortgage loan on a contaminated property, we may be subject to environmental
liabilities even if we were not responsible for the contamination. While we
intend to exercise due diligence to discover potential environmental
liabilities before the acquisition of any property through foreclosure,
hazardous substances or wastes, contaminants or pollutants may be discovered on
properties during our ownership or after a sale of the property to a third
party. If hazardous substances are discovered on a property, we may be required
to remove those substances or sources and clean up the property. We may also be
liable to tenants and other users of neighboring properties. In addition, we
may find it difficult or impossible to sell the property before or following
any clean up.
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Risk of inability to fund loan commitments. We use our capital to invest in
mortgage loans with outstanding balances generally less than the outstanding
commitment amounts. This is because disbursements under the commitments occur
over time in conjunction with the construction progress of any particular
construction mortgage loan. If the aggregate loan disbursement requirements are
more than our capital base at any point in time and we are unable to increase
our capital or borrow sufficient funds or otherwise generate cash to meet those
funding requirements, we will not be able to make disbursements on funding
commitments. This could have a material adverse affect upon our results of
operations.
Although we cannot predict with certainty the total amount of our future
capital requirements, we anticipate that our capital requirements will exceed
our current cash resources. In order to meet future capital requirements, we
anticipate raising additional capital through the sale of equity and debt
securities.
We face risks from competitors.
We will face intense competition, primarily from commercial banks, savings
and loans, other independent mortgage lenders, and other mortgage REITs. If we
expand into particular geographic markets, we will face competition from
lenders with established positions in these locations. Competition can take
place on various levels, including convenience in obtaining a mortgage loan,
service, marketing, origination channels and pricing. Although we do not know
of any particular competitor that dominates our market, many of our competitors
in the financial services business are substantially larger and have more
capital and other resources. There can be no assurance that we will be able to
compete successfully in this market environment. Any failure in this regard
could have a material adverse effect on our results of operations and financial
condition.
We face risks from general economic and financial conditions.
The performance of our mortgage loan portfolio will depend on, among other
things, the level of net interest income generated by our mortgage loans, the
market value of our mortgage loans and the supply of and demand for
construction mortgage loans. Prepayment rates, interest rates, borrowing costs
and credit losses depend upon the nature and terms of the mortgage loans, the
geographic location of the properties securing the mortgage loans, conditions
in financial markets, the fiscal and monetary policies of the United States
government and the Board of Governors of the Federal Reserve System,
international economic and financial conditions, competition and other factors,
none of which can be predicted.
We face adverse effects of using leverage to finance mortgage loan purchases.
General. We may employ a financing strategy to increase the size of our
mortgage loan portfolio by borrowing a portion of the market value of our
mortgage loans. If the returns on the mortgage loans purchased with borrowed
funds fail to cover the cost of the borrowings, we will experience net interest
losses and may experience net losses. In addition, we may not be able to
achieve the degree of leverage we believe to be optimal, which may cause us to
be less profitable than we might be otherwise.
Availability of funding sources. We may finance some of the mortgage loans
that we hold through interim financing facilities such as bank warehouse credit
lines. We will be dependent upon a few lenders to provide the primary credit
facilities for our mortgage loans. Any failure to renew or obtain adequate
funding under these financings, or any substantial reduction in the size of or
pricing in the market for our mortgage loans, could have a material adverse
effect on our operations. We have not made any agreements under which a lender
would be required to enter into new borrowing agreements during a specified
period of time; however, we may make such agreements if deemed favorable. We
will face competition for financing sources, and the effect of the existence of
additional mortgage REITs may be to deny us access to sufficient funds to carry
out our business plan or to increase the cost of funds to us.
Availability and cost of borrowings. A majority of our borrowings will be
collateralized borrowings, the availability of which are based on the market
value of the mortgage loans pledged to secure the specific
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borrowings, availability of financing in the market, circumstances then
applicable in the lending market and other factors. The cost of those
borrowings vary depending upon the lender, the nature and liquidity of the
underlying collateral, the movement of interest rates, the availability of
financing in the market and other factors.
Changes in interest rates. Profitability may be directly affected by the
levels of and fluctuations in interest rates, which affect our ability to earn
a spread between interest received on our loans and the costs of borrowings.
Our profitability is likely to be adversely affected during any period of
unexpected or rapid changes in interest rates. For example, a substantial or
sustained increase in interest rates could adversely affect our ability to
acquire mortgage loans and would reduce the interest rate differential between
newly originated loans and our cost of borrowing. A significant decline in
interest rates could decrease the size of our loan portfolio by increasing the
level of loan prepayments. While we monitor the interest rate environment, and
generally should earn a positive spread between interest paid on borrowed funds
and interest earned on mortgage loans, there can be no assurance that our
profitability would not be adversely affected during any period of changes in
interest rates.
Risk of failure to refinance outstanding borrowings. Our ability to achieve
our investment objectives depends not only on our ability to borrow money in
sufficient amounts and on favorable terms but also on our ability to renew or
replace on a continuous basis our maturing short-term borrowings. In the event
we are unable to renew or replace maturing borrowings, we could be required to
sell mortgage loans under adverse market conditions and could incur losses as a
result. A sharp rise in interest rates or increasing market concern about the
value or liquidity of a type or types of mortgage loans in which our portfolio
is concentrated will reduce the market value of the mortgage loans, which would
likely cause lenders to require additional collateral. A number of those
factors in combination may cause difficulties for us, including a possible
liquidation of a major portion of our mortgage loans portfolio at
disadvantageous prices with consequent losses, which could have a material
adverse effect on our solvency.
Legislation and regulation. Our business and that of the Manger is subject
to extensive regulation, supervision and licensing by federal, state and local
governmental authorities and to various laws and judicial and administrative
decisions imposing requirements and restrictions on part or all of our
operations. Failure to comply with regulatory requirements can lead to loss of
approved status, class action lawsuits and administrative enforcement actions.
There can be no assurance that we or our manager will maintain compliance with
these requirements in the future without additional expenses, or that more
restrictive local,
state or federal laws, rules and regulations will not be adopted or that
existing laws and regulations will not be interpreted in a more restrictive
manner, which would make compliance more difficult for us and our manager.
The laws and regulations described above are subject to legislative,
administrative and judicial interpretation, and some of these laws and
regulations have been infrequently interpreted or only recently enacted.
Infrequent interpretations of these laws and regulations or an insignificant
number of interpretations of recently enacted regulations can result in
ambiguity with respect to permitted conduct under these laws and regulations.
Any ambiguity under the regulations to which our manager or we are subject may
lead to regulatory investigations or enforcement actions and private causes of
action, such as class action lawsuits. Our manager or we may also be subject to
regulatory enforcement actions and private causes of action from time to time
with respect to compliance with applicable laws and regulations.
There are Risks Specific to Investment in Our Securities.
Our outstanding preferred stock is subject to restrictions on transferability.
Investments in our Class A Convertible Preferred stock should be considered
long-term investments. Shares of our Class A Convertible Preferred stock should
be considered for investment purposes only and not with a view toward transfer,
resale, exchange or distribution. Also, the transferability of our shares may
be affected by restrictions on resales imposed by the laws of some states.
Accordingly, although we have a stock redemption plan, shareholders may not be
able to liquidate their investments in the event of an emergency or otherwise.
Additionally, the shares may not be readily accepted as collateral for a loan.
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There is no public trading market for our securities.
There can be no assurance as to the development or liquidity of a market for
our securities. In addition, a holder of the Class A Convertible Preferred
stock which we are registering will be entitled to some rights with respect to
registration under the 1933 Securities Act. Pursuant to those rights, we intend
to apply for listing of the shares of common stock into which the outstanding
Class A Convertible Preferred stock will convert either on a securities
exchange or for quotation through the Nasdaq National Market approximately six
months following the closing of an initial public offering of the common stock;
however, there can be no assurance that any initial public offering will be
completed or that our common stock will be accepted for listing or quotation.
If the common stock is not accepted to be listed or quoted, the transferability
of the Class A Convertible Preferred stock we are registering may continue to
be limited.
There is a risk of loss due to possible stock price volatility.
In the event a public market for our securities does develop, the market
price of the securities may increase or decrease for reasons unrelated to our
operating performance. In particular, general market price movements, interest
rate changes and credit quality trends may affect the price of securities
related to the specialty finance and real estate industries market segments.
If a public market for our securities does develop, it is likely that the
market price will be influenced by any variation between the net yield on our
mortgage loan portfolio and prevailing market interest rates and by the
market's perception of our ability to achieve earnings growth. Our earnings
will be derived primarily from any positive spread between the yield on our
mortgage loan portfolio and the cost of our borrowings. During the period
immediately following our receipt of new proceeds from a private placement or
other source, before we have fully implemented our financing strategy to employ
those proceeds, our earnings and levels of dividend distributions may be lower
than if the financing strategy were fully implemented, which may affect the
market value of the securities. In addition, the positive spread between the
yield on our mortgage loan portfolio and the cost of borrowings will not
necessarily be larger in high interest rate environments than in low interest
rate environments regardless of our business strategy to achieve those results.
Accordingly, in periods of high interest rates, our net income and, therefore,
the dividend yield on the preferred stock may be less attractive compared with
alternative investments, which could negatively impact the price of the
securities.
If the anticipated or actual net yield on our mortgage loan portfolio
declines or if prevailing market interest rates rise, decreasing the positive
spread between the net yield on our mortgage loan portfolio and the cost of our
borrowings, the market price of our securities may be materially adversely
affected.
In addition, if the market price of other REIT stocks decline for any
reason, or there is a broad-based decline in real estate values or in the value
of our portfolio of mortgage loans, the market price of the securities may be
adversely affected. During any period when the market price of our securities
has been adversely affected due to any of these or any other reasons, the
liquidity of our securities may be negatively impacted and shareholders who may
desire or be required to sell their securities may experience losses.
Risk of future offerings.
We expect to increase our capital resources by making additional offerings
of equity and debt securities, including classes of preferred stock, common
stock, commercial paper, medium-term notes, mortgage-backed obligations and
senior or subordinated debt. All debt securities and some classes of preferred
stock will be senior to the Class A Convertible Preferred stock we are
registering under this registration statement in the event of our liquidation.
Additional equity offerings may dilute the equity of our shareholders or reduce
the price of shares of our outstanding securities, or both. We are unable to
estimate the amount, timing or nature of additional offerings, as they will
depend upon market conditions and other factors. There can be no assurance that
we will be able to raise the capital we will require through offerings on
favorable terms or at all.
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Restrictions on ownership of capital stock.
Subject to the limitations set forth in the articles supplementary creating
our preferred stock, our charter authorizes our Board of Directors to
reclassify any of the unissued shares of authorized capital stock into a class
or classes of preferred stock. The issuance of additional preferred stock could
have the effect of making an attempt to gain control of us more difficult by
means of a merger, tender offer, proxy contest or otherwise. The additional
preferred stock, if issued, could have a preference on dividend payments over
our common stock, which could affect our ability to make dividend distributions
to the holders of our common stock.
To comply with the requirements for qualification as a REIT at all times,
our charter prohibits any person, absent a waiver from the Board of Directors,
from acquiring or holding, directly or indirectly, shares of capital stock
including warrants and options, if any, in excess of 9.8% of the value or
aggregate number of the outstanding shares of capital stock or common stock.
These provisions may inhibit market activity and the resulting opportunity
for the holders of our capital stock to receive a premium for their securities
that might otherwise exist in the absence of those provisions. Those provisions
also may make us an unsuitable investment vehicle for any person seeking to
obtain ownership of more than 9.8% of the outstanding shares of capital stock.
In addition, provisions of Maryland law relating to "business combinations"
and a "control share acquisition" and of our charter and bylaws, particularly
the staggered terms for directors, may also have the effect of delaying,
deterring or preventing a takeover attempt or other change in control which
would be beneficial to shareholders and might otherwise result in a premium
over then prevailing market prices.
Every owner of more than 1% (or such lower percentage as required by the
Code or related regulations) of all classes or series of our stock, within 30
days after the end of each taxable year, is required to respond in writing to
our annual request for stock ownership information, or to include such
information on their tax return, including by stating the name and address of
such owner, the number of shares of each class and series of our stock
beneficially owned and a description of the manner in which such shares are
held. Each such owner shall provide to us such additional information as we may
request to determine the effect, if any, of such beneficial ownership on our
status as a REIT and to ensure compliance with the ownership limitations.
Recourse for payment of our debt securities is limited.
The debt securities we have issued are evidenced by short-term promissory
notes. The notes represent general corporate obligations solely of Primecore
Mortgage Trust, Inc. and are not insured or guaranteed by any governmental
agency or instrumentality or any other person or entity. Our mortgage loan
portfolio is pledged as collateral for a $3 million line of credit with a
commercial bank. In the event of our default under that line of credit or other
secured borrowings we may obtain in the future, or our insolvency, secured
financial institutions would generally have priority over general creditors in
the liquidation of our mortgage loan portfolio up to the amount we owe on the
secured loans.
Investment by tax-exempt entities must comply with the "prudent man" rule.
Prospective investors which are qualified plans should consider a number of
factors which may affect their decision to buy our securities including whether
an investment would comply with the "prudent man" rule of the Employee
Retirement Income Security Act of 1974, commonly known as "ERISA". Also, there
is no secondary trading market for our securities and one is unlikely to
develop.
There is a risk of deficiency upon liquidation.
The market value of our mortgage assets may fluctuate significantly. If we
need to sell assets to repay our notes, our mortgage assets may prove to be
illiquid. Even if sold at a discount, the proceeds of sale might be less than
the outstanding principal amount of, and interest payable on, our notes.
9
<PAGE>
There are Risks Specific to Our Company's Overall Enterprise.
We have a limited operating history.
Although the principals of Primecore Funding Group, Inc., our manager, have
experience in construction mortgage lending, Primecore Mortgage Trust, Inc. was
organized in March 1999, and has been operating since May 1, 1999. There can be
no assurance that the past experience of our manager will be indicative of our
future results.
We and our manager are subject to regulatory proceedings.
In 1999, the California Department of Real Estate initiated legal
proceedings against Primecore Funding Group, Inc. and our Chairman Michael
Heren, as discussed in Item 8, Legal Proceedings. The California Department of
Corporations is conducting an investigation of our manager's business and our
formation. While we believe we have fully cooperated with regulatory inquiries,
the Department of Corporations has not communicated the specific nature nor
results of its inquiry to us at this time.
If we fail to maintain REIT status, we would be taxed as a regular
corporation.
We intend to continue to operate as a REIT for federal income tax purposes.
We intend to elect to be subject to tax as a REIT when we filed our first
federal income tax return for 1999. To maintain our classification as a REIT,
we must satisfy tests concerning the sources of our income, the nature and type
of our assets, the amount of our distributions to shareholders, and
concentration of the ownership of our stock. If we fail to qualify as a REIT in
any taxable year and the relief provisions of the Code do not apply, we would
be subject to federal income tax as a regular, domestic corporation, and our
shareholders would be subject to tax as shareholders of such a corporation.
Distributions to shareholders in any year in which we fail to qualify as a REIT
would not be deductible in computing our taxable income. As a result, we could
be subject to income tax liability and the cash available for distribution to
our shareholders would be significantly reduced or eliminated. Further, we
could also be disqualified from re-electing REIT status for the four taxable
years following the year during which we became disqualified.
REIT qualification requirements with respect to (1) our source of income,
the nature of our assets and distribution of dividends may limit operational
and financial opportunities otherwise available to us and (2) shareholder
diversification may limit our access to certain otherwise interested investors.
There is no assurance that future legislation, regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to our qualification as a REIT or with respect to the federal
income tax consequences of that qualification. Any such changes may reduce or
eliminate our competitive advantage over non-REIT competitors.
If we should fail to qualify for an Investment Company Act exemption, our
ability to use leverage and to conduct our business would be materially
adversely affected.
We conduct our business so as not to become regulated as an investment
company under the Investment Company Act. The Investment Company Act exempts
entities that are "primarily engaged in the business of purchasing or otherwise
acquiring mortgages and other liens on and interests in real estate." If we
should fail to qualify for an exemption from registration as an investment
company, our ability to use leverage would be substantially reduced and we
would be unable to conduct our business.
Future revisions in policies and strategies at the discretion of board of
directors may adversely affect our operations or your investment.
Management has established our operating policies and strategies, such as
the limitation on the amount of debt we may incur, as set forth in this
registration statement. These policies and strategies may be modified or
10
<PAGE>
waived by the Board of Directors, without shareholder approval. The ultimate
effect of these changes may adversely affect our operations.
We have a potential conflict of interest with our manager.
REITs are a passive form of real estate investment, which means generally
that investors do not participate in day to day management decisions made by
our directors and executive officers. Our directors and executive officers are
also executive officers, employees and stockholders of our manager. Under a
management agreement, our manager earns a management fee based upon the dollar
amount of our construction mortgage loan portfolio. In evaluating construction
mortgage loans, an undue emphasis on maximizing income at the expense of other
criteria, such as preservation of capital, to increase compensation for our
manager, could result in increased exposure to losses on our mortgage loan
portfolio.
Our portfolio includes a $1,000,000 line of credit extended to 99 El Camino
Partners, a California limited partnership, an entity related to two of our
Founders, Michael Heren and Susan Fox. The line of credit replaces the balance
of a $3,000,000 construction loan made to that partnership to finance the
renovation of the offices we occupy at 99 El Camino Real, Menlo Park,
California, and is secured by a junior deed of trust. Although the same
underwriting policies were applied to the loan as for any other loan in our
portfolio, this loan is a commercial loan, secured by commercial property, and
as principals of Primecore Funding Group, Inc., Mr. Heren and Ms. Fox made the
final credit decision to make this loan. We have made loans to affiliates, and
from time to time other loans to principals or employees of our manager may be
made. Although subject to the same underwriting policies as any other loan,
these loans will not be subject to final credit decisions by unrelated
decision-makers. See Schedule IV to our financial statements.
Item 2. Financial Information.
Special Note Regarding Forward-Looking Statements
This registration statement contains forward-looking financial statements.
These statements relate to future events or our future financial performance.
In some cases, one can identify forward-looking statements by terminology. For
example, "may", "will", "should", "expect", "plan", "anticipate", "believe",
"estimate", "predict", "potential" or "continue", or the negative of these
terms or other comparable terminology, indicate forward-looking statements.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, an investor should specifically
consider various factors, including the risks outlined in the Risk Factors
section. These factors may cause our actual results to differ materially from
any forward-looking statement.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Accordingly, neither we nor any other
person assumes responsibility for whether the forward-looking statements
ultimately prove accurate. We will not update any of the forward-looking
statements after the date of this registration statement to conform them to
actual results or to changes in our expectations that occur after the date of
this registration statement.
11
<PAGE>
Capitalization
Our capitalization, as of March 31, 2000, was as follows:
<TABLE>
<S> <C>
Borrowings:
Series A short term notes................................. $ 21,952,945
Secured line of credit.................................... 2,970,000
------------
Total borrowings........................................ 24,922,945
------------
Mandatorily redeemable preferred stock--
Outstanding--18,829,912 shares............................ 188,299,120
Shareholders' equity:
Common stock--
Outstanding--100 shares(1)............................... 1
------------
Total shareholders' equity.............................. 188,299,121
------------
Total shareholders' equity and borrowings................... $213,222,066
============
</TABLE>
- --------
(1) Our founders have purchased a total of 100 shares of common stock at $.01
per share.
Taxable Income
In order to maintain our status as a REIT, we must first determine our pre-
tax, or taxable, income as calculated according to IRS guidelines. As a REIT,
we deduct our dividend distributions from taxable income and are required to
pay Federal taxes on any remaining undistributed taxable income. Since we
intend to distribute 100% of our taxable income as dividends (and as a REIT we
are required to distribute at least 95%), we are not generally subject to
Federal income tax.
Our taxable income differs from net income determined by GAAP primarily
because interest income is accrued on our outstanding loan balances for tax
purposes, but for GAAP, no income is recognized until cash proceeds from full
repayment of the loans are received (see notes to financial statements).
The differences between financial reporting income and taxable income exist
because, according to GAAP, we recognize income from our construction loans
only when the real estate under development is sold or refinanced by another
lender. The income we recognize for income tax purposes is based upon the
accrual rate of a particular loan but is deferred until the loan is paid off.
12
<PAGE>
Selected Financial Data
The selected financial data set forth below for the period from inception
(March 18, 1999) through December 31, 1999 has been derived from the Company's
audited financial statements. This information should be read in conjunction
with "Item 1. Business" and "Item 2. Financial Information--Management's
Discussion and Analysis of Financial Condition and Results of Operations", as
well as the audited financial statements and related notes included in "Item
15. Financial Statements and Exhibits".
<TABLE>
<CAPTION>
Period from inception
Three Months Ended (March 18, 1999) to
March 31, 2000 December 31, 1999
------------------ ---------------------
(unaudited)
(In thousands, except per share amounts)
<S> <C> <C>
Total assets.................................... $196,606 $186,224
Total short-term debt........................... 24,923 9,039
Mandatorily redeemable preferred stock.......... 188,299 189,851
Total shareholders' deficit..................... (20,732) (16,085)
Operating Results under Generally Accepted
Accounting Principles:
Revenues...................................... 3,811 2,583
Net income (loss)............................. 719 (2,987)
Preferred stock dividends....................... 5,366 13,098
Loss allocable to each common share:
Basic and Diluted............................. (46,475) (160,845)
Cash flows from (used by):
Operating activities.......................... 1,479 (1,434)
Investing activities.......................... (10,542) (26,887)
Financing activities.......................... 8,387 28,997
Tax Basis Operating Results:
Tax basis income.............................. N/A 11,127
Preferred stock dividends per share............. $ 0.28 $ 0.75
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Our material financial transactions have been purchasing and holding a
portfolio of construction mortgage loans.
Statements contained in this Item 2, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and elsewhere in this Form
10, which are not historical facts, may be forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date of this registration statement. We undertake no obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date of this registration statement or to
reflect the occurrence of unanticipated events.
Overview
Subject to the direction and oversight of our Board of Directors, our day-
to-day operations are managed by our manager. We have no employees.
We began operations on May 1, 1999, concurrent with the first interim
closing of a private offering of 14,575,664 shares of our Class A Convertible
Preferred stock at $10 per share primarily in exchange for beneficial interests
in trust deeds on real property securing loans and accrued interest totaling
$145,756,640. Purchasers of our shares were primarily investors in trust deeds
managed by Primecore Funding Group, Inc. who invested in those trust deeds
before our formation and exchanged their interests for our stock on a dollar
for dollar basis. A third and final closing was completed as of August 31,
1999. A total of 18,048,772 shares were sold.
We completed a second private placement on October 29, 1999, resulting in
the issuance of 1,147,743 shares of Class A Convertible Preferred stock. All
real property securing the trust deeds received in these transactions was
either under development or held for development. We undertook these placements
to provide for our initial capitalization and to convert the trust deed
interests of Primecore Funding Group, Inc. clients into shares of our Class A
Convertible Preferred stock. Future equity placements will be for cash, which
will be used to fund additional loans. To date, our investment activity has
been focused solely on funding real estate under development.
We will elect to be taxed as a REIT under the Internal Revenue Code of 1986,
as amended (the "Code"), and as such, are required to distribute at least 95
percent of our taxable income annually, subject to adjustments. Our manager
expects that the cash for such distributions will be generated from our day-to-
day operations, although we may also borrow funds to make distributions.
We may experience high volatility in financial reporting net income and tax
basis income from quarter to quarter and year to year, primarily as a result of
fluctuations in interest rates, timing of completion of our investments in real
estate under development and general economic conditions in the greater San
Francisco Bay Area. Our operating results will depend, in part, upon our
ability to manage our interest rate and credit risks while maintaining our
status as a REIT. Additionally, our accounting for our real estate loan
arrangements as real estate investments may contribute to volatility in our
future financial statement net income.
Results of Operations
The following discussion of results of operations should be read in
conjunction with the audited financial statements and related notes included in
"Item 13. Financial Statements and Supplementary Data." Because we
14
<PAGE>
commenced operations on May 1, 1999, comparisons between the quarters ended
March 31, 2000 and March 31, 1999 are not available.
Under generally accepted accounting principles, net loss allocable to common
shareholders for the quarter ended March 31, 2000 was $4,648,000, or a loss of
$46,000 per weighted average common share; and $16,085,000, a loss of $161,000
per weighted average common share for the period from March 18, 1999 through
December 31, 1999.
The loans we make qualify as real estate investments for financial reporting
purposes. As of March 31, 2000, investments in real estate under development
was approximately $147,387,000 and as of December 31, 1999, investments in real
estate under development was approximately $131,987,000, representing funds
advanced to borrowers. Funding commitments on these loans totaled $340,093,000
at March 31, 2000 and $287,953,000 at December 31, 1999. For a discussion of
these loan arrangements, see the notes to the financial statements. We earned
substantially all of our revenue for the quarter ended March 31, 2000, totaling
$3,811,000, and totaling $2,583,000 for the period from March 18, 1999 through
December 31, 1999, from completed real estate developments, comprised
principally of interest income earned at accrual rates ranging from 11 to 13
percent over the life of the loan investments and loan origination fees of 4
percent of the borrowed amount.
We also made loans to affiliates engaged in real estate developments where
the original borrower defaulted and our affiliate assumed the borrower's
obligations. As of March 31, 2000, investments in real estate under development
with affiliates was approximately $48,359,000 and as of December 31, 1999,
investments in real estate under development with affiliates are approximately
$51,752,000, representing funds advanced to affiliates or predecessors of
affiliates under the related loan agreements. Funding commitments on these
loans totaled $76,030,000 at March 31, 2000 and $66,055,000 at December 31,
1999. For a discussion of these loan arrangements, see the notes to the
financial statements. We account for these loans in the same manner as for
other loans.
We incurred expenses of $3,092,000 during the quarter ended March 31, 2000,
and $5,570,000 during the period from March 18, 1999 through December 31, 1999,
as follows:
. management fees payable to our manager pursuant to the management
agreement; 2,465,000 for the quarter ended March 31, 2000, and $5,277,000
during the period from March 18, 1999 through December 31, 1999;
. interest expense associated with our notes payable and secured line of
credit: $427,000 for the quarter ended March 31, 2000, and $241,000
during the period March 18, 1999 through December 31, 1999; and
. general administrative and other expenses: $200,000 for the quarter ended
March 31, 2000 and $52,000 during the period March 18, 1999 through
December 31, 1999.
Our policy is to distribute at least 95 percent of our REIT taxable income
to shareholders each year; to that end, dividends are paid monthly. Tax basis
income differs from income reported for financial reporting purposes due
primarily to differences in methods of accounting for loans. As a result of
these accounting differences, net income under generally accepted accounting
principles is not necessarily an indicator of distributions to be made by us.
During the quarter ended March 31, 2000, we paid monthly dividends to preferred
stockholders totaling $5,366,000 and $13,098,000 for the period from March 18,
1999 through December 31, 1999. For income tax purposes, less than 2 percent of
the distributions paid during the period from inception (March 18, 1999) to
December 31, 1999, represented a return of capital.
Liquidity And Capital Resources
Our principal demands for liquidity are cash for operations, including funds
which are required to satisfy obligations under existing loan commitments,
interest expense associated with our indebtedness, debt
15
<PAGE>
repayments and distributions to shareholders. As of March 31, 2000, we had no
cash and debt obligations maturing in 2000 of $24,923,000. In the near term,
our principal source of liquidity is the funds available under our unsecured
notes payable program described below.
We had unsecured borrowings of $21,953,000 at March 31, 2000 and $6,844,000
at December 31, 1999 on our Series A Notes (the Notes) issued to accredited
investors through a private placement. The Notes have varying maturities from
90 days to one year from the date of issuance. The Notes bear interest at 11
percent with interest payable monthly in arrears. Additionally, the Notes are
callable at the option of the note holder with 60 day written notice provided
we have sufficient funds available.
We have a secured line of credit (the Line) with a commercial bank. The
maximum amount available under the Line is $3,000,000. The Line carries
interest at prime plus one percent (10 percent at March 31, 2000 and 9.50
percent at December 31, 1999), matures on July 8, 2000, and includes an annual
facility fee of $5,000. Outstanding borrowings under the Line as of March 31,
2000 were $2,970,000 and $2,195,000 at December 31, 1999.
As of March 31, 2000 we had $220,377,000 of unfunded loan commitments, and
at December 31, 1999, we had unfunded loan commitments of $170,269,000. We
expect that proceeds generated from completed real estate developments and
additional Note issuances will be sufficient to fully repay our Line and Notes
on or before their scheduled maturity dates. To fund future growth, we will
need to raise additional funds for operations through public or private equity
and debt offerings and by leveraging our investments, primarily through
additional secured and unsecured financings, and other borrowing arrangements.
We are currently in discussions with commercial banks to obtain a $25,000,000
line of credit to provide for short-term cash flow needs. We also anticipate
future private offerings of our preferred stock after this registration becomes
effective.
Year 2000 Issue
Our entire information technology infrastructure is provided by our manager.
To date, our manager has not experienced any material difficulties with respect
to its internal business-critical systems used in connection with the
operations of our manager or our operations, nor does it anticipate any
material difficulties in the future.
Item 3. Properties.
We do not own any real property. We occupy 6,828 square feet of office space
at 99 El Camino Real, Menlo Park, California 94025 leased by our Manager from
99 El Camino Partners, a California limited partnership, an affiliate. This
lease expires on May 31, 2009, but includes two 5 year options expiring on
May 31, 2019. We believe our present facilities are adequate to meet our
current business requirements and that suitable facilities for expansion will
be available when necessary. We have provided the financing for this property
in the form of a loan in the approximate amount of $3,000,000, including
accrued interest of approximately $800,000 at December 31, 1999. The loan was
refinanced in January 2000. The balance as of March 31, 2000 was approximately
$855,855, bears interest at 11 percent per annum and is due on September 1,
2000.
16
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Principal Shareholders
The following table sets forth information regarding the beneficial
ownership of our capital stock as of March 31, 2000 of: (1) each person known
by us to own beneficially five percent or more of our outstanding capital
stock; (2) each of our directors and executive officers; and (3) all of our
directors and executive officers as a group. Unless otherwise indicated in the
footnotes to the table, the beneficial owners named have, to our knowledge,
sole voting and investment power with respect to the shares beneficially owned,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
Number Percent
Title of Class Beneficial Owner of Shares of Class
---------------------- ----------------- --------- --------
<S> <C> <C> <C>
Class A Michael Heren (1) 38,500 *
Convertible Preferred Susan Fox 22,500 *
Michael Rider 5,000 *
------
Total 66,000
======
---------------------------------------------------------------------------------
Common Michael Heren 40 *
Susan Fox 40 *
Michael Rider 20 *
------
Total 100
======
</TABLE>
- --------
* Less than one percent of the outstanding capital stock.
(1) Includes 5,000 shares of preferred stock purchased in 1999 and held in
trust for family members.
Change in Control
Officers are elected annually and serve at the discretion of the Board of
Directors. There are no family relationships between the executive officers or
directors. We know of no arrangements the operation of which may result in a
change of control of our company.
Item 5. Directors and Executive Officers.
Directors and Officers
Our board of directors consists of three directors, all of whom are also
officers and directors of our manager. Our directors, executive officers and
senior officers and their positions are:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Susan Fox................. President
Michael Heren............. Vice President and Chairman of the Board
Michael Rider............. Secretary, Treasurer and Chief Financial Officer
</TABLE>
The business background and experience of our directors and executive
officers is as follows:
Michael Heren, age 55, is a co-founder, director and chairman of the Board
of Primecore Mortgage Trust, Inc. and is a director of Primecore Funding Group,
Inc. Mr. Heren's term of office as a director expires in 2002. From 1976
through 1995, Mr. Heren was an officer at various financial institutions in
California and Oregon. Since 1996, Mr. Heren has been a principal shareholder
and director of Primecore Funding Group, Inc., with primary responsibility for
investor relations.
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<PAGE>
Susan Fox, age 43, is a co-founder, director and president of Primecore
Mortgage Trust, Inc. and is a director, president and 100% shareholder of
Primecore Funding Group, Inc. Ms. Fox's term of office as a director expires in
2001. From 1993 through 1994, Ms. Fox was manager of the loan portfolio at Jim
Ward & Associates, and later at Windy Hill Associates, a real estate
development company and successor to Jim Ward & Associates. From 1996, Ms. Fox
has been President and, with Mr. Heren, one of two principal shareholders and
directors of Primecore Funding Group, Inc., with primary management
responsibility for managing that company's loan portfolio.
Michael Rider, age 38, is a co-founder, director, secretary, treasurer and
Chief Financial Officer of Primecore Mortgage Trust, Inc. Mr. Rider's term of
office as a director expires in 2000. Mr. Rider is a certified public
accountant. Mr. Rider was Controller, then Chief Financial Officer for The
Plymouth Group and its successor, TPG Development Corporation, a San Francisco
Bay Area real estate development company from 1991 until 1998. Since July 1998,
he has served as Chief Financial Officer of Primecore Funding Group, Inc.
Terms of Directors and Officers
Our Board of Directors consists of the number of persons as shall be fixed
by the Board of Directors from time to time by resolution to be divided into
three classes, designated Class I, Class II and Class III, with each class to
be as nearly equal in number of directors as possible. Currently there are
three directors. Mr. Rider is a Class I director, Ms. Fox is a Class II
director and Mr. Heren is a Class III director. Class I, Class II and Class III
directors will stand for reelection at the annual meetings of stockholders held
in 2000, 2001 and 2002. At each annual meeting, the successors to the class of
directors whose term expires at that time are to be elected to hold office for
a term of three years, and until their successors are elected and qualified, so
that the term of one class of directors expires at each annual meeting.
For any vacancy on the Board of Directors, including a vacancy created by an
increase in the number of directors, the vacancy may be filled by election of
the Board of Directors or the stockholders, with the director so elected to
serve until the next annual meeting of stockholders, if elected by the Board of
Directors, or for the remainder of the term of the director being replaced, if
elected by the stockholders; any newly-created directorships or decreases in
directorships are to be assigned by the Board of Directors so as to make all
classes as nearly equal in number as possible. Directors may be removed only
for cause and then only by vote of a majority of the combined voting power of
stockholders entitled to vote in the election for directors. Subject to the
voting rights of the holders of the preferred stock, the charter may be amended
by the vote of a majority of the combined voting power of stockholders,
provided that amendments to the article dealing with directors may only be
amended if it is advised by at least two-thirds of the Board of Directors and
approved by vote of at least two-thirds of the combined voting power of
stockholders. The effect of these as well as other provisions of our charter
and bylaws may discourage takeover attempts and make more difficult attempts by
stockholders to change management.
Executive officers are appointed by the Board of Directors, serve at the
Board's pleasure and may be removed from office at any time without cause.
There are no family relationships among any of our directors or executive
officers.
Compensation of Directors
None of the directors of Primecore Mortgage Trust, Inc. has received any
separate compensation for service on our Board of Directors or on any Board
committee. All directors receive reimbursement of reasonable out-of-pocket
expenses incurred in connection with meetings of the Board of Directors. No
director who is also our employee will receive separate compensation for
services rendered as a director.
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<PAGE>
Item 6. Executive Compensation.
Neither the directors nor the officers of Primecore Mortgage Trust, Inc.
receive compensation from Primecore Mortgage Trust, Inc. for their services.
Those individuals are paid directly by our manager as part of and not in
addition to the management fee. Their compensation for our fiscal year ending
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Name and Principal Position Year Salary Bonus
--------------------------- ---- -------- -------
<S> <C> <C> <C>
Michael Heren
Chairman and Vice President......................... 1999 $360,000 $20,500
Susan Fox
Director and President.............................. 1999 $360,000 $20,500
Michael Rider
Secretary and Chief Financial Officer............... 1999 $132,500 $20,500
</TABLE>
We do not have a stock option or deferred compensation plan.
Item 7. Certain Relationships and Related Transactions.
Our portfolio includes a $1,000,000 revolving line of credit, described
under Item 3 above, extended to 99 El Camino Real Partners, a partnership
related to two of our Founders, Michael Heren and Susan Fox. The line of credit
is a commercial obligation, secured by that partnership's commercial property
at 99 El Camino Real, Menlo Park, California, the location of our offices and
those of our manager. The line of credit replaces the balance of a construction
mortgage loan made to the partnership to finance the recent renovation, and
matures in September 2000.
Item 8. Legal Proceedings.
In February 1999, our manager Primecore Funding Group, Inc. and our chairman
Michael Heren were the subjects of a proceeding brought by the California
Department of Real Estate alleging violations of statutes and regulations
relating to investments secured by deeds of trust.
A principal motivation for our formation was to enable Primecore Funding
Group, Inc. to continue its successful investment strategy without the
restrictions imposed by those regulations.
In early June, Administrative Law Judge Cheryl Tompkin in Oakland,
California heard the matter. In the hearing, Primecore Funding Group, Inc.
acknowledged the alleged violations but presented evidence that they were
entirely technical in nature, that no investor had ever lost money, and that
the company was financially sound.
Judge Tompkin issued a proposed decision dated July 12, 1999. While finding
violations of the regulations, Judge Tompkin specifically found that there had
been no loss to investors, that there was no evidence of any improper diversion
of funds, and that there was no evidence of any dishonesty in Primecore Funding
Group, Inc.'s dealings with investors or borrowers. She further noted Primecore
Funding Group, Inc.'s full cooperation with the Department of Real Estate upon
notification of the discrepancies and the creation of Primecore Mortgage Trust,
Inc., as a REIT to avoid future problems. As a result, Judge Tompkin
recommended that the real estate brokers licenses of Primecore Funding Group,
Inc. and Michael Heren should be revoked, but that restricted real estate
brokers licenses should be issued to Primecore Funding Group, Inc. and Mr.
Heren in their place. On August 9, 1999 the acting Real Estate Commissioner
adopted Judge Tompkin's proposed decision. The restrictions are for three years
and require ongoing education and full compliance with all statutes and
regulations. Our management believes that the restrictions will not adversely
affect Primecore Funding Group, Inc.'s ability to continue to generate
investment quality construction loans.
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<PAGE>
On March 17, 1999, the California Department of Corporations issued a Desist
and Refrain Order directed to our manager Primecore Funding Group, Inc. based
upon Primecore Funding Group Inc.'s practice of placing more than 10 investors
on a single loan and deed of trust. The Order appeared to be related to
information derived from the earlier Department of Real Estate inquiry.
Primecore Funding Group, Inc. has discontinued the practice and does not accept
any new trust deed investments. Primecore Funding Group, Inc. had until March
17, 2000, to request a hearing. No hearing was requested and no further
administrative proceedings are scheduled or anticipated.
On July 23, 1999, and March 9, 2000, the California Department of
Corporations served an administrative subpoena for business records of
Primecore Funding Group, Inc. and Primecore Mortgage Trust, Inc. issued
pursuant to California Corporation Code (S) 25531 in connection with an inquiry
concerning the business of Primecore Funding Group, Inc. and formation of
Primecore Mortgage Trust, Inc. The records requested have been provided, and we
intend to cooperate fully with the ongoing inquiry. We do not know of any
further legal or administrative proceedings contemplated by the California
Department of Corporations or any other governmental agency.
At the date of this registration statement, we are not involved in any
litigation and do not have any pending claims. Our management is not aware of
any threatened claims or the basis for any claims.
Item 9. Market Price of Dividends on the Registrant's Common Equity and Related
Stockholder Matters.
There is no public trading market for our Class A Convertible Preferred
stock or our common stock, nor is one expected to develop. We are authorized to
issue up to 50,000,000 shares of our common stock. The number of outstanding
shares is subject to change because of shareholder redemptions and dividend
reinvestments.
As of March 31, 2000, there were 1,301 holders of record of our Class A
Convertible Preferred stock and 3 holders of record of 100 shares of our common
stock. These computations are based upon the number of record holders on our
corporate records.
We have declared cash dividends monthly since May 1999 on our Class A
Convertible Preferred stock at $.75 per share, or an annualized rate of
approximately 11.3%, through March 2000. We have not paid any cash dividends to
holders of our common stock.
Item 10. Recent Sales of Unregistered Securities.
(a) Issuance of Capital Stock.
Since our incorporation on March 18, 1999, and as of October 29, 1999, we
sold and issued 19,196,515 unregistered shares of our Class A Convertible
Preferred stock and 100 shares of our common stock to approximately 1,304
shareholders for cash in an aggregate approximate amount of $191,965,150, as
follows:
<TABLE>
<CAPTION>
Aggregate
Date of Sale Class Amount Offering Price
------------ ----- ------ --------------
<S> <C> <C> <C>
August 31, 1999 Common 100 $1.00
--- -----
Totals 100 $1.00
=== =====
</TABLE>
<TABLE>
<CAPTION>
Aggregate
Offering
Date of Sale Class Amount Price
------------ ----- ------ ---------
<S> <C> <C> <C>
August 31, 1999 Class A Preferred 18,048,772 $180,487,720
October 29, 1999 Class A Preferred 1,147,743 11,477,430
---------- ------------
Totals 19,196,515 $191,965,150
========== ============
</TABLE>
20
<PAGE>
Each investor signed a subscription agreement which included representations
that they had sufficient knowledge and experience in financial and business
matters to be capable of evaluating the merits and risks of investments
generally, and of their investment in our stock and notes, and that they were
able to bear the economic risk of the investment. Each investor further
acknowledged they understood they could lose their entire investment.
Beginning November 1, 1999, and as of March 31, 2000, we have also issued
and sold short-term Series A promissory notes. As of March 31, 2000,
approximately $21,952,945 remains outstanding with maturities extending to
March 2001. The notes were sold only to accredited investors, as defined in
Regulation D, Rule 501(a)(4), (5) or (6) under the 1933 Securities Act.
The sales of stock and issuance of notes were exempt from the registration
requirements of the Securities Act of 1933 pursuant to Regulation D, Rule 506.
No underwriters were involved and no underwriting commissions were paid in any
of the transactions.
Item 11. Description of Registrant's Securities to be Registered.
Description of Capital Stock
General
Our authorized capital stock consists of 20,000,000 shares designated as our
"Class A Convertible Preferred Stock", and 30,000,000 shares of common stock.
As of December 31, 1999, there were issued and outstanding 18,985,118 shares of
Class A Convertible Preferred stock and 100 shares of common stock. At March
31, 2000, there were 18,829,912 shares of Class A Convertible Preferred stock
and 100 shares of common stock, issued and outstanding, net of redemptions and
shares issued pursuant to our dividend reinvestment plan.
The preferred stock has the rights and privileges and is subject to the
conditions set forth in the supplementary articles to our charter establishing
the terms of the preferred stock. Subject to the limitations set forth in the
terms of the preferred stock, we may issue additional preferred stock from time
to time in one or more classes or series, with such distinctive designations,
rights and preferences as shall be determined by the Board of Directors.
Additional series of preferred stock would be available for possible future
financings, or acquisitions by us, and for general corporate purposes without
any legal requirement that further stockholder authorization for issuance be
obtained. Our issuance of additional series of preferred stock could have the
effect of making an attempt to gain control of our company more difficult by
means of a merger, tender offer, proxy contest or otherwise. Additional series
of preferred stock, if issued, would have a preference on dividend payments, as
does the currently outstanding preferred stock, which would affect our ability
to make dividend distributions to the holders of common stock.
The following summary of the rights of the preferred stock and the common
stock is qualified in its entirety by reference to our charter and related
supplementary articles.
Preferred Stock
Dividends. Holders of our Class A Convertible Preferred stock are entitled
to dividends declared and payable at such times and in such amounts as the
Board of Directors may from time to time determine from amounts legally
available for such distribution. For so long as shares of preferred stock shall
remain outstanding, there shall be no dividends declared or paid nor any
distributions made on the common stock, nor, without the written consent of
holders of 66 2/3% of the outstanding preferred stock, shall any shares of
common stock be purchased or redeemed for a price in excess of their par value.
Redemption Policy. We have a stock redemption policy for shareholders who
wish to sell their shares to us. We will repurchase shares at fair market
value, as determined by our Board of Directors. Although subject
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<PAGE>
to change, we expect the price to remain at $10.00 per share or as otherwise
announced in advance. Redemption of shares is subject to availability of funds,
and payable at least 61 but no more than 91 days after our receipt of written
notice from a shareholder. A shareholder must also give us that written notice
at least 61 days before the end of any fiscal quarter, for example, by January
30 for the quarter ending March 31, etc. Although there is no restriction on
our ability to redeem preferred stock due to any arrearage in our payment of
dividends, shareholders have the right to redeem shares only if we have cash
available for distribution. We will not be required to sell or otherwise
liquidate any portion of our mortgage loan portfolio or other assets to fund a
redemption. We also reserve the right to limit the number and frequency of
stock redemptions by any shareholder. Payments to satisfy a redemption request
shall be on a "first-come, first-served" basis. If the sums needed to fund
redemptions in any particular month exceed the amount of cash we have available
for distribution, we will make payments to the shareholder whose request was
received first by us, until that shareholder's request is paid in full. Once we
have satisfied the redemption request of the stockholder whose request was
received first, we will make payments to the shareholder who next submitted a
redemption request.
Conversion. Each share of preferred stock will be convertible as described
below into that number of shares of common stock as is determined by dividing
the initial purchase price of such shares by the conversion price in effect at
the time of conversion. Initially, the conversion price will be $10.00 per
share and each share of preferred stock will be convertible into one share of
common stock. The conversion price of each share of preferred stock is subject
to adjustment upon the occurrence of events, including a subdivision or
combination of the common stock, a dividend or distribution to holders of
common stock payable in common stock, a consolidation or merger of our company,
or the issuance of shares of capital stock, other than in a qualified initial
public offering, at a price below the greater of (a) $10.00 or (b) fair market
value. Shares of preferred stock will convert to common stock (1) upon the
closing of a firm commitment underwritten initial public offering of the common
stock resulting in aggregate gross proceeds to us of at least $50 million at a
per share price of at least $10.00, or for such lesser amount of proceeds or
lower price, or both, as is approved by at least two-thirds of the voting power
of the preferred stock, a "qualified initial public offering" or, (2) after
five years from the last closing of our private placement, i.e. from October
29, 1999.
Liquidation. Upon the liquidation, dissolution or winding up of our company,
either voluntary or involuntary, the holders of our Class A Convertible
Preferred stock will be entitled to receive out of our assets available for
distribution to our stockholders, an amount per share equal to the original
purchase price per share of $10.00, plus any declared but unpaid dividends,
before any distribution to the holders of our common stock. Thereafter, to the
extent any assets remain in our company, such assets shall be distributed in
equal amounts per share to the holders of common stock and preferred stock on
an "as converted" basis, that is, as if the preferred stock had converted into
shares of common stock. Neither a consolidation or merger with or into another
corporation, nor a merger of any other corporation with us, nor the sale of all
or substantially all of our property or business, other than in connection with
a winding up of our business, will be considered a liquidation, dissolution or
winding up for these purposes.
Merger. In the event of a change of control, a merger, consolidation or
other combination by our company, or transfer of all or substantially all of
our assets, each holder of the preferred stock will have the option to elect to
receive either: (1) what the common stock would have received if conversion had
occurred before the record date, or (2) 100% of the liquidation preference of
the preferred stock as provided under "Liquidation" above.
Voting. Except as provided by law or our charter, the holders of our Class A
Convertible Preferred stock and common stock shall vote together as a class for
the election of directors and on all other matters to be voted on by our
stockholders. Each holder of preferred stock shall be entitled to one vote for
each share of common stock which would be issuable to such holder upon the
conversion of all the shares of preferred stock so held and each holder of
common stock shall be entitled to one vote per share. Despite these provisions,
(a) the holders of common stock and the holders of preferred stock will be
entitled to vote as separate classes (1) for any proposed merger, consolidation
or sale of the assets of our company as an entirety, but only if at the time of
such proposal, one person or group of persons is the "beneficial owner", as
determined under the rules
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<PAGE>
of Regulation 13D-6 under the Exchange Act, of more than 66 2/3% of the
preferred stock, and (2) for any stock splits, reverse stock splits, or other
amendments to our charter which in any way adversely affects the preferences,
qualifications, special or relative rights or privileges of the common stock,
and (b) the holders of preferred stock will be entitled to vote separately as a
class on the matters described under "Restrictions" below. Our charter does not
provide for cumulative voting and, accordingly, the holders of a majority of
the outstanding shares of capital stock have the power to elect all directors
to be elected each year.
Annual meetings of our stockholders will be held commencing in 2000, and
special meetings may be called at any time by the President, by the Chairman of
the Board of Directors, by a majority of the Board of Directors, by a majority
of the Independent Directors (as defined in Section 1 of Article II of our
Bylaws), or by the written request of stockholders entitled to cast a majority
of the votes which all stockholders are entitled to cast at the particular
meeting, addressed to the Secretary and then the Secretary shall proceed to
call a special meeting only as may be required by law. Our charter may be
amended in accordance with Maryland law.
Restrictions. Unless a greater percentage vote is required by law or our
charter, and in addition to any other vote required by law, without the prior
consent of holders of 66 2/3% of the outstanding preferred stock voting as a
separate class: (1) we will not create or issue any additional class or series
of capital stock unless such class or series ranks junior to the preferred
stock in respect of dividends and liquidation preference or increase the
authorized amount of preferred stock; and (2) we will not amend the terms of
the preferred stock in any way or our charter in a way which adversely affects
the preferences, qualifications, special or relative rights or privileges of
the preferred stock.
Common Stock
Dividends; Liquidation; Other rights. So long as preferred stock remains
outstanding, the holders of common stock shall not be entitled to dividends or
distributions. Following conversion of all outstanding shares of preferred
stock and subject to the terms of any additional class or series of preferred
stock that may be issued, the holders of shares of common stock are entitled to
receive dividends when, as, and if declared by the Board of Directors out of
funds legally available. In the event of liquidation, dissolution or winding up
of our company, the holders of common stock will share ratably in all of our
assets remaining after the payment of liabilities and after payment of the
liquidation preference of the outstanding preferred stock and any other shares
or series of preferred stock that may be issued. There are no preemptive or
other subscription rights, conversion rights or redemption or sinking fund
provisions with respect to shares of common stock.
Registration Rights
Holders of our equity securities are entitled to registration rights under
the Securities Act. Pursuant to a Registration Rights Agreement dated March 30,
1999, we have agreed to (1) file with the SEC, within six months after a
qualified initial public offering, and use our best efforts to cause to become
effective as soon as practicable thereafter, a shelf registration statement,
the "shelf registration statement", with respect to the shares of common stock
into which the shares of our preferred stock will have been converted, and (2)
use our best efforts to have our shares of common stock approved for quotation
on the Nasdaq National Market or listed on a stock exchange upon effectiveness
of the shelf registration statement. We will be required to keep the shelf
registration statement effective until the sooner of three years or such time
as, in the written opinion of our counsel, such registration is not required
for the unrestricted resale of shares of common stock entitled to registration
rights under the Registration Rights Agreement.
Mr. Heren, Ms. Fox and Mr. Rider, as the holders of 100 shares of currently
outstanding common stock, are entitled to rights with respect to registration
under the Securities Act of such common stock. Under the terms of a Founder's
Registration Rights Agreement, also dated March 30, 1999, they are entitled to
include within any registration statement under the Securities Act proposed by
us with respect to a firm commitment underwritten public offering of common
stock, either for their own account or for the account of other security
holders, shares of common stock held by them, subject to conditions and
limitations.
23
<PAGE>
Repurchase of Shares and Restrictions on Transfer
Two of the requirements of qualification for the tax benefits accorded by
the REIT provisions of the Internal Revenue Code are that (1) during the last
half of each taxable year not more than 50% in value of the outstanding shares
may be owned directly or indirectly by five or fewer individuals, the "50%/5
stockholder test", and (2) there must be at least 100 stockholders on at least
335 days of each taxable year of 12 months.
In order that we may meet these requirements at all times, our charter
prohibits any person without the prior consent of the Board of Directors from
acquiring or holding, directly or indirectly, shares of capital stock in excess
of 9.8%, by vote or value, of the aggregate of the outstanding shares of
capital stock or in excess of 9.8%, by value or number of shares, whichever is
more restrictive, of the aggregate of the outstanding shares of our common
stock. For this purpose, the term "ownership" is defined in accordance with the
REIT provisions of the Code and the constructive ownership provisions of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.
For purposes of the 50%/5 stockholder test, the constructive ownership
provisions applicable under Section 544 of the Code attribute ownership of
securities owned by a corporation, partnership, estate or trust proportionately
to its stockholders, partners or beneficiaries. These Code provisions also
attribute ownership of securities owned by family members to other members of
the same family and treat securities with respect to which a person has an
option to purchase as actually owned by that person in each case only if to do
so would cause a violation of the 50%/5 test. Further, these Code provisions
set forth rules as to when securities constructively owned by a person are
considered to be actually owned for the further application of such attribution
provisions, referred to as "reattribution". Thus, for purposes of determining
whether a person holds shares of capital stock in violation of the ownership
limitations set forth in our charter, many persons may be deemed to own
directly more than the 9.8% limit because an entities' shares are attributed to
its individual investors. A person will be treated as owning not only shares of
capital stock actually or beneficially owned, but also any shares of capital
stock attributed to such person under the attribution rules described above.
Accordingly, under some circumstances, shares of capital stock owned by a
person who individually owns less than 9.8% of the shares outstanding may
nevertheless be in violation of the ownership limitations set forth in our
charter. Ownership of shares of our capital stock through such attribution is
generally referred to as constructive ownership. Actual, and not constructive,
ownership determines the 100 stockholder test.
Our charter provides that if any transfer of shares of capital stock occurs
which, if effective, would result in any person beneficially or constructively
owning shares of capital stock in excess or in violation of the above transfer
or ownership limitations, then that number of shares of capital stock the
beneficial or constructive ownership of which otherwise would cause such person
to violate such limitations, rounded to the nearest whole shares, shall be
automatically transferred to a trustee, as trustee of a trust, for the
exclusive benefit of one or more charitable beneficiaries, and the intended
transferee shall not acquire any rights in such shares. Shares held by the
trustee shall be issued and outstanding shares of capital stock. The intended
transferee shall not benefit economically from ownership of any shares held in
the trust, 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. The
trustee shall have all voting rights and rights to dividends or other
distributions with respect to shares held in the Trust, which rights shall be
exercised for the exclusive benefit of the charitable beneficiary. Any dividend
or other distribution paid to the intended transferee before our discovery that
shares of common stock have been transferred to the trustee shall be paid with
respect to such shares to the trustee by the intended transferee upon demand
and any dividend or other distribution authorized but unpaid shall be paid when
due to the trustee. Our Board of Directors may, in their discretion, waive
these requirements on owning shares in excess of the ownership limitations.
Within 20 days of receiving notice from us that shares of capital stock have
been transferred to the trust, the trustee shall sell the shares held in the
trust to a person, designated by the trustee, whose ownership of the shares
will not violate the ownership limitations set forth in our charter. Upon such
sale, the interest of the charitable beneficiary in the shares sold shall end
and the trustee shall distribute the net proceeds of the sale to
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<PAGE>
the intended transferee and to the charitable beneficiary as follows. The
intended transferee shall receive the lesser of (1) the price paid by the
intended transferee for the shares or, if the intended transferee did not give
value for the shares in connection with the event causing the shares to be held
in the trust, for example, in the case of a gift, devise or other such
transaction, the market price, as defined below, 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 intended transferee shall be immediately paid to the charitable
beneficiary. In addition, shares of capital stock transferred to the trustee
shall be deemed to have been offered for sale to us, or our designee, at a
price per share equal to the lesser of (1) 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 (2)
the market price on the date we, or our designee, accepts such offer. We shall
have the right to accept such offer until the trustee has sold shares held in
the trust. Upon such a sale to us, the interest of the charitable beneficiary
in the shares sold shall end and the trustee shall distribute the net proceeds
of the sale to the intended transferee.
The term "market price" on any date shall mean, with respect to any class or
series of our outstanding shares of stock, the closing price, as defined below,
for such shares on such date. The "closing price" on any date shall mean the
last sale price for such shares, 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 shares, 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 shares are 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 shares are listed or admitted to trading or, if such
shares are 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 of,
if such system is no longer in use, the principal other automated quotation
system that may then be in use or, if such shares are 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 shares selected by the Board
of Directors or, if no trading price is available for such shares, the fair
market value of the shares, as determined in good faith by the Board of
Directors.
Every owner of more than 5%, or such lower percentage as required by the
Code or the regulations promulgated thereunder, of all classes or series of our
stock, within 30 days after the end of each taxable year, is required to give
written notice to us stating the name and address of such owner, the number of
shares of each class and series of our stock beneficially owned and a
description of the manner in which such shares are held. Each such owner shall
provide to us with such additional information as we may request to determine
the effect, if any, of such beneficial ownership on our status as a REIT and to
ensure compliance with the ownership limitations.
Subject to limitations, the Board of Directors may increase or decrease the
ownership limitations. In addition, to the extent consistent with the REIT
provisions of the Code, the Board of Directors may waive the ownership
limitations for and at the request of purchasers in this private placement or
subsequent purchasers.
The provisions described above may inhibit market activity and the resulting
opportunity for the holders of our capital stock to receive a premium for their
shares that might otherwise exist in the absence of such provisions. Such
provisions also may make us an unsuitable investment vehicle for any person
seeking to obtain ownership of more than 9.8% of the outstanding shares of
capital stock.
Before the listing of our stock for trading on a national exchange, we will
not permit a qualified plan, for this purpose only, the term "qualified plan"
also includes IRAs, entities whose assets include plan assets by reason of a
plan's investment in such entity, and other employee benefit plans described in
Section 3(3) of ERISA, whether or not subject to Title I of ERISA, to acquire
our stock, either directly from us or by transfer from an existing stockholder,
if such proposed transfer would cause the ownership of any class of our stock
by
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qualified plans in the aggregate to equal or exceed 25%. As a result, we retain
the right not to approve of the purchase of stock by or on behalf of a
qualified plan transferee or purchaser of shares. This restriction could
adversely affect the ability of a stockholder to sell his or her stock.
Item 12. Indemnification of Directors and Officers.
Indemnification
Our charter obligates us to indemnify our directors and officers and to pay
or reimburse expenses for such individuals in advance of the final disposition
of a proceeding to the maximum extent permitted from time to time by Maryland
law. The Maryland General Corporation Law, the "Maryland GCL", permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other
capacities, unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding
and (1) was committed in bad faith, or (2) was a result of active and
deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services, or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful.
Limitation of Liability
Maryland law permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholder for money damages, except to the extent that
(1) it is proved that the person actually received an improper benefit or
profit in money, property or services, or (2) a judgment or other final
adjudication adverse to the person is entered in a proceeding based on a
finding that the person's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated
in the proceeding. Our charter contains a provision providing for elimination
of the liability of our directors and officers or our stockholders for money
damages to the maximum extent permitted by Maryland law as amended or
interpreted.
We have a director and officer liability insurance policy with a $5,000,000
limit of liability and a company retention of $100,000 in the aggregate for
each claim.
Business Acquisitions Statutes
Under Maryland law, "business combinations", including a merger,
consolidation, share exchange, or, in some circumstances, an asset transfer or
issuance or reclassification of equity securities, between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation which, at
any time within the two-year period before the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation, an "Interested Stockholder", or an affiliate
are prohibited for five years after the most recent date on which the
interested stockholder became an interested stockholder. Thereafter, any such
business combination must be recommended by the board of directors of such
corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by holders of outstanding voting shares of the
corporation and (b) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
interested stockholder with whom the business combination is to be effected,
unless, among other things, the corporation's stockholders receive a minimum
price for their shares and the consideration is received in cash or in the same
form as previously paid by the interested stockholder for its shares.
These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation before the time that the interested stockholder becomes an
interested stockholder. Our Board of Directors has adopted a resolution that
provisions of Maryland law shall not apply to any future business combination
with any purchaser of shares in a private placement, or an affiliate, or to any
other future business combination with us. No assurance can be given that such
provision will not be amended or eliminated at any point in the future with
respect to business combinations not involving a purchaser of shares.
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<PAGE>
Control Share Acquisitions
Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other shares of stock owned by
such a person, would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power:
. one-fifth or more but less than one third;
. one-third or more but less than a majority, or
. a majority or more of all voting power. "Control shares" do not include
shares of stock the acquiring person is then entitled to vote as a result
of having owned stockholder approval. A "control share acquisition"
generally means, the acquisition of, ownership of, or the power to direct
the exercise of voting power with respect to, control shares.
A person who has made or proposes to make a "control share acquisition,"
upon satisfaction of conditions such as arranging an undertaking to pay
expenses, may compel the Board of Directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders' meeting. If voting rights are not
approved at the meeting or if the acquiring person does not deliver an
acquiring person statement as permitted by the statute, then, subject to
conditions and limitations, the corporation may redeem any or all of the
"control shares", except those for which voting rights have previously been
approved, for fair value determined, without regard to absence of voting
rights, as of the date of the last control share acquisition or of any meeting
of stockholders at which the voting rights of such shares are considered and
not approved. If voting rights for "control shares" are approved at a
stockholders meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the stock, as determined for purposes of such
appraisal rights may not be less than the highest price per share paid in the
control share acquisition, and limitations and restrictions otherwise
applicable to the exercise of dissenters' rights do not apply in the context of
"control share acquisitions."
The "control share acquisition" statute does not apply to stock acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by a provision of the
articles of incorporation or bylaws of the corporation adopted before the
acquisition of the shares. We have adopted a provision in our bylaws that
exempts our shares of capital stock from application of the control share
acquisition statute. No assurance can be given, however, that such bylaw
provision may not be removed at any time by amendment of the bylaws.
We have also agreed to indemnify our manager's directors, officers,
stockholders and employees for all expenses, losses, damages, liabilities,
demands, charges and claims arising from any acts or omissions of our manager
made in good faith in the performance of its duties under the management
agreement and not constituting bad faith, willful misconduct, gross negligence
or reckless disregard of its duties.
Primecore Mortgage Trust, Inc. has purchased liability insurance policies
covering Primecore Mortgage Trust, Inc.'s directors and officers to insure
against losses that are not covered by the indemnification of directors and
officers by Primecore Mortgage Trust, Inc., as discussed above. Covered losses
include those arising from any breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or wrongfully attempted by the
directors or officers in their respective capacities as such. Primecore
Mortgage Trust, Inc. is also insured against losses incurred as a result of
indemnity payments to any director or officer.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Directors, officers or third parties controlling us
pursuant to Maryland law, we have been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
27
<PAGE>
Item 13. Financial Statements and Supplementary Data.
See attached financial statements beginning on page F-1.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Index to Financial Statements and Schedule.
(b) Exhibits
<TABLE>
<C> <S>
3(i) Articles of Incorporation
3(ii) By-laws, amended March 21, 2000
4.1 Registration Rights Agreement dated March 30, 1999
4.2 Founder's Registration Rights Agreement dated March 30, 1999
10 Management Agreement dated March 30, 1999
11 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule
99.1 Articles Supplementary
99.2 Specimen Stock Certificate
</TABLE>
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has caused this registration statement to be signed on its
behalf by the undersigned, its authorized agent.
Primecore Mortgage Trust, Inc..
By: /s/ Susan Fox
----------------------------------
Susan Fox, President
Dated: April 28, 2000
29
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page No
-------
<S> <C>
Report of independent public accountants............................... F-2
Balance sheets at March 31, 2000 (unaudited), and at December 31, 1999
(audited)............................................................. F-3
Statements of operations for the three months ended March 31, 2000
(unaudited), and for the period from inception (March 18, 1999) to
December 31, 1999..................................................... F-4
Statements of shareholders' equity for the three months ended March 31,
2000 (unaudited), and for the period from inception (March 18, 1999)
to December 31, 1999.................................................. F-5
Statements of cash flows for the three months ended March 31, 2000
(unaudited), and for the period from inception (March 18, 1999) to
December 31, 1999..................................................... F-6
Notes to financial statements.......................................... F-7
Schedule IV--Mortgage loans on real estate--December 31, 1999.......... F-14
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Primecore Mortgage Trust, Inc.
We have audited the accompanying balance sheet of Primecore Mortgage Trust,
Inc. (the Company) as of December 31, 1999, and the related statements of
operations, shareholders' deficit, and cash flows for the period from inception
(March 18, 1999) to December 31, 1999. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Primecore Mortgage Trust,
Inc. as of December 31, 1999, and the results of its operations and its cash
flows for the period from inception (March 18, 1999) to December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule listed in the
index to financial statements and schedule is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California,
March 30, 2000
F-2
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
BALANCE SHEETS
As of March 31, 2000 (unaudited), and December 31, 1999
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS:
Investments in real estate under development..... $147,386,789 $131,986,969
Investments in real estate under development by
affiliates...................................... 48,359,238 51,752,328
Cash and cash equivalents........................ -- 675,528
Receivable from affiliate........................ 843,081 1,743,081
Other assets..................................... 17,002 66,400
------------ ------------
Total assets................................... $196,606,110 $186,224,306
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Notes payable (including $600,000 and $25,000 to
an affiliate)................................... $ 21,952,945 $ 6,844,474
Secured line of credit........................... 2,970,000 2,195,000
Accrued expenses and other....................... 260,054 214,612
Bank overdraft................................... 790,651 --
Preferred stock dividends payable................ 1,785,984 1,798,884
Payable to affiliate............................. 1,279,408 1,404,690
------------ ------------
Total liabilities.............................. 29,039,042 12,457,660
------------ ------------
MANDATORILY REDEEMABLE PREFERRED STOCK: Par value
$0.01, 20,000,000 shares authorized; 18,829,912
and 18,985,118 shares issued and outstanding at
March 31, 2000, and December 31, 1999,
respectively; entitled to $10 per share in
liquidation....................................... 188,299,120 189,851,180
------------ ------------
SHAREHOLDERS' DEFICIT:
Common stock: par value $0.01, 30,000,000 shares
authorized; 100 shares issued and outstanding... 1 1
Retained deficit................................. (20,732,053) (16,084,535)
------------ ------------
Total shareholders' deficit.................... (20,732,052) (16,084,534)
------------ ------------
Total liabilities and shareholders' deficit.... $196,606,110 $186,224,306
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
STATEMENTS OF OPERATIONS
For the three months ended March 31, 2000 (unaudited), and
for the period from inception (March 18, 1999) to December 31, 1999
<TABLE>
<CAPTION>
Three Months Period from Inception
Ended (March 18, 1999) to
March 31, 2000 December 31, 1999
-------------- ---------------------
(unaudited)
<S> <C> <C>
REVENUES:
Income from completed real estate
development (including $1,908,282 and
$38,530 from affiliates)............... $ 3,810,903 $ 2,566,301
Other................................... 32 17,097
----------- ------------
Total revenues........................ 3,810,935 2,583,398
----------- ------------
EXPENSES:
Management fees paid to an affiliate.... 2,465,052 5,276,938
Interest................................ 427,226 241,152
General, administrative and other....... 199,952 51,866
----------- ------------
Total expenses........................ 3,092,230 5,569,956
----------- ------------
Net income (loss)..................... 718,705 (2,986,558)
PREFERRED STOCK DIVIDENDS................. (5,366,223) (13,097,977)
----------- ------------
Net loss allocable to common.......... $(4,647,518) $(16,084,535)
=========== ============
BASIC AND DILUTED NET LOSS PER COMMON
SHARE.................................... $ (46,475) $ (160,845)
=========== ============
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES
OUTSTANDING.............................. 100 100
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
For the three months ended March 31, 2000 (unaudited), and
for the period from inception (March 18, 1999) to December 31, 1999
<TABLE>
<CAPTION>
Common Stock
------------- Retained
Shares Amount Deficit Total
------ ------ ------------ ------------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY AT INCEPTION
(MARCH 18, 1999)................... -- $ -- $ -- $ --
Issuance of common stock.......... 100 1 -- 1
Dividends paid to preferred
shareholders..................... -- -- (13,097,977) (13,097,977)
Net loss.......................... -- -- (2,986,558) (2,986,558)
--- ----- ------------ ------------
SHAREHOLDERS' DEFICIT AT DECEMBER
31, 1999........................... 100 1 (16,084,535) (16,084,534)
Dividends paid to preferred
shareholders..................... -- -- (5,366,223) (5,366,223)
Net income........................ -- -- 718,705 718,705
--- ----- ------------ ------------
SHAREHOLDERS' DEFICIT AT MARCH 31,
2000 (unaudited)................... 100 $ 1 $(20,732,053) $(20,732,052)
=== ===== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2000 (unaudited), and
for the period from inception (March 18, 1999) to December 31, 1999
<TABLE>
<CAPTION>
Three Months Period from Inception
Ended (March 18, 1999) to
March 31, 2000 December 31, 1999
-------------- ---------------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ 718,705 $ (2,986,558)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Increase in accrued expenses, bank
overdraft, and other................. 836,093 214,612
Increase (decrease) in payable to
affiliate............................ (125,282) 1,404,690
Decrease (increase) in other assets... 49,398 (66,400)
------------ ------------
Net cash provided by (used in)
operating activities............... 1,478,914 (1,433,656)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate under
development............................ (52,168,396) (99,692,298)
Investments in real estate under
development by affiliates.............. (23,227,757) (22,728,985)
Return of investments in real estate
under development...................... 37,163,576 93,279,846
Return of investments in real estate
under development by affiliates........ 26,790,847 3,997,140
Decrease (increase) in receivable from
affiliate.............................. 900,000 (1,743,081)
------------ ------------
Net cash used in investing
activities......................... (10,541,730) (26,887,378)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemptions of preferred stock.......... (2,982,350) (5,923,690)
Proceeds from sales of preferred stock.. -- 34,193,960
Proceeds from sales of common stock..... -- 1
Issuance of notes payable............... 14,543,471 6,734,474
Borrowings on secured line of credit.... 775,000 2,195,000
Payment of preferred stock dividends.... (3,948,833) (8,203,183)
------------ ------------
Net cash provided by financing
activities......................... 8,387,288 28,996,562
------------ ------------
Net increase (decrease) in cash and
cash equivalents................... (675,528) 675,528
BEGINNING CASH AND CASH EQUIVALENTS....... 675,528 --
------------ ------------
ENDING CASH AND CASH EQUIVALENTS.......... $ -- $ 675,528
============ ============
CASH PAID FOR INTEREST.................... $ 366,435 $ 41,889
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Investments in real estate under
development received in exchange for
issuance of Class A Preferred Stock.... $ -- $125,574,517
Investments in real estate under
development by affiliates received in
exchange for issuance of Class A
Preferred Stock or Series A Notes...... -- 32,910,483
Investments in real estate under
development received in exchange for
Series A Notes......................... 395,000 --
Investments in real estate under
development by affiliates received in
exchange for Series A Notes............ 170,000 110,000
Preferred stock dividends reinvested in
Class A Preferred Stock................ 1,430,290 3,095,910
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. ORGANIZATION AND BUSINESS:
Organization
Primecore Mortgage Trust, Inc. (the Company), a Maryland corporation, was
formed on March 18, 1999 (inception), and commenced operations effective May 1,
1999. The Company will elect to be taxed as a real estate investment trust
(REIT) under Sections 856 through 860 of the Internal Revenue Code of 1986 (the
Code) commencing with its taxable year ended December 31, 1999, and believes
its current organization and method of operation will enable it to maintain its
status as a REIT. The Company is engaged in the business of funding and holding
short-term construction mortgage loans secured by single-family residential
real property or mixed-use commercial property, as well as land acquisition and
development loans secured by undeveloped real property, located in the greater
San Francisco Bay Area. The Company is managed by Primecore Funding Group, Inc.
(the Manager). The Manager is a private mortgage finance business that has
operated since April 1996 in Menlo Park, California. It originates and services
the mortgage loans funded by the Company in return for an agreed-upon monthly
management fee.
Capitalization
The Company has authorized 50,000,000 shares of capital stock with a $0.01
par value. Initially, all shares were authorized as common stock.
At December 31, 1999, there were 100 shares of common stock outstanding, all
held by Michael Heren, Susan Fox and Michael Rider, founders of the Company.
The founders are also employees and officers of the Manager. Ms. Fox owns all
of the stock of the Manager.
Effective April 23, 1999, the Company duly divided and classified 20,000,000
shares of its capital stock into a series designated Class A Convertible
Preferred Stock (Class A Preferred). The par value of each share of Class A
Preferred is $0.01 and has a liquidation preference of $10 per share. The
holders of Class A Preferred are entitled to receive cash dividends in amounts
deemed by the Board of Directors to satisfy the dividend distribution
requirements applicable to REITs under provisions of the Code. The Class A
Preferred is subject to mandatory redemption at the option of the holder, with
a 60-day call provision and subject to the availability of funds. The
redemption price is equal to the share liquidation preference.
The Class A Preferred will convert to common stock (1) upon the closing of a
firm commitment underwritten initial public offering of the Company's common
stock resulting in aggregate gross proceeds to the Company of at least $50
million and at a price per share of at least $10 or such lesser amount of
proceeds or lower price per share, or both, as may be approved by two-thirds of
the holders of the preferred stock, or (2) after five years from the last
closing of the private placement, which was October 29, 1999. Additional series
of preferred stock may be made available for possible future financing of or
acquisition by the Company and for general purposes without any legal
requirement that further stockholder authorization for issuance be obtained.
The 18,985,118 shares of Class A Preferred outstanding as of December 31,
1999 rank senior to the Company's common stock as to dividends and liquidation
rights. The shares are convertible into, and have voting rights equal to, the
same number of shares of the Company's common stock. The Company will not pay
any dividends to the holders of the common stock so long as any Class A
Preferred is outstanding. Class A Preferred dividends are paid monthly in
arrears and were $0.75 per share for the period from inception (March 18, 1999)
to December 31, 1999. The terms of the Company's dividend reinvestment plan
permit the shareholders to reinvest dividends in additional shares of Class A
Preferred at the fair market value, currently deemed by the Board of Directors
to be $10 per share.
F-7
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The Company completed two equity private placements of its Class A
Preferred, resulting in the issuance of the Company's stock at $10 per share.
The first began March 31, 1999, and was completed as of August 31, 1999, and
resulted in the sale of 18,048,772 shares of Class A Preferred. The second
equity placement began September 10, 1999, and was completed as of October 29,
1999. The Company sold an additional 1,147,743 shares of Class A Preferred. As
of December 31, 1999, 18,985,118 shares of Class A Preferred were issued and
outstanding, net of redemptions and additional shares issued through the
Company's dividend reinvestment plan from October 30, 1999, to December 31,
1999. The Manager expects that all future placements will be for cash, which
will then be used to fund additional loans by the Company. In connection with
the private placements, the Manager paid placement costs of $187,829 on behalf
of the Company.
Subscribers of the equity placements were primarily investors in
construction mortgage loans managed by the Manager. Those investors exchanged
their interests in those loans for shares of the Company's Class A Preferred on
a dollar-for-dollar basis. The value assigned to the trust deed investments at
the dates of acquisition was based upon the then-outstanding loan balances plus
accrued interest.
To maintain its qualification as a REIT, not more than 50 percent of the
value of the outstanding shares of the Company may be owned, directly or
indirectly, by five or fewer individuals, applying certain constructive
ownership rules. To help ensure that the Company will not fail this test, the
Company's charter prohibits any person without the prior consent of the Board
of Directors from acquiring or holding, directly or indirectly, shares of
capital stock in excess of 9.8 percent, by vote or value, of the aggregate of
the outstanding shares of capital stock. Moreover, to evidence compliance with
these requirements, the Company must maintain records that disclose the actual
ownership of its outstanding common stock and will demand written statements
each year from the record holders of designated percentages of its common stock
disclosing the actual owners of such common stock.
Risk Factors
General Economic Conditions in Silicon Valley and the San Francisco Bay
Area--Properties securing repayment of the mortgage loans are located in the
San Francisco Bay Area and primarily in Silicon Valley. Since the properties
secured by the mortgage loans are located in the same geographical region,
these mortgage loans may be subject to a greater risk of delinquency or default
if the industries concentrated there suffer adverse economic or business
developments.
Other--In addition, the Company is subject to other significant business and
financial risks, including but not limited to: liquidity, the prevailing market
for residential real estate, interest rates, dependence on the Manager, timely
completion of projects, lack of borrower diversification, and potential
environmental matters relating to properties on which it has made loans.
Retained Deficit
The Company has a retained deficit as of December 31, 1999, as dividends are
paid to the holders of the Class A Preferred before income is earned and
realized. These dividends have been financed through short-term borrowings and
are expected to be matched by revenues from completed real estate projects in
future periods, as described in Notes 2 and 3. The Manager believes that
adequate revenues will be realized to reduce the retained deficit over time.
F-8
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
These financial statements have been prepared in accordance with generally
accepted accounting principles using the accrual method of accounting. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in Real Estate under Development
All loans made by the Company are classified as investments in real estate
under development for financial reporting purposes (Note 3) and are stated at
the lower of cost or net realizable value. Management conducts a review for
impairment on an investment-by-investment basis whenever events or changes in
circumstances indicate that the carrying amount of an investment may not be
recoverable. An impairment is recognized when estimated expected future cash
flows (undiscounted and without interest charges), typically from the sale of a
completed property, are less than the carrying amount of the investment. The
estimation of expected future net cash flows is inherently uncertain and relies
to a considerable extent on assumptions regarding current and future economics
and market conditions. If, in future periods, there are changes in the
estimates or assumptions incorporated into the impairment review analysis, the
changes could result in an adjustment to the carrying amount of the
investments. To the extent that an impairment has occurred, the excess of the
carrying amount of the investment over its estimated fair value, less estimated
selling costs, will be charged to income. As of December 31, 1999, management
of the Company believed that there were no impairments of the carrying values
of its investments.
Cash and Cash Equivalents
Cash and cash equivalents include cash held in financial institutions and
other highly liquid short-term investments with original maturities of three
months or less.
Income from Completed Real Estate Development
The Company recognizes income from its investments in real estate under
development upon the sale or refinancing of the completed real estate to an
unaffiliated third party. Income is based upon the accrual rate stated in the
underlying loan arrangement between the Company and the borrower and is
deferred until sale or refinancing due to uncertainties related to ultimate
payment. The Company does not otherwise participate in the profit realized by
the borrower upon sale of the property.
Income Taxes
The Company intends to be taxed as a REIT under the Code commencing with its
taxable year ended December 31, 1999. To qualify as a REIT, the Company must
meet a number of organizational and operational requirements, including a
requirement that it currently distribute at least 95 percent of its taxable
income. It is management's intention to adhere to these requirements and
maintain the Company's REIT status. As a REIT, the Company generally will not
be subject to corporate-level federal income tax on net income it distributes
currently to its shareholders. As such, no provision for federal income taxes
has been included in the accompanying financial statements. Such taxes are the
responsibility of the individual shareholders. If the
F-9
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income taxes at regular corporate rates (including any applicable
alternative minimum tax) and may not be able to qualify as a REIT for four
subsequent taxable years. Even if the Company qualifies for taxation as a REIT,
the Company may be subject to certain state and local taxes on its income and
property and to federal income and excise taxes on its undistributed taxable
income.
Net income for financial reporting purposes differs from net income for tax
reporting primarily due to differences in the method of revenue recognition for
arrangements classified as loans for income tax purposes and equity-method
investments in real estate under development for financial reporting purposes.
The following table outlines the primary differences between financial
reporting income and taxable income for the period from inception (March 18,
1999) to December 31, 1999:
<TABLE>
<S> <C>
Net loss, as reported....................................... $(2,986,558)
Less: income from completed real estate development....... (2,566,301)
Add: Accrued interest income on loans and related
origination fees earned.................................. 16,680,262
-----------
Taxable income.......................................... $11,127,403
===========
</TABLE>
For income tax purposes, less than 2 percent of the distributions paid
during the period from inception (March 18, 1999) to December 31, 1999,
represented a return of capital.
Net Income Per Share of Common Stock
Per share amounts for the Company are computed using the weighted average
common shares outstanding during the period. Net income (loss) used in the
calculation is reduced by dividends owed to preferred shareholders. The diluted
weighted average common shares outstanding include the dilutive effect of stock
options and other common stock equivalents. There are currently no dilutive
common stock equivalents, and as a result, the basic and diluted weighted
average common shares outstanding for the period from inception to December 31,
1999, are the same and are 100 shares.
3. INVESTMENTS IN REAL ESTATE UNDER DEVELOPMENT:
The Company uses a lending arrangement with developers of the real estate it
is investing in, with maturity dates ranging from 12 to 18 months. For
financial reporting, the Company applies the equity method of accounting for
its investments. The developers typically have contributed no cash to the
property, use proceeds from the Company to fund 100 percent of the land
acquisition and construction costs, and repay principal and interest only upon
the sale or refinancing of the completed project. Investments in real estate
under development represent funds advanced in cash on arrangements in effect at
any particular time. Since real estate under development generates no operating
income, the Company does not accrue any income for financial reporting purposes
until the sale or refinancing of the property takes place, at which time a
return on its investment is assured. The income that the Company ultimately
realizes is computed using the terms set forth in the loan documents executed
by the developer. During the period from inception (March 18, 1999) to December
31, 1999, interest rates on loans outstanding ranged from 11 percent to 13
percent. In addition, the Company charged origination fees, which were
typically 4 percent of the borrowed amount during that same period. Earned but
unrecognized interest and fees on loans outstanding at December 31, 1999,
totaled $13,475,298. Such amounts will be recognized as income from completed
real estate development upon the sale or refinancing of the underlying
property.
F-10
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
The following table summarizes the Company's portfolio of investments in
real estate under development at December 31, 1999:
<TABLE>
<CAPTION>
Total
Number Interest Maturity Funded Commitment
Location of Loans Rates Dates Amount Amount
-------- -------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Alameda County.......... 2 11-12% 04/00-03/01 $ 564,221 $ 1,265,000
Contra Costa County..... 3 11% 05/00-10/00 4,960,151 23,352,842
Marin County............ 43 11-13% 12/99-06/01 23,402,619 54,090,000
San Francisco County.... 9 11% 08/00-01/01 16,352,410 32,600,000
San Mateo County........ 23 11-12% 12/99-12/01 28,384,528 65,930,000
Santa Clara County...... 39 11-13% 11/99-02/01 47,487,369 81,675,000
Other................... 7 11% 05/98-05/01 10,835,671 29,040,500
------------ ------------
$131,986,969 $287,953,342
============ ============
</TABLE>
The Company will fund unfunded commitments on existing loans from the
repayment of other loans, borrowings on its line of credit (Note 6), issuance
of short-term notes payable or additional preferred stock. The Manager believes
the Company will have adequate sources of capital to fund these commitments
when and as they become due.
4. INVESTMENTS IN REAL ESTATE UNDER DEVELOPMENT BY AFFILIATES:
The Company has also made loans where an affiliate is acting as the
developer. These arrangements are accounted for in a manner identical to that
described in Note 3 above. An affiliate is acting as the developer primarily
due to the inability of the original developer to complete the project, which
resulted in a default and subsequent foreclosure proceedings. The following
table summarizes these arrangements:
<TABLE>
<CAPTION>
Number Interest Maturity Funded Commitment
Location of Loans Rates Dates Amount Amount
-------- -------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Contra Costa County..... 1 11% 06/00 $ 1,267,753 $ 1,800,000
San Mateo County........ 5 11% 11/99-09/00 25,223,831 22,825,000
Santa Clara County...... 6 11% 06/00-03/01 18,732,927 33,930,000
Other................... 1 11% 03/00 6,527,817 7,500,000
----------- -----------
$51,752,328 $66,055,000
=========== ===========
</TABLE>
Accumulated but unrecognized interest and fees on loans outstanding at
December 31, 1999, totaled $3,204,964. Such amounts will be recognized as
income from completed real estate development upon the sale or refinancing of
the underlying property.
5. NOTES PAYABLE:
The Company had unsecured borrowings of $6,844,474 at December 31, 1999, on
Series A notes issued to accredited investors through a private placement.
These notes have varying maturities from 90 days to one year from the date of
issuance. Notes bear interest at 11 percent with interest payable monthly in
arrears. Additionally, these notes are callable at the option of the note
holder with 60 day written notice provided that the Company has sufficient
funds available.
F-11
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
6. LINE OF CREDIT:
The Company has a secured line of credit (LOC). The amount borrowed under
the LOC at December 31, 1999, was $2,195,000. The maximum amount available
under the LOC is $3,000,000. The LOC carries interest at prime plus 1 percent
(9.5 percent at December 31, 1999), matures July 8, 2000, and includes an
annual facility fee of $5,000. The LOC is subject to financial covenants
concerning leverage, interest coverage, and certain other ratios. The Company
is currently in compliance with all of the covenants in the facility concerning
its indebtedness. Based on the borrowing rates currently available to the
Company, the carrying amount of debt approximates fair value.
7. TRANSACTIONS WITH AFFILIATES:
Management Fees
The Company pays management fees to the Manager pursuant to a management
agreement dated March 30, 1999 (the Agreement). The Agreement provides for the
following compensation to the Manager: a monthly fee payable in arrears equal
to 0.22 percent of the total amount of the Company's interest in the total
commitment amount of the notes, which evidence the outstanding investments in
real estate under development, and any extension fees, prepayment penalties,
and late payment charges paid by borrowers. For the period from inception
(March 18, 1999) to December 31, 1999, the portfolio management fees paid to
the Manager were $5,276,938.
Receivable from Affiliates
The $1,743,081 receivable from affiliate at December 31, 1999, represents
the balance due from the Manager as a result of a decision by the Manager to
pay from its own funds a shortage in the proceeds from the sale of a property
below the carrying amount of the investment by the Company. The property had
been acquired by an entity under the Manager's control through foreclosure
prior to the purchase of the investment by the Company. Under the terms of the
arrangement, the receivable does not bear interest and will be repaid at the
rate of $300,000 per month until the entire balance has been collected.
Payable to Affiliate
The $1,404,690 payable to affiliate at December 31, 1999, represents short-
term advances by the Manager to the Company. The Manager typically advances
these funds to the Company to facilitate cash management and charges the
Company an interest rate of 11 percent per annum on the outstanding balance.
8. COMMITMENTS AND CONTINGENCIES:
Regulatory Inquiries
The Manager is the subject of ongoing inquiries by the California Department
of Corporations regarding the methods it practiced in the conduct of its
business prior to the formation of the Company. The Manager believes that all
matters of substance have been addressed in this regard and that any additional
related matters will not have any material impact on the financial position of
the Company or impact the ability of the Manager to continuously serve the
Company.
General Uninsured Losses
The Company requires its developers to carry comprehensive liability, fire,
flood, extended coverage, and rental loss insurance with policy specifications,
limits, and deductibles customarily carried for similar
F-12
<PAGE>
PRIMECORE MORTGAGE TRUST, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999
properties. The Company also carries stop-gap insurance to cover losses in case
the developer's policy lapses. There are, however, certain types of
extraordinary losses that may be either uninsurable or not economically
insurable. Further, all of the investments are located in areas that are
subject to earthquake activity. Should an investment sustain damage as a result
of an earthquake, the Company may incur losses due to insurance deductibles,
co-payments on insured losses, or uninsured losses. Should an uninsured loss
occur, the Company could lose its investment in, and anticipated profits and
cash flows from, an investment.
9. SUBSEQUENT EVENTS:
Delinquent Loans
As of December 31, 1999, two investments in real estate under development
with a single borrower totaling $16,943,377 were delinquent due to the failure
of the original borrower to proceed with construction in accordance with the
original project budget. No income had been recognized on these loans as of
December 31, 1999. Subsequent to year-end, an affiliate of the Manager assumed
control of the underlying development projects through foreclosure. The Manager
has provided a guarantee against any losses to the Company on the investments.
As of December 31, 1999, the investments have been classified as investments in
real estate under development with affiliates in the accompanying balance
sheet.
Issuance of Series A Notes Payable
Subsequent to year-end, the Company issued $15,108,471 in notes under its
Series A short-term note program (the Notes). Terms of the Notes are consistent
with those described in Note 5.
F-13
<PAGE>
SCHEDULE IV
PRIMECORE MORTGAGE TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
(h)
Principal
Amount of
Loans
(c) (d) (f) (g) Subject to
(b) Final Periodic (e) Face Amount Carrying Delinquent
(a) Interest Maturity Payment Prior of Amount of Principal
Description Rate Date Terms Liens Mortgages Mortgages or Interest
----------- -------- ---------- -------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENTS IN REAL ESTATE UNDER
DEVELOPMENT
Land 11-12% 12/99-1/01 Note 1 N/A N/A $ 10,799,537 $ --
Single unit, single family detached 11-13% 5/98-12/01 Note 1 N/A N/A 54,396,445 32,523
Multiple-unit condominiums 11% 6/00-6/01 Note 1 N/A N/A 15,727,201 --
Multiple unit, single family
detached 11-13% 2/00-12/00 Note 1 N/A N/A 30,575,644 --
Multifamily 11% 10/00 Note 1 N/A N/A 2,054,235 --
Multiple unit, single family
attached 11% 5/00-5/01 Note 1 N/A N/A 1,259,832 --
950 Harrison Street, 46-unit
condominium 11% 1/01 Note 1 $ -- $10,800,000 5,590,020 --
435 Sheridan Avenue, 35 units,
single family attached 11% 5/00 Note 1 -- 14,600,000 11,584,055 --
---------- ----------- ------------ -----------
$ -- $25,400,000 $131,986,969 $ 32,523
========== =========== ============ ===========
INVESTMENTS IN REAL ESTATE UNDER
DEVELOPMENT BY AFFILIATES
1425 Mills Court 1-unit single-
family detached
(employee of the
Manager) 11% 6/00 Note 1 $ 228,000 $ 250,000 $ 10,830 $ --
176 Spruce 1-unit single-
Avenue family detached
(employee of the
Manager) 11% 4/00 Note 1 400,000 500,000 160,691 --
Lots #61, 63,
69, 71, 91 and Land (Castlegate
74 Castlegate Development, Inc.) 11% 6/00 Note 1 1,800,000 1,267,753 --
104 Second 4-unit condominium
Street (Windy Hill
Associates) 11% 11/00 Note 1 -- 2,450,000 1,533,434 --
Lot #2, Quarry 1-unit single-
Estates family detached
(Windy Hill
Associates) 11% 10/00 Note 1 -- 5,000,000 3,012,333 --
Lot #1 Quarry 1-unit single-
Estates family detached
(Windy Hill
Associates) 11% 10/00 Note 1 -- 5,000,000 3,111,519 --
12780 Camino 1-unit single-
Medio family detached
(Windy Hill
Associates) 11% 6/00 Note 1 -- 3,680,000 3,390,869 --
99 El Camino 1 unit, commercial
Real (99 El Camino
Partner) 11% 9/00 Note 1 2,000,000 1,000,000 3,533,598 --
Lot #17, Quarry 1-unit single-
Estates family detached
(Windy Hill
Associates) 11% 10/00 Note 1 -- 5,000,000 3,680,105 --
7 Lots, Los 7-unit single-
Altos Nursery family detached
(Upside Unlimited,
LLC) 11% 3/01 Note 1 3,927,000 12,800,000 4,004,667 --
Lot #13, Orchard 1-unit single-
Hills family detached
(Windy Hill
Associates) 11% 8/00 Note 1 -- 3,050,000 4,575,334 --
126 Atherton 1-unit single-
Avenue family detached
(Windy Hill
Associates) 11% 11/99 Note 1 -- 6,025,000 5,571,433 5,571,432
Scotia Pines 35 units, single-
Subdivision family detached
(Scotia Pines, L.P.) 11% 3/00 Note 1 -- 7,500,000 6,527,817 --
7 Atherton 7-unit single-
Properties family detached
(Windy Hill
Associates) 11% 11/99 Note 1 -- 12,000,000 11,371,945 11,371,945
---------- ----------- ------------ -----------
$6,555,000 $66,055,000 $ 51,752,328 $16,943,377
========== =========== ============ ===========
</TABLE>
- -------
Note 1: All principal and interest is due at maturity.
F-14
<PAGE>
SCHEDULE IV
PRIMECORE MORTGAGE TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE--(Continued)
DECEMBER 31, 1999
<TABLE>
<S> <C>
INVESTMENTS IN REAL ESTATE UNDER DEVELOPMENT
Balance at beginning of period:
Additions during period:
Advances from mortgage loans................................ $ 99,692,298
Other (exchange of trust deeds for Class A Preferred Stock
or Series A Notes)......................................... 125,574,517
------------
225,266,815
Deductions during period:
Collections of principal.................................... 93,279,846
------------
Balance at close of period...................................... $131,986,969
============
INVESTMENTS IN REAL ESTATE UNDER DEVELOPMENT BY AFFILIATES
Balance at beginning of period:
Additions during period:
Advances from mortgage loans................................ $ 22,728,985
Other (exchange of trust deeds for Class A Preferred Stock
or Series A Notes)......................................... 33,020,483
------------
55,749,468
Deductions during period:
Collections of principal.................................... 3,997,140
------------
Balance at close of period...................................... $ 51,752,328
============
</TABLE>
F-15
<PAGE>
EXHIBIT 3(i)
ARTICLES OF INCORPORATION
OF
PRIMECORE MORTGAGE TRUST, INC.
Primecore 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, Keith A. Kandarian, whose address is c/o Tobin &
Tobin, 500 Sansome Street, 8/th/ Floor, San Francisco, California 94111, 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:
Primecore 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
300 East Lombard Street
Baltimore, Maryland 21202
1
<PAGE>
ARTICLE V
RESIDENT AGENT
--------------
The name and address of the resident agent of the Corporation are:
The Corporation Trust Incorporated
300 East Lombard 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 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.
2
<PAGE>
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.
(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.
3
<PAGE>
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:
(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 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; (2) the term of office of Class II shall be until the 2001
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 2002 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 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:
Michael Rider Class I
Susan Fox Class II
Michael Heren Class III
4
<PAGE>
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.
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
5
<PAGE>
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
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
--------------------
beneficial ownership as determined under Rule 13d-3, as amended from time to
time, adopted pursuant to the Securities Exchange Act of 1934 (the "1934 Act")
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.
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.
6
<PAGE>
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.
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
7
<PAGE>
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.
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.
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.
------------------
8
<PAGE>
(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 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.
9
<PAGE>
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 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.
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
10
<PAGE>
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) 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.
11
<PAGE>
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);
(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 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
12
<PAGE>
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. 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. Following settlement, 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 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.
13
<PAGE>
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 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) (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
14
<PAGE>
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.
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.
15
<PAGE>
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 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.
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.
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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 Primecore Mortgage
Trust, Inc. has signed the foregoing Articles of Incorporation and acknowledges
such Articles to be his act.
Dated this 16/th/ day of March, 1999.
/s/ Keith A. Kandarian
----------------------------
Keith A. Kandarian,
Incorporator
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EXHIBIT 3(ii)
BYLAWS
OF
PRIMECORE MORTGAGE TRUST, INC.
Amended March 21, 2000
ARTICLE I
---------
STOCKHOLDERS
------------
SECTION 1. Annual Meeting. The Corporation shall hold an annual
--------------
meeting of its stockholders to elect directors and transact any other business
within its power, either at 10:00 a.m. on the last day of March in each year if
not a legal holiday, or at such other time on such other day falling on or
before the 30th day thereafter as shall be set by the Board of Directors.
Except as the Charter or statute provides otherwise, any business may be
considered at an annual meeting without the purpose of the meeting having been
specified in the notice. Failure to hold an annual meeting does not invalidate
the Corporation's existence or affect any otherwise valid corporate acts.
Meetings of stockholders shall be held at the principal office of the
Corporation or at such other place in the United States as is set forth from
time to time by the Board of Directors.
SECTION 2. Special Meetings. Special meetings of the stockholders
----------------
for any purpose or purposes may be called at any time by the President, by the
Chairman of the Board of Directors, by a majority of the Board of Directors, by
a majority of the Independent Directors (as defined in Section 1 of Article II
hereof), or by the written request of stockholders entitled to cast a majority
of the votes which all stockholders are entitled to cast at the particular
meeting, addressed to the Secretary and then the Secretary shall proceed to call
a special meeting only as may be required by law.
SECTION 3. Notices. Notice of the annual meeting and of any special
-------
meeting of stockholders shall, at least ten days but not more than ninety days
prior to the date thereof, be given to each stockholder entitled to vote thereat
and each other stockholder entitled to notice of the meeting. Notice is given to
a stockholder when it is personally delivered to it, left at its residence or
usual place of business, or mailed to it at its address as it appears on the
records of the Corporation. Notwithstanding the foregoing provisions, each
person who is entitled to notice waives notice if, before or after the meeting,
such stockholder signs a waiver of notice which is filed with the records of the
stockholders' meeting, or is present at the meeting in person or by proxy. Every
notice of an annual meeting or a special meeting shall state the time and place
of the meeting. If the meeting is a special meeting or notice of the purpose or
purposes is required by statute, the notice shall also briefly state the purpose
or purposes thereof, and no business, other than that specified in such notice
and matters germane thereto, shall be transacted at the meeting without further
notice to stockholders not present in person or by proxy.
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SECTION 4. Quorum; Manner of Acting and Adjournment. Unless statute
----------------------------------------
or the Charter provides otherwise, at a meeting of stockholders the presence in
person or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting constitutes a quorum, and a majority of all
the votes cast at a meeting at which a quorum is present is sufficient to
approve any matter which properly comes before the meeting, except that a
plurality of all the votes cast at a meeting at which a quorum is present is
sufficient to elect a director.
Whether or not a quorum is present, a meeting of stockholders convened
on the date for which it was called may be adjourned from time to time without
further notice by a majority vote of the stockholders present in person or by
proxy to a date not more than 120 days after the original record date. Any
business which might have been transacted at the meeting as originally notified
may be deferred and transacted at any such adjourned meeting at which a quorum
shall be present.
SECTION 5. Organization. At every meeting of the stockholders, the
------------
Chairman of the Board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the Chairman of the Board, one of the
following officers present shall conduct the meeting in the order stated: the
Vice Chairman of the Board, if there be one, the President, the Vice Presidents
in their order of rank and seniority, or a Chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as Chairman, and the
Secretary or, in his or her absence, an assistant secretary, or in the absence
of both Secretary and assistant secretaries, a person appointed by the Chairman,
shall act as Secretary.
SECTION 6. Voting. Unless the Charter provides for a greater or
------
lesser number of votes per share or limits or denies voting rights, each
outstanding share of stock, regardless of class, is entitled to one vote on each
matter submitted to a vote at a meeting of stockholders. In all elections for
directors, each share of stock may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted, but cumulative voting is not permitted.
SECTION 7. Proxies. A stockholder may vote the stock the stockholder
-------
owns of record either in person or by proxy. A stockholder may sign a writing
authorizing another person to act as proxy. Signing may be accomplished by the
stockholder or the stockholder's authorized agent signing the writing or causing
the stockholder's signature to be affixed to the writing by any reasonable
means, including facsimile signature. A stockholder may authorize another person
to act as proxy by transmitting, or authorizing the transmission of, a telegram,
cablegram, datagram, or other means of electronic transmission to the person
authorized to act as proxy or to a proxy solicitation firm, proxy support
service organization, or other person authorized by the person who will act as
proxy to receive the transmission. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date. A proxy is revocable by a stockholder
at any time without condition or qualification unless the proxy states that it
is irrevocable and the proxy is coupled with an interest. A proxy may be made
irrevocable for so long as it is coupled with an interest. The interest with
which a proxy may be coupled includes an interest in the stock to be voted under
the proxy or another general interest in the Corporation or its assets or
liabilities.
SECTION 8. Voting Lists. At each meeting of stockholders, a full,
------------
true and complete list of all stockholders entitled to vote at such meeting,
showing the number and class of shares held by each and certified by the
transfer agent for such class or by the Secretary, shall be furnished by the
Secretary.
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SECTION 9. Conduct of Business. Nominations of persons for election
-------------------
to the Board of Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant to
the Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving notice provided for in Article I, Section 10, who
is entitled to vote at the meeting and who complied with the notice procedures
set forth in Article I, Section 10. The chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this Section and Article I, Section 10, and, if any proposed nomination or
business is not in compliance with this Section and Article I, Section 10, to
declare that such defective nomination or proposal be disregarded.
SECTION 10. Stockholder Proposals. For any stockholder proposal to be
---------------------
presented in connection with an annual meeting of stockholders of the
Corporation (other than proposals made under Rule 14a-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including any proposal
relating to the nomination of a director to be elected to the Board of Directors
of the Corporation, the stockholder putting forth such proposal must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not less than 90 days before the
first anniversary of the mailing date of the notice of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors pursuant to Regulation 14A under the Exchange Act (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made, (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of stock of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
ARTICLE II
----------
DIRECTORS
---------
SECTION 1. Number, Classification, Election and Term. The affairs
-----------------------------------------
of the Corporation shall be under the direction and control of a Board of
Directors which shall be initially composed of three (3) members who shall hold
office until its successors are duly chosen and qualified. The directors shall
be divided into three Classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. The term of the
initial Class I directors shall terminate on the date of the annual meeting of
stockholders held in 2000; the term of the initial Class II directors shall
terminate on the date of the annual meeting of stockholders held in 2001; and
the term of the initial Class III directors shall terminate on the date of the
annual meeting of stockholders held in 2002. At each annual meeting of
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stockholders beginning in 2000, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. The
number of directors shall be increased or decreased from time to time by vote of
a majority of the entire Board of Directors; provided, however, that the number
of directors may not exceed fifteen (15) nor be less than three (3) except as
permitted by law. If the number of directors is changed, any increase or
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.
At all times subsequent to the first closing in the Corporation's
initial private placement of its Capital Stock (the "Private Placement"), except
in the case of a vacancy, a majority of the Board of Directors shall be
Independent Directors (as hereinafter defined). For the purposes of these
Bylaws, "Independent Director" shall mean a director of the Corporation who is
not an officer or employee of the Corporation or any subsidiary of the
Corporation. Directors need not be stockholders in the Corporation.
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
said directors so elected in addition to the number of directors fixed as
provided above in the first paragraph of this Section 1. 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.
SECTION 2. Function of Directors. The business and affairs of the
---------------------
Corporation shall be managed under the direction of the Board of Directors. All
the powers of the Corporation are vested in and shall be exercised by or under
the authority of the Board of Directors except as otherwise prescribed by
statute, by the Charter or by these Bylaws.
SECTION 3. Vacancies. Subject to the rights of the holders of any
---------
class of stock separately entitled to one or more directors, any vacancy
occurring on the Board of Directors for any cause other than by reason of an
increase in the number of directors may, subject to the provisions of Section 5,
be filled by a majority of the remaining members of the Board of Directors,
regardless of whether such majority of the remaining members of the Board of
Directors is less than a quorum; provided, however, that if the Corporation has
completed its Private Placement and, in accordance with Section 1, a majority of
the Board of Directors are required to be Independent Directors, then
Independent Directors shall nominate replacements for vacancies among the
Independent Directors, which replacements must be elected by a majority of the
directors, including a majority of the Independent Directors. Subject to the
rights of the holders of any class of stock separately entitled to elect one or
more directors, any vacancy occurring by reason of an increase in the number of
directors may be filled by action of a majority of the entire Board of Directors
including, following the Private Placement, a majority of the Independent
Directors. The stockholders may fill any vacancy occurring on the Board of
Directors for any reason, subject to the requirement for Independent Directors,
if applicable. If the stockholders of any class or series are entitled
separately to elect one or more directors, a majority of the remaining directors
elected by that class or series or the sole remaining director elected by that
class or series may fill any vacancy among the number of directors elected by
that class or series. A director elected by the Board of Directors to fill a
vacancy shall be elected to hold office until the next annual meeting of
stockholders or until his successor is elected and qualified.
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SECTION 4. Resignations. Any director or member of a committee
------------
may resign at any time. Such resignation shall be made in writing and shall
take effect at the time specified therein, or if no time be specified, at the
time of the receipt by the Chairman of the Board, the President or the
Secretary. Acceptance of a resignation shall not be necessary to make it
effective.
SECTION 5. Removal. Unless statute or the Charter provide otherwise,
-------
and subject to the rights of the holders of any class separately entitled to
elect one or more directors, at any meeting of stockholders duly called and at
which a quorum is present, the stockholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office with or without cause, and may elect a
successor or successors to fill any resulting vacancies for the unexpired terms
of removed directors; provided, however, that at all times subsequent to the
Corporation's Private Placement, a majority of the Board of Directors shall be
Independent Directors.
SECTION 6. Committees of the Board of Directors. The Board of
------------------------------------
Directors may appoint from among its members an Executive Committee, an Audit
Committee, a Compensation Committee and other committees composed of one or more
directors and delegate to these committees any of the powers of the Board of
Directors, except the power to authorize dividends of stock, elect directors,
issue stock other than as provided in the next sentence, recommend to the
stockholders any action which requires stockholder approval, amend these Bylaws,
or approve any merger or share exchange which does not require stockholder
approval. At least a majority of all committees of the Board shall be comprised
of Independent Directors. During the time any shares of stock of the
Corporation are quoted on the Nasdaq National Market or listed on a national
securities exchange, the Board of Directors shall appoint an audit committee
comprised of not less than two members, all of whom are Independent Directors.
If the Board of Directors has given general authorization for the issuance of
stock providing for or establishing a method or procedure for determining the
maximum number of shares to be issued, a committee of the Board, in accordance
with that general authorization or any stock option or other plan or program
adopted by the Board of Directors, may authorize or fix the terms of stock
subject to classification or reclassification and the terms on which any stock
may be issued, including all terms and conditions required or permitted to be
established or authorized by the Board of Directors.
Each committee may fix rules of procedure for its business. One-third
of the members of a committee shall constitute a quorum for the transaction of
business and the act of a majority of those present at a meeting at which a
quorum is present shall be the act of the committee. The members of a committee
present at any meeting, whether or not they constitute a quorum, may appoint a
director to act in the place of an absent member; provided, however, that in the
-------- -------
event of the absence or disqualification of any Independent Director, such
appointee shall be an Independent Director. Any action required or permitted to
be taken at a meeting of a committee may be taken without a meeting, if an
unanimous written consent which sets forth the action is signed by each member
of the committee and filed with the minutes of the committee. The members of a
committee may conduct any meeting thereof by conference telephone in accordance
with the provisions of Section 8 of this Article.
Subject to the provisions hereof, the Board of Directors shall have
the power at any time to change the membership of any committee, to fill all
vacancies, to designate alternative members to replace any absent or
disqualified member, or to dissolve any such committee.
SECTION 7. Meetings of the Board of Directors. Meetings of the
----------------------------------
Board of Directors, regular or special, may be held at any place in or out of
the State of Maryland as the Board of Directors may from time to time determine
or as shall be specified in the notice of such meeting.
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Members of the Board of Directors may participate in a meeting by
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by such means constitutes presence in person at a
meeting.
The first meeting of each newly elected Board of Directors shall be
held as soon as practicable after the annual meeting of the stockholders at
which the directors were elected. The meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors as provided in this Section 7,
except that no notice shall be necessary if such meeting is held immediately
after the adjournment, and at the site, of the annual meeting of stockholders.
Regular meetings of the Board of Directors may be held without notice
at such time and place as shall from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be called at any time
by two (2) or more directors or by a majority of the members of the executive
committee, if one be constituted, in writing with or without a meeting of such
committee, or by the Chairman of the Board of Directors or the President.
Special meetings may be held at such place or places in or out of the
State of Maryland as may be designated from time to time by the Board of
Directors; in the absence of such designation, such meetings shall be held at
such places as may be designated in the notice of meeting.
Notice of the place and time of every special meeting of the Board of
Directors shall be delivered by the Secretary to each director either personally
or by telephone, telegraph, overnight courier or facsimile, or by leaving the
same at his residence or usual place of business at least twenty-four (24) hours
before the time at which such meeting is to be held or, if by first-class mail,
at least 72 hours before the time of such meeting. If mailed, such notice shall
be deemed to be given when deposited in the United States Mail addressed to the
director at his post office address as it appears on the records of the
Corporation, with postage thereon paid. Unless the Bylaws or a resolution of
the Board of Directors provides otherwise, the notice need not state the
business to be transacted at, or the purposes of, any special meeting of the
Board of Directors. No notice of any special meeting of the Board of Directors
need be given to any director who attends except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the special meeting is not lawfully called or convened, or to any
director who, in writing executed and filed with the records of the meeting
either before or after the holding thereof, waives such notice.
Any meeting of the Board of Directors, regular or special, may adjourn
from time to time to reconvene at the same or some other place, and no notice
need be given of any such adjourned meeting other than by announcement.
SECTION 8. Informal Action by Directors. Unless otherwise provided
----------------------------
by law, any action required to be taken at a meeting of the directors or any
other action which may be taken at a meeting of the directors may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors.
SECTION 9. Quorum and Voting. At all meetings of the Board of
-----------------
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business, and the action of a majority of the directors
present at any meeting at which a quorum is present shall be the action of the
Board of Directors unless the concurrence of a greater proportion is required
for such action by law, the Charter or these Bylaws. If a quorum shall not be
present at any meeting of directors, the
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directors present thereat may, by a majority vote, adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 10. Organization. The Chairman of the Board shall preside
------------
at each meeting of the Board of Directors. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The
Secretary (or, in his absence or inability to act, any person appointed by the
chairman of the meeting) shall act as Secretary of the meeting and keep the
minutes thereof.
SECTION 11. Compensation of Directors. Independent Directors shall
-------------------------
receive compensation for their services, and expenses of attendance for
attendance at each regular or special meeting of the Board of Directors, or of
any committee thereof or both, as may be determined from time to time by the
Board of Directors. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
SECTION 12. Investment Policies and Restrictions. The Board of
------------------------------------
Directors, including a majority of the Independent Directors, shall approve the
investment policies of the Corporation. The investment policies and compliance
therewith shall be reviewed by the Independent Directors at least annually to
determine that the policies then being followed by the Corporation are in the
best interest of the stockholders of the Corporation. Each such determination
and the basis therefor shall be set forth in the minutes of the meeting of the
Board of Directors.
It shall be the duty of the Board of Directors to ensure that the
purchase, sale, retention and disposal of the Corporation's assets, and the
investment policies of the Corporation and the limitations thereon or amendment
thereof are at all times in compliance with the restrictions applicable to real
estate investment trusts pursuant to the Internal Revenue Code of 1986, as
amended.
SECTION 13. Presumption of Assent. A director of the Corporation who
---------------------
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file his or her written dissent to such action
with the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any director who votes in favor of such action.
SECTION 14. Advisory Directors. The Board of Directors may by
------------------
resolution appoint advisory directors to the Board, who may also serve as
directors emeriti, and shall have such authority and receive such compensation
and reimbursement as the Board of Directors shall provide. Advisory directors
or directors emeriti shall not have the authority to participate by vote in the
transaction of business.
ARTICLE III
-----------
OFFICERS
--------
SECTION 1. Officers. The officers of the Corporation shall be a
--------
Chairman of the Board, a President, a Treasurer and a Secretary, who shall be
elected by the Board of Directors to serve during the pleasure of the Board and
until their respective successors are elected and qualified, except as otherwise
provided in any employment agreement between the Corporation and any officer.
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The Chairman of the Board and the President shall always be members of the Board
of Directors. The Board of Directors may also appoint one or more Vice
Presidents. The same person may hold any two or more offices except those of
President and Vice President.
SECTION 2. Subordinate Officers, Committees and Agents. The Board of
-------------------------------------------
Directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the Corporation may
require, including one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these Bylaws, or as the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any officer or committee the power to elect subordinate officers and to
retain or appoint employees or other agents.
SECTION 3. Chairman of the Board. The Chairman of the Board shall
---------------------
preside at all meetings of the stockholders and the Board of Directors at which
he or she is present. Unless otherwise specified by the Board of Directors, the
Chairman of the Board shall also be the Chief Executive Officer of the
Corporation and perform the duties customarily performed by chief executive
officers, and shall perform such other duties as may from time to time be
requested of him or her by the Board of Directors.
SECTION 4. President. Unless otherwise provided by resolution of the
---------
Board of Directors, the President, in the absence of the Chairman of the Board,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. The President shall, subject to the control of
the Board of Directors, in general supervise and control all of the business and
affairs of the Corporation. The President may sign, with the Secretary or any
other proper officer of the Corporation thereunto authorized by the Board of
Directors, certificates for shares of the Corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors have
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of president and such other duties as may be
prescribed by the Board of Directors from time to time.
SECTION 5. Vice Presidents. In the absence of the President or in
---------------
event of his or her death, inability or refusal to act, or at the request of the
Chief Executive Officer or President, the Vice President or Vice Presidents
shall perform the duties and exercise all the powers of the President and be
subject to all the restrictions upon the President. The Vice President or Vice
Presidents shall perform such other duties as from time to time may be assigned
to him or her or them by the President or by the Board of Directors.
SECTION 6. Secretary. The Secretary shall keep the minutes of the
---------
stockholders' and of the Board of Directors' meetings in one or more books
provided for that purpose, see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law, be custodian of the
corporate records and of the seal of the Corporation and keep a register of the
post office address of each stockholder which shall be furnished to the
Secretary by such stockholder, have general charge of the stock transfer books
of the Corporation and, in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the President, the Chief Executive Officer or the Board of Directors.
SECTION 7. Treasurer. The Treasurer shall have charge and custody of
---------
and be responsible for all funds and securities of the Corporation, receive and
give receipts for moneys due
8
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and payable to the Corporation from any source whatsoever, and deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with these Bylaws and in general
perform all of the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him or her by the President, the
Chief Executive Officer, the Chief Financial Officer or by the Board of
Directors.
SECTION 8. Other Officers. The other officers of the Corporation
--------------
shall perform such duties as the President may from time to time assign to them.
SECTION 9. Removal. Any officer elected by the Board of Directors
-------
may be removed, either for or without cause, at any time upon the vote of a
majority of the Board of Directors. Any other employee of the Corporation may
be removed or dismissed at any time by the President. The removal of an officer
does not prejudice any of his or her contract rights.
SECTION 10. Resignation. Any officer or agent may resign at any time
-----------
by giving written notice to the Board of Directors, or to the President or to
the Secretary of the Corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 11. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification, or any other cause, shall be filled by
the Board of Directors or by the officer or remaining members of the committee
to which the power to fill such office has been delegated pursuant to Section 2
of this Article, as the case may be, and if the office is one for which these
Bylaws prescribe a term, shall be filled for the unexpired portion of the term.
SECTION 12. Compensation. The salaries or other compensation, if
------------
any, of the officers elected by the Board of Directors shall be fixed from time
to time by the Board of Directors or by such officer as may be designated by
resolution of the Board of Directors. The salaries or other compensation of any
other officers, employees and other agents shall be fixed from time to time by
the officer or committee to which the power to elect such officers or to retain
or appoint such employees or other agents has been delegated pursuant to Section
2 of this Article. No officer shall be prevented from receiving such salary or
other compensation by reason of the fact that he is also a director of the
Corporation.
ARTICLE IV
----------
STOCK
-----
SECTION 1. Certificates. Each stockholder shall be entitled to a
------------
certificate or certificates which shall represent and certify the number and
kind and class of shares owned by it in the Corporation. Each certificate shall
be signed by the Chairman of the Board or the President or a Vice President and
countersigned by the Secretary or an assistant secretary or the Treasurer or an
assistant treasurer.
The signatures may be either manual or facsimile signatures. In case
any officer who has signed any certificate ceases to be an officer of the
Corporation before the certificate is issued, the certificate may nevertheless
be issued by the Corporation with the same effect as if the officer had not
ceased to be such officer as of the date of its issue. Each stock certificate
shall include on its face the name of the Corporation, the name of the
stockholder and the class of stock and number of shares
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<PAGE>
represented by the certificate. If the Corporation has authority to issue stock
of more than one class, the stock certificate shall contain on its face or back
a full statement or summary of the designations and any preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the stock of each class
which the Corporation is authorized to issue and if the Corporation is
authorized to issue any preferred or special class in series, the differences in
the relative rights and preferences between the shares of each series to the
extent they have been set, and the authority of the Board of Directors to set
the relative rights and preferences of subsequent series. In lieu of such full
statement or summary, there may be set forth upon the face or back of the
certificate a statement that the Corporation will furnish to any stockholder
upon request and without charge, a full statement of such information. Such
request may be made to the Secretary or to the Corporation's transfer agent.
Every stock certificate representing shares of stock which are restricted as to
transferability by the Corporation shall contain a full statement of the
restriction or state that the Corporation will furnish information about the
restriction to the stockholder on request and without charge. A stock
certificate may not be issued until the stock represented by it is fully paid,
except in the case of stock purchased under a plan, agreement or transaction as
permitted by law and with such statement on future payments as required by law.
SECTION 2. Lost Certificates. The Board of Directors may order a
-----------------
new certificate or certificates of stock to be issued in place of any
certificates shown to have been lost or destroyed under such terms and
conditions as to it may seem reasonable. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
stolen, lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Corporation a bond, with sufficient surety to the Corporation to
indemnify it against any loss or claim which may arise by reason of the issuance
of a new certificate.
SECTION 3. Transfer Agents and Registrars. At such time as the
------------------------------
Corporation lists its securities on a national securities exchange or the Nasdaq
National Market, or such earlier time as the Board of Directors may elect, the
Board of Directors shall appoint one or more banks or trust companies in such
city or cities as the Board of Directors may deem advisable, from time to time,
to act as transfer agents and/or registrars of the shares of stock of the
Corporation; and, upon such appointments being made, no certificate representing
shares shall be valid until countersigned by one of such transfer agents and
registered by one of such registrars.
SECTION 4. Transfer of Stock. No transfers of shares of stock of
-----------------
the Corporation shall be made if (i) void ab initio pursuant to the Charter, or
-- ------
(ii) the Board of Directors, pursuant to the Charter, shall have refused to
transfer such shares; provided, however, that nothing contained in these Bylaws
shall impair the settlement of transactions entered into on the facilities of
the New York Stock Exchange or any other national securities exchange or
automated inter-dealer quotation system. Permitted transfers of shares of stock
of the Corporation shall be made on the stock records of the Corporation only
upon the instruction of the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary or with a transfer agent or transfer clerk, and upon surrender of the
certificate or certificates, if issued, for such shares properly endorsed or
accompanied by a duly executed stock transfer power and the payment of all taxes
thereon. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, as to any transfers
not prohibited by the Charter or by action of the Board of Directors thereunder,
it shall be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
10
<PAGE>
SECTION 5. Fixing of Record Dates. The Board of Directors may fix,
----------------------
in advance, a date as the record date for the purpose of determining
stockholders entitled to notice of, or to vote at, any meeting of stockholders,
or stockholders entitled to receive payment of any dividend or the allotment of
any rights, or in order to make a determination of stockholders for any other
proper purpose. Such date, in any case, may not be prior to the close of
business on the day the record date is fixed nor, subject to Section 4 of
Article I, more than ninety (90) days, or in case of a meeting of stockholders,
less than ten (10) days, prior to the date on which the particular action
requiring such determination of stockholders is to be taken.
SECTION 6. Registered Stockholders. The Corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments, if any, a person registered on its books as
the owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law or the Charter.
SECTION 7. Regulations; Book-Entry System. The Board of Directors
------------------------------
may make such additional rules and regulations, not inconsistent with the Bylaws
or the Charter, as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the Corporation.
Further, the Corporation may participate in one or more systems under
which certificates for shares of stock are replaced by electronic book-entry
pursuant to such rules, terms and conditions as the Board of Directors may
approve and subject to applicable law, notwithstanding any provisions to the
contrary set forth in this Article.
ARTICLE V
---------
SEAL
----
The Board of Directors may provide a suitable seal for the
Corporation, which may be either facsimile or any other form of seal and shall
remain in the custody of the Secretary. If the Board of Directors so provides,
it shall be affixed to all certificates of the Corporation's stock and to other
instruments requiring a seal. If the Corporation is required to place its
corporate seal to a document, it is sufficient to meet the requirement of any
law, rule, or regulation relating to a corporate seal to place the word "(seal)"
adjacent to the signature of the person authorized to sign the document on
behalf of the Corporation.
ARTICLE VI
----------
SIGNATURES
----------
SECTION 1. Checks, Drafts, Etc. All checks, drafts and orders for
-------------------
the payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the President, a Vice President or an Assistant
Vice President and countersigned by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary.
SECTION 2. Stock Transfer. All endorsements, assignments, stock
--------------
powers or other instruments of transfer of securities standing in the name of
the Corporation shall be executed for and
11
<PAGE>
in the name of the Corporation by the President or Vice President or by such
officer as the Board of Directors may designate.
ARTICLE VII
-----------
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be the twelve calendar months
period ending December 31 in each year, unless otherwise provided by the Board
of Directors.
SECTION VIII
------------
INDEMNIFICATION
---------------
SECTION 1. Procedure. Any indemnification, or payment of expenses in
---------
advance of the final disposition of any proceeding, shall be made promptly, and
in any event within 60 days, upon the written request of the director or officer
entitled to seek indemnification (the "Indemnified Party"). The right to
indemnification and advances hereunder shall be enforceable by the Indemnified
Party in any court of competent jurisdiction, if (i) the Corporation denies such
request, in whole or in part, or (ii) no disposition thereof is made within 60
days. The Indemnified Party's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in any such action shall also be reimbursed by the Corporation. It shall
be a defense to any action for advance for expenses that (a) a determination has
been made that the facts then known to those making the determination would
preclude indemnification or (b) the Corporation has not received either (i) an
undertaking as required by law to repay such advances in the event it shall
ultimately be determined that the standard of conduct has not been met or (ii) a
written affirmation by the Indemnified Party of such Indemnified Party's good
faith belief that the standard of conduct necessary for indemnification by the
Corporation has been met.
SECTION 2. Exclusivity, Etc. The indemnification and advance of
----------------
expenses provided by the Charter and these Bylaws shall not be deemed exclusive
of any other rights to which a person seeking indemnification or advance of
expenses may be entitled under any law (common or statutory), or any agreement,
vote of stockholders or disinterested directors or other provision that is
consistent with law, both as to action in his or her official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, shall continue in respect of all events occurring
while a person was a director or officer after such person has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. All rights to indemnification and
advance of expenses under the Charter of the Corporation and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this
Bylaw is in effect. Nothing herein shall prevent the amendment of this Bylaw,
provided that no such amendment shall diminish the rights of any person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this Bylaw shall not in any way
diminish any rights to indemnification or advance of expenses of such director
or officer or the obligations of the Corporation arising hereunder with respect
to events occurring, or claims made, while this Bylaw or any provision hereof is
in force. The Corporation shall not be liable for any payment under this Bylaw
in connection with a claim made by a director or officer to the extent such
director or officer has otherwise actually received payment under insurance
policy, agreement, vote or otherwise, of the amounts otherwise indemnifiable
hereunder.
12
<PAGE>
SECTION 3. Severability; Definitions. The invalidity or
-------------------------
unenforceability of any provision of this Article VIII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
Bylaw" in this Article VIII means this Article VIII in its entirety.
SECTION IX
----------
SUNDRY PROVISIONS
-----------------
SECTION 1. Books and Records. The Corporation shall keep correct and
-----------------
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors.
The books and records of the Corporation may be in written form or in any other
form which can be converted within a reasonable time into written form for
visual inspection. Minutes shall be recorded in written form but may be
maintained in the form of a reproduction. The original or a certified copy of
the Bylaws shall be kept at the principal office of the Corporation.
SECTION 2. Voting Upon Shares in Other Corporations. Stock of other
----------------------------------------
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 3. Exemption from Control Share Acquisition Statute. The
------------------------------------------------
provisions of Sections 3-701 to 3-709 of the Corporations and Associations
Article of the Annotated Code of Maryland shall not apply to any share of
capital stock of the Corporation now or hereafter outstanding. Such shares of
capital stock are exempted from such Sections to the fullest extent permitted by
Maryland law.
SECTION 4. Annual Statement of Affairs. The President or chief
---------------------------
accounting officer shall prepare annually a full and correct statement of the
affairs of the Corporation, to include a balance sheet and a financial statement
of operations for the preceding fiscal year. The statement of affairs shall be
submitted at the annual meeting of the stockholders and, within 20 days after
the meeting, placed on file at the Corporation's principal office.
SECTION 5. Mail. Except as herein expressly provided, any notice or
----
other document which is required by these Bylaws to be mailed shall be deposited
in the United States mails, postage prepaid.
SECTION 6. Reliance. Each director, officer, employee and agent of
--------
the Corporation shall, in the performance of his or her duties with respect to
the Corporation, be fully justified and protected with regard to any act or
failure to act in reliance in good faith upon the books of account or other
records of the Corporation, upon the opinion of counsel or upon reports made to
the Corporation by any of its officers or employees or by the adviser,
accountants, appraisers or other experts or consultants selected by the Board of
Directors or officers of the Corporation, regardless of whether such counsel or
expert may also be a director.
SECTION 7. Certain Rights of Directors, Officers, Employees and
----------------------------------------------------
Agents. The directors shall have no responsibility to devote their full time to
- ------
the affairs of the Corporation. Any director or officer, employee or agent of
the Corporation, in his or her personal capacity or in a
13
<PAGE>
capacity as an affiliate, employee or agent of any other person, or otherwise,
may have business interests and engage in business activities similar to or in
addition to those of or relating to the Corporation.
SECTION 8. Loss of Deposits. No director shall be liable for any
----------------
loss which may occur by reason of the failure of any bank, trust company,
savings and loan association or other institution with whom moneys or stock of
the Corporation have been deposited.
SECTION X
---------
AMENDMENTS
----------
These Bylaws may be amended or replaced, or new Bylaws may be adopted,
either (1) by the vote of the stockholders entitled to cast at least a majority
of the votes which all stockholders are entitled to cast thereon at any duly
organized annual or special meeting of stockholders, or (2), with respect to
those matters which are not by statute reserved exclusively to the stockholders,
by vote of a majority of the Board of Directors, including a majority of the
Independent Directors of the Corporation, in office at any regular or special
meeting of the Board of Directors. It shall not be necessary to set forth such
proposed amendment, repeal or new Bylaws, or a summary thereof, in any notice of
such meeting, whether annual, regular or special.
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<PAGE>
EXHIBIT 4.1
Primecore Mortgage Trust, Inc.
Registration Rights Agreement
This registration rights agreement is made and entered into as of March 30,
1999, by and among Primecore Mortgage Trust, Inc., a Maryland corporation, and
the investors acquiring shares of Primecore Mortgage's Class A Convertible
Preferred Stock.
In consideration of the mutual agreements, and for or other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
the parties agree as follows:
Section 1. Definitions
-----------
In this agreement, the following terms have the following meanings:
"affiliate" of a specified person shall mean any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified person. For purposes of this definition, "control,"
when used with respect to any person means the power to direct the management
and policies of that person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"common stock" shall mean Primecore Mortgage's common stock, par value
$0.01 per share.
"Company" shall mean Primecore Mortgage Trust, Inc., a Maryland
corporation, and any successors.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC.
"holders" shall be as defined in section 2(b).
"NASD" means National Association of Securities Dealers, Inc.
"NASDAQ/NMS shall mean Nasdaq National Market.
"person" shall mean an individual, trustee, corporation, partnership,
limited liability company, joint stock company, trust, unincorporated
association, union, business association, firm or other entity.
"preferred stock" shall mean Primecore Mortgage's Class A Convertible
Preferred Stock, par value $0.01 per share.
1
<PAGE>
"proceeding" shall mean an action, claim, suit or proceeding, including,
without limitation, an investigation or partial proceeding, such as a
deposition, where commenced or threatened.
"prospectus" shall mean the prospectus included in any registration
statement, including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act, as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the registrable
securities covered by the registration statement, and all other amendments and
supplements to that prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
that prospectus.
"qualified public offering" shall mean the initial sale to the public of
Primecore Mortgage's common stock pursuant to a registration statement on Form
S-11 or any similar form which raises in the aggregate at least $50 million of
gross proceeds for Primecore Mortgage at a minimum price of $10.00 per share or
the lesser amount of proceeds and price per share or both as may be approved by
the holders of two-thirds of the voting power of the preferred stock.
"registrable securities" shall mean the shares of common stock issuable
upon conversion of the preferred stock following a qualified public offering
until those shares of common stock shall have been effectively registered under
the Securities Act and disposed of in accordance with the registration statement
covering the shares, or are otherwise freely transferable by the holder without
requirement of registration under the Securities Act.
"registration statement" shall mean any registration statement of Primecore
Mortgage that covers any of the registrable securities pursuant to the
provisions of this agreement, including the prospectus, amendments and
supplements of the registration statement and all exhibits and all material
incorporated by reference or deemed to be incorporated by reference in the
registration statement.
"Rule 144" shall mean Rule 144 under the Securities Act, as that rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
"SEC" shall mean the United States Securities and Exchange Commission.
"shelf registration statement" shall mean the registration statement
covering sales of securities of Primecore Mortgage by purchasers of the
preferred stock in Primecore Mortgage's private placement closing in April 1999.
"underwriter" shall mean any underwriter, placement agent, selling broker,
dealer manager, qualified independent underwriter or similar securities industry
professional.
2
<PAGE>
"underwritten registration or underwritten offering" shall mean a
registration in which securities of Primecore Mortgage are sold to an
underwriter for re-offering to the public.
Section 2. Securities Subject to this Agreement
(a) Registrable Securities. The securities entitled to the benefits of
----------------------
this agreement are the registrable securities.
(b) Holders of Registrable Securities. A person is deemed to be a holder
---------------------------------
of registrable securities whenever that person owns registrable securities.
Section 3. Shelf Registration
(a) Primecore Mortgage shall cause to be filed with the SEC within six
months following the qualified public offering a shelf registration statement
pursuant to Rule 415 under the Securities Act on Form S-11, or other appropriate
form, for example, Form S-3 after having established eligibility requirements,
to cover sales of the registrable securities. Primecore Mortgage shall use its
best efforts to cause the shelf registration statement to be declared effective
by the SEC as soon as practicable after the shelf registration statement is
filed. Primecore Mortgage shall use its best efforts to keep the shelf
registration statement continuously effective until the earlier of three years
following the last sale of units in the offering or when, in the written opinion
of counsel to Primecore Mortgage, registration is not required for the
unrestricted resale of registrable securities entitled to registration rights
under this agreement. Primecore Mortgage further agrees to use its best efforts
to prevent the happening of any event that would cause the shelf registration
statement to contain a material misstatement or omission or to be not effective
and usable for resale of the registrable securities during the period that the
shelf registration statement is required to be effective and usable.
Upon the occurrence of any event that would cause the shelf registration
statement:
(1) to contain a material misstatement or omission; or
(2) to be not effective and usable for resale of registrable
securities during the period that the shelf registration statement is
required to be effective and usable, Primecore Mortgage shall as promptly
as reasonably practicable file an amendment to the shelf registration
statement, in the case of clause (1) immediately above, correcting any
misstatement or omission, and in the case of either clause (1) or (2)
immediately above, use its best efforts to cause the amendment to be
declared effective and the shelf registration statement to become usable as
soon as reasonably practicable thereafter.
(b) If the holders of a majority of the registrable securities to be
registered for resale in the shelf registration statement so elect, an offering
of registrable securities pursuant to the shelf registration statement may be
effected in the form of an underwritten offering. Upon the receipt of a notice
of election by a majority of the registrable securities to effect an
3
<PAGE>
underwritten offering, Primecore Mortgage will notify in writing all holders
whose names are not included in that notice and those non-electing holders may,
within five business days of receipt of that notice, elect to be included with,
and treated as, an electing holder. If the managing underwriter advises
Primecore Mortgage and the holders of the registrable securities and additional
securities in writing that in their opinion the amount of registrable securities
and additional securities proposed to be sold in the offering exceeds the amount
of registrable securities and additional securities which can be sold in the
offering, there shall be included in the underwritten offering the amount of the
registrable securities which in the opinion of the underwriters can be sold with
the additional securities, and the amount or number of shares of the registrable
securities and additional securities shall be allocated pro rata among the
holders electing to participate in the underwritten offering. The holders of the
registrable securities to be registered shall pay all underwriting discounts and
commissions of the underwriters with respect to the sales of the registrable
securities.
(c) No holder of registrable securities may include any of its registrable
securities in any shelf registration statement or underwritten offering pursuant
to this agreement unless the holder furnishes to Primecore Mortgage in writing,
within ten business days after receipt of a written request, information
Primecore Mortgage may reasonably request for use in connection with any shelf
registration statement or prospectus or preliminary prospectus.
Section 4. Hold-Back Agreements
(a) Restrictions on Public Sale by Holders of Registrable Securities. Each
----------------------------------------------------------------
holder of registrable securities agrees, in connection with any underwritten
offering of securities by Primecore Mortgage and in connection with any other
underwritten offering, until there are no remaining registrable securities, if
requested, pursuant to a timely written notice, by Primecore Mortgage or the
managing underwriter or underwriters in an underwritten offering, not to effect
any public sale or distribution of any of its registrable securities, including
a sale pursuant to Rule 144 , except as part of the underwritten offering,
during the period beginning ten days before, and ending ninety days after, the
closing date of the underwritten offering, unless a shorter time period is
agreed to by the managing underwriter or underwriters.
(b) Restrictions on Public Sale by Primecore Mortgage. Primecore Mortgage
-------------------------------------------------
agrees that without the written consent of the managing underwriter or
underwriters in an underwritten offering of registrable securities as described
in section 3, it will not effect any public or private sale or distribution of
its equity securities, including a sale pursuant to Regulation D under the
Securities Act, during the ten day period before, and the ninety day period
beginning on, the closing date of each the underwritten offering, unless a
shorter time period is agreed to by the managing underwriter or underwriters,
except
. as part of the underwritten offering;
. pursuant to registrations on Form S-4 or Form S-8 or any successor form to
those forms or pursuant to any unregistered offering to Primecore
Mortgage's employees or
4
<PAGE>
directors, or to employees of its subsidiaries, pursuant to any employee
benefit plan, as defined in Rule 405 under the Securities Act, or dividend
reinvestment plan;
. pursuant to the conversion of preferred stock or exercise of warrants;
. in connection with an exchange offer; or
. in connection with the acquisition of assets by Primecore Mortgage or its
subsidiaries.
Section 5. Registration Procedures
In connection with Primecore Mortgage's registration obligations pursuant
to section 3, Primecore Mortgage shall effect the registration(s) to permit the
sale of registrable securities in accordance with the intended method or methods
of disposition, as follows:
(a) Prepare and file with the SEC a registration statement or registration
statements on the form which shall be available for the sale of registrable
securities in accordance with the intended method or methods of distribution,
and use its best efforts to cause the registration statement to become effective
and to remain effective; provided, however, that before filing a registration
statement or prospectus or any amendments or supplements, including documents
that would be incorporated or deemed to be incorporated by reference, Primecore
Mortgage shall notify the holders of the registrable securities covered by the
registration statement, their counsel and managing underwriters, if any, of its
intention to file the documents, and upon request shall furnish to those parties
so requesting copies of all documents proposed to be filed, which documents will
be subject to the review by the holders, their counsel and the underwriters, if
any, provided, however, that Primecore Mortgage shall not be required to deliver
to the holders a copy of any document that has not been materially changed from
a copy of the document that was previously delivered to the holders.
(b) Prepare and file with the SEC amendments to each registration
statement as may be necessary to cause the registration statement to become
effective with respect to the disposition of all securities covered by the
registration statement; and cause the related prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424, or any similar provisions then in force, under the Securities Act.
(c) Notify the selling holders of registrable securities, their counsel
and the managing underwriters, if any, promptly, and, if requested, confirm that
notice in writing:
(1) when a registration statement or any amendment thereto has been
filed, and, with respect to a registration statement, when the same has
become effective;
(2) of any request by the SEC or any other Federal or state
governmental authority for amendments or supplements to a registration
statement or related prospectus or for additional information, provided,
that Primecore Mortgage shall not
5
<PAGE>
be required to notify the holders or their counsel of all "comment" letters
received by Primecore Mortgage from the SEC or to deliver copies of
Primecore Mortgage's responses thereto to the holders or their counsel
unless the letters request information from or about the holders;
(3) of the issuance by the SEC of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for that purpose;
(4) if at any time the representations and warranties of Primecore
Mortgage contained in any agreement, including any underwriting agreement,
contemplated by section 5(n) below ceases to be true and correct;
(5) of the receipt by Primecore Mortgage of any notification with
respect to the suspension of the qualification or exemption from
qualification of any of the registrable securities for sale in any
jurisdiction, or the initiation or threat of any proceeding for that
purpose; and
(6) of the happening of any event that makes any statement made in
the registration statement or related prospectus or any document
incorporated or deemed to be incorporated by reference untrue in any
material respect or that requires the making of any changes in the
registration statement, prospectus or documents so that, in the case of the
registration statement, it will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements, in light of the circumstances under which they were made, not
misleading.
(d) Use its best efforts to obtain the withdrawal of any order suspending
the effectiveness of a registration statement, or the lifting of any suspension
of the qualification, or exemption from qualification, of any of the registrable
securities for sale in any jurisdiction.
(e) If requested by managing underwriters, if any, or the holders of a
majority of the then outstanding registrable securities being sold in connection
with an underwritten offering, promptly include in a prospectus supplement or
post-effective amendment information as the managing underwriters, if any, and
the holders may reasonably request to permit the intended method of distribution
of the securities and make all required filings of the prospectus supplement or
the post-effective amendment as soon as practicable after Primecore Mortgage has
received the request; provided however, that Primecore Mortgage shall not be
required to take any actions under this section 5(e) that are not, in the
opinion of counsel for Primecore Mortgage, in compliance with applicable law.
(f) Furnish to a selling holder of registrable securities, their counsel
and each managing underwriter, if any, without charge, at least one conformed
copy of the registration statement and each post-effective amendment thereto,
including financial statements, but excluding schedules, all documents
incorporated or deemed to be incorporated by reference, and all exhibits, unless
requested in writing by the holder, counsel or underwriter.
6
<PAGE>
(g) Deliver to each selling holder of registrable securities, their
counsel, and the underwriters, if any, without charge, as many copies of the
prospectus or prospectuses, including each form of prospectus, and each
amendment or supplement thereto as they may reasonably request in connection
with the distribution of the registrable securities; and Primecore Mortgage
consents to the use of the prospectus and each amendment or supplement thereto
by each of the selling holders of registrable securities and the underwriters,
if any, in connection with the offering and sale of the registrable securities
covered by the prospectus and any amendment or supplement thereto.
(h) Use its best efforts to register or qualify, or obtain an exemption
therefrom, or cooperate with the selling holders of registrable securities, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification, or exemption from such registration or
qualification, of the registrable securities for offer and sale under the
securities or "Blue Sky" laws of those jurisdictions within the United States as
any seller, or underwriter, reasonably requests in writing and to keep the
registration or qualification, or exemption therefrom, effective during the
period the registration statement is required to be kept effective; provided,
however, that Primecore Mortgage will not be required to (A) qualify generally
to do business in any jurisdiction where it is not then so qualified or (B) take
any action that would subject it to general service of process or to taxation in
any jurisdiction where it is not then so subject.
(i) Cooperate with the selling holders of registrable securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing registrable securities to be sold, which
certificates shall be in a form eligible for deposit with The Depository Trust
Company; and enable the registrable securities to be in denominations and
registered in names as the managing underwriters, if any, or holders may request
at least two business days before any sale of registrable securities in a firm
commitment public offering, or in any other sale within ten business days.
(j) Use its best efforts to cause the registrable securities covered by
the registration statement to be registered with or approved by other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of the selling holder's business,
in which case Primecore Mortgage will cooperate in all best respects with the
filing of the registration statement and the granting of approvals as may be
necessary to enable the seller or sellers or the underwriters, if any, to
consummate the disposition of the registrable securities.
(k) Upon the occurrence of any event contemplated by section 5(c)(6)
above, prepare a supplement or post-effective amendment to the registration
statement or a supplement to the related prospectus or any document incorporated
or deemed to be incorporated by reference, or file any other required document
so that, as thereafter delivered to the purchasers of the registrable securities
being sold, the prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated or necessary to make
the statements, in light of the circumstances under which they were made, not
misleading.
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(l) Before the effective date of the registration statement relating to
the registrable securities, provide a CUSIP number for the registrable
securities.
(m) Use its best efforts to cause all registrable securities covered by
the registration statement to be authorized to be quoted on the NASDAQ/NMS or
listed on a national securities exchange upon effectiveness of the shelf
registration statement.
(n) Enter into agreements, including an underwriting agreement in form,
scope and substance as is customary in underwritten offerings, and take all
other actions reasonably requested by the holders of a majority of the
registrable securities being sold in connection therewith, including those
reasonably requested by the managing underwriters, if any, to expedite or
facilitate the disposition of the registrable securities, and in that
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration:
(1) make representations and warranties to the holders of the
registrable securities and the underwriters, if any, with respect to the
business of Primecore Mortgage and its subsidiaries, and the registration
statement, prospectus and documents, if any, incorporated or deemed to be
incorporated by reference, in each case, in form, substance and scope as
are customarily made by users to underwriters in underwritten offerings,
and if true, confirm the same if and when requested;
(2) use its reasonable efforts to obtain opinions of counsel to
Primecore Mortgage and updates thereof, which counsel and opinions in form,
scope and substance, shall be reasonably satisfactory to the managing
underwriters, if any, and counsel to the holders of the registrable
securities being sold, addressed to each selling holder of registrable
securities and each of the underwriters, if any, covering the matters
customarily covered in opinions requested in underwritten offerings and
other matters as may be reasonably requested by such counsel and
underwriters;
(3) use its reasonable efforts to obtain "cold comfort" letters and
updates thereof from the independent certified public accountants of
Primecore Mortgage, and, if necessary, any other independent certified
public accountants of any subsidiary of Primecore Mortgage or of any
business acquired by Primecore Mortgage for which financial statements and
financial data are, or are required to be, included in the registration
statement, addressed to each selling holder of registrable securities,
unless the accountants shall be prohibited from so addressing those letters
by applicable standards of the accounting profession, and each of the
underwriters, if any, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings;
(4) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures substantially to the
effect set forth in section 7 with respect to all parties to be indemnified
pursuant to that section; and
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(5) deliver documents and certificates as may be reasonably requested
by the holders of a majority of the registrable securities being sold,
their counsel and the managing underwriters, if any, to evidence the
continued validity of the representations and warranties made pursuant to
section 5(n)(1) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement
entered into by Primecore Mortgage. The above shall be done at each closing
under any underwriting or similar agreement, or as and to the extent
required.
(o) Make available for inspection by a representative of the holders of
registrable securities being sold, any underwriter participating in any
disposition of registrable securities, if any, and any attorney or accountant
retained by the selling holders or underwriter, at the offices where normally
kept, during reasonable business hours, all financial and other records,
pertinent corporate documents and properties of Primecore Mortgage and its
subsidiaries, and cause the officers, directors and employees of Primecore
Mortgage and its subsidiaries to supply all information in each case reasonably
requested by any that representative, underwriter, attorney or accountant in
connection with the registration statement; provided, however, that any
information that is designated by Primecore Mortgage in writing as confidential
at the time of delivery of that information shall be kept confidential by those
persons unless:
(1) disclosure of the information is required by court or
administrative order;
(2) disclosure of the information, in the opinion of counsel to such
person, is required by law; or
(3) the information becomes generally available to the public other
than as a result of a disclosure or failure to safeguard by such person.
Without limiting the foregoing, no information shall be used by any person
as the basis for any market transactions in securities by Primecore
Mortgage or its subsidiaries in violation of law.
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to its securities holders earning statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158, or any
similar rule promulgated under the Securities Act, no later than forty-five days
after the end of any twelve month period, or ninety days after the end of any
twelve month period if that period is a fiscal year, (1) commencing at the end
of any fiscal quarter in which registrable securities are sold to underwriters
in a firm commitment or best efforts underwritten offering and (2) if not sold
to underwriters in an offering, commencing on the first day of the first fiscal
quarter of Primecore Mortgage after the effective date of the registration
statement, which statements shall cover those twelve month periods.
(q) Make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible moment.
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(r) Cooperate and assist in any filings required to be made with the NASD
and in the performance of any due diligence investigation by any underwriter,
including any "qualified independent underwriter" that is required to be
retained in accordance with the rules and regulations of the NASD.
Primecore Mortgage may require each seller of registrable securities as to
which any registration is being effected to furnish to Primecore Mortgage
information regarding the seller and the distribution of the registrable
securities as Primecore Mortgage may, from time to time, reasonably request in
writing and Primecore Mortgage may exclude from registration the registrable
securities of any seller who unreasonably fails to furnish that information
within a reasonable time after receiving the request.
Each holder of registrable securities agrees by acquisition of the
registrable securities that, upon receipt of any notice from Primecore Mortgage
of the happening of any event of the kind described in section 5(c)(2), (3), (5)
or (6), the holder will immediately discontinue disposition of the registrable
securities covered by the registration statement or prospectus until the
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by section 5(k), or until it is advised in writing by Primecore
Mortgage that the use of applicable prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in the prospectus.
Section 6. Registration Expenses
(a) All expenses incident to Primecore Mortgage's performance of or
compliance with this agreement will be borne by Primecore Mortgage, regardless
whether a registration statement filed pursuant to section 3 becomes effective,
including without limitation:
(1) all registration and filing fees and expenses associated with any
SEC filing;
(2) fees and expenses of compliance with federal securities or state
blue sky laws, including fees and disbursements of counsel for the
underwriters or selling holders in connection with the Blue Sky
qualifications of the registrable securities pursuant to 5(h);
(3) expenses of printing, including, without limitation, expenses of
printing or engraving certificates for the registrable securities in a form
eligible for deposit with The Depository Trust Company and of printing
prospectuses, messenger and delivery services and telephone;
(4) reasonable fees and disbursements of counsel for Primecore
Mortgage and for the holders of the registrable securities, subject to the
provisions of section 4(b);
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(5) fees and disbursements of all independent certified public
accountants of Primecore Mortgage, including the expenses of any special
audit and "cold comfort" letters required by or incident to that
performance;
(6) fees and expenses associated with any NASD filing required to be
made in connection with a registration statement, including, if applicable,
the fees and expenses of any "qualified independent underwriter", and its
counsel, that is required to be retained in accordance with the rules and
regulations of the NASD; and
(7) fees and expenses of listing the registrable securities on any
securities exchange or quotation system in accordance with section 5(m).
These expenses are referred to as "registration expenses."
Primecore Mortgage will, in any event, bear its internal expenses,
including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties, the expense of any annual
audit, rating agency fees and the fees and expenses of any person, including
special experts, retained by Primecore Mortgage. The holders of the registrable
securities shall bear the expense of any broker's commission or underwriters'
discount or commission.
(b) In connection with an underwritten offering pursuant to the shelf
registration statement, Primecore Mortgage will reimburse the holders of
registrable securities being registered pursuant to the registration statement
for the fees and disbursements of not more than one counsel chosen by a majority
of the holders of the for the fees and disbursements of not more than one
counsel chosen by a majority of the holders of the registrable securities to be
included in the registration statement; provided, however, that in the case of
an underwritten offering which includes shares of common stock, such counsel
shall be chosen by the holders of a majority of the shares of common stock to be
included in the underwritten offering. Notwithstanding the provisions of this
section 6, each holder of registrable securities shall pay all registration
expenses to the extent required by applicable law.
Section 7. Indemnification
(a) Primecore Mortgage agrees to indemnify and hold harmless each holder,
referred to as an "indemnified holder", and each underwriter participating in an
underwritten offering, referred to as an "indemnified underwriter", and each
person that controls each indemnified holder or indemnified underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and agents, employees, officers and directors or any controlling person of
any indemnified holder or indemnified underwriter from and against any and all
losses, claims, damages, judgments, liabilities and expenses, including the
reasonable fees and expenses of counsel and other expenses in connection with
investigating, defending or setting any such action or claim, as they are
incurred arising out of or based upon an untrue statement or alleged untrue
statement of a material fact contained in any registration statement or the
prospectus, as amended or supplemented if Primecore Mortgage shall have
furnished any amendments or supplements thereto, or any preliminary
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prospectus or arising out of or based upon any omission or alleged omission to
state a material fact required to be stated or necessary to make the statements
not misleading, except (1) Primecore Mortgage shall not be liable to any
indemnified holder or indemnified underwriter in any case insofar as losses,
claims, damages, judgments, liabilities or expenses arise out of, or are based
upon, any untrue statement or omission or alleged untrue statement or omission
based upon information relating to the indemnified holder or indemnified
underwriter furnished in writing by the indemnified holder or indemnified
underwriter to Primecore Mortgage expressly for use, and (2) Primecore Mortgage
shall not be liable to any indemnified holder or indemnified underwriter under
the indemnity agreement in this section 7(a) with respect to any preliminary
prospectus to the extent that any loss, claim, damage, judgment, liability or
expense results solely from the fact that any indemnified holder or indemnified
underwriter sold registrable securities to a person to whom there was not sent
or give, at or before the written confirmation of the sale, a copy of the
prospectus as then amended or supplemented, if Primecore Mortgage has previously
furnished sufficient copies to the indemnified holder or indemnified
underwriter.
(b) If any action or proceeding, including any governmental or regularly
investigation or proceeding, shall be brought or asserted against any
indemnified holder or indemnified underwriter with respect to which indemnity
may be sought against Primecore Mortgage pursuant to section 7(a) the
indemnified holder or indemnified underwriter shall promptly notify Primecore
Mortgage in writing, and Primecore Mortgage shall have the right to assume the
defense, including the employment of counsel reasonably satisfactory of the
indemnified holder or indemnified underwriter and payment of all fees and
expenses; provided, however, that the omission so to notify Primecore Mortgage
shall not relieve Primecore Mortgage from any liability that they may have to
any indemnified holder or indemnified underwriter, except to the extent that
Primecore Mortgage is materially prejudiced or otherwise forfeits substantive
rights or defenses by reason of that failure. An indemnified holder or
indemnified underwriter shall have the right to employ separate counsel in any
action or proceeding and to participate in the defense, but the fees and
expenses of such counsel shall be at the expense of the indemnified holder or
indemnified underwriter unless:
(1) Primecore Mortgage agrees in writing to pay those fees and
expenses;
(2) Primecore Mortgage has failed to assume the defense and employ
counsel satisfactory to the indemnified holder or indemnified
underwriter; or
(3) the named parties to any action or proceeding, including any
impleaded parties, include both the indemnified holder or
indemnified underwriter and Primecore Mortgage and the
indemnified holder or indemnified underwriter shall have been
advised in writing by its counsel that representation of them and
Primecore Mortgage by the same counsel would be inappropriate
under applicable standards of professional conduct, whether or
not the representation has been proposed, due to actual or
potential differing interests between them, in which case
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Primecore Mortgage shall not have the right to assume the defense
of the action on behalf of the indemnified holder or indemnified
underwriter.
It is understood that Primecore Mortgage shall not, in connection with any
one action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys, in
addition to any local counsel, at any time for the indemnified holders or
indemnified underwriters, which firm shall be designated in writing by the
majority of holders of the registrable securities on behalf of the holders of
all of the registrable securities, and that all of those fees and expenses shall
be reimbursed as they are incurred. Primecore Mortgage shall not be liable for
any settlement of any action effected without the written consent of Primecore
Mortgage, but if settled with the written consent of Primecore Mortgage, or if
there is a final judgment with respect thereto, Primecore Mortgage agrees to
indemnify and hold harmless each indemnified holder or indemnified underwriter
from and against any loss or liability by reason of that settlement or judgment.
Primecore Mortgage shall not, without the prior written consent of each
indemnified holder or indemnified underwriter affected thereby, effect any
settlement of any pending or threatened proceeding in which the indemnified
holder or indemnified underwriter has sought indemnity, unless the settlement
includes an unconditional release of the indemnified holder or indemnified
underwriter from all liability arising out of the action, claim, litigation or
proceeding.
(c) Each holder and underwriter agrees to indemnify and hold harmless
Primecore Mortgage, its directors, its officers who sign the registration
statement and any person controlling Primecore Mortgage within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act,
collectively, the "company indemnified parties", to the extent as the foregoing
indemnity from Primecore Mortgage to any indemnified holder or indemnified
underwriter, but only with respect to information relating to each holder or
underwriter furnished to Primecore Mortgage in writing by each holder or
underwriter, expressly for use in the registration statement, prospectus, or any
amendment of supplement thereto, or any preliminary prospectus. In case any
action shall be brought against any company indemnified party based on the
registration statement, prospectus, or any amendment or supplement thereto, or
any preliminary prospectus and in respect of which indemnification may be sought
against each holder and underwriter pursuant to this section 7(c), each holder
and underwriter shall have the rights and duties given to Primecore Mortgage by
section 7(a), except that if Primecore Mortgage shall have assumed the defense,
each holder and underwriter may, but shall not be required to, employ separate
counsel and participate in the defense and the fees and expenses of such counsel
shall be at the expense of the holder or underwriter, and Primecore Mortgage
indemnified parties shall have the rights and duties given to the indemnified
holders or indemnified underwriters by section 7(b).
(d) If the indemnification provided for in this section 7 is
unavailable to any party entitled to indemnification pursuant to section 7(a) or
(c), then each indemnifying party, in lieu of indemnifying the indemnified
party, shall contribute to the amount paid or payable by the indemnified party
as a result of those losses, claims, damages, judgments, liabilities and
expenses (1) in the proportion as is appropriate to reflect the relative
benefits received by
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Primecore Mortgage on the one hand, and each indemnified holder or indemnified
underwriter on the other, from the offering of the registrable securities or (2)
if the allocation provided by clause (1) above is not permitted by applicable
law, in the proportion as is appropriate to reflect not only the relative
benefits referred to in clause (1) above but also the relative fault of
Primecore Mortgage on the one hand and each indemnified holder or indemnified
underwriter on the other in connection with the statement or omissions which
resulted in the losses, claims, damages, judgments, liabilities or expenses, as
well as any other relevant equitable considerations. The relative benefits
received by Primecore Mortgage on the one hand and each indemnified holder or
indemnified underwriter on the other shall be deemed to be in the same
proportions as the total net proceeds from the offering, before deducting
expenses, received by Primecore Mortgage bear to the total net discounts and
commissions received by each indemnified holder or indemnified underwriter, in
each case as set forth in the table on the cover page of the prospectus. The
relative fault of Primecore Mortgage on the one hand each indemnified holder or
indemnified underwriter on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by Primecore Mortgage on the one hand or by each
indemnified holder or indemnified underwriter on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent the statement or omission.
(e) Primecore Mortgage and each indemnified holder or indemnified
underwriter agree that it would not be just and equitable if contribution
pursuant to section 7(d) were determined by pro rata allocation or by any other
method of allocation that does not take account of the equitable considerations
referred to in section 7(d). The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, liabilities or expenses referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably incurred
by the indemnified party in connection with investigating or defending any
action or claim. No person found guilty of fraudulent misrepresentation, within
the meaning of Section 11(f) of the Securities Act, shall be entitled to
contribution from any person who was not found guilty of the fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in this section
7 are in addition to any liability that any indemnifying party may otherwise
have to any indemnified party.
Section 8. Participation in Underwritten Registrations
No holder may participate in any underwritten offering unless the holder
(a) agrees to sell the holder's registrable securities on the basis provided in
any underwriting arrangements approved by the persons entitled pursuant to this
agreement to approve the arrangements, (b) completes and signs all
questionnaires, powers of attorney, indemnities, underwriting agreements, hold-
back agreements and other documents required under the terms of the underwriting
arrangements, and (c) furnishes Primecore Mortgage in writing information in
accordance with the second to the last paragraph of section 5 and agrees to
indemnify and hold
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harmless Primecore Mortgage, its directors, its officers who sign the
registration statement and any person controlling Primecore Mortgage within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act as
contemplated by section 7(c).
Section 9. Selection of Underwriters
The holders of registrable securities covered by a registration statement
filed pursuant to section 3, who desire to do so, may sell the registrable
securities in an underwritten offering. In any underwritten offering, the
underwriter(s) that will administer the offering will be selected by the holders
of registrable securities included in the offering holding a majority in
interest of the registrable securities included in the offering; provided,
however, that the underwriters must be reasonably satisfactory to Primecore
Mortgage.
Section 10. Miscellaneous
(a) Remedies. Each holder of registrable securities, in addition to being
--------
entitled to exercise all rights provided in this agreement and granted by law,
including recovery of damages, will be entitled to specific performance of the
holder's rights under this agreement. Primecore Mortgage agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this agreement and agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Primecore Mortgage will not on or after
--------------------------
the date of this agreement enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the holders of
registrable securities in this agreement or otherwise conflicts with these
provisions. The rights granted to the holders of registrable securities pursuant
to this agreement do not in any way conflict with and are not inconsistent with
the rights granted to the holders of Primecore Mortgage's securities under any
other agreements.
(c) Amendments and Waivers. The provisions of this agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures with these provisions may not be given
unless Primecore Mortgage has obtained the written consent of a majority of the
holders of the registrable securities affected by the amendment, modification,
supplement, waiver or departure. Notwithstanding the foregoing, a waiver or
consent to departure from these provisions that relates exclusively to the
rights of holders of registrable securities whose securities are being sold
pursuant to a registration statement and that does not directly or indirectly
affect the rights of other holders of registrable securities shall be valid only
with the written consent of holders of at least 66-2/3% of the registrable
securities being sold.
(d) Notices. All notices and other communications provided for or
-------
permitted pursuant to this agreement shall be made in writing by hand-delivery,
first-class mail, registered or certified, return receipt requested, telex,
telecopier, or air courtier guaranteeing overnight delivery:
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(1) if to a holder of registrable securities, at the most current
address given by the holder to Primecore Mortgage; and
(2) if to Primecore Mortgage, to
Primecore Mortgage Trust, Inc.
99 El Camino Real
Menlo Park, CA 94025
Attn: Susan Fox, President
Telephone: (650) 328-3060
Facsimile: (650) 328-3066
with a copy to:
Tobin & Tobin
500 Sansome Street, 8/th/ Floor
San Francisco, CA 94111
Attn: Keith A. Kandarian
Telephone: (415) 433-1400
Facsimile: (415) 433-3883
All notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
(e) Successors and Assigns. This agreement shall inure to the benefit of
----------------------
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, and
subsequent holders of registrable securities; provided, however, that this
agreement shall not inure to the benefit of or be binding upon a successor or
assign of a holder of registrable securities unless and to the extent that
successor or assign acquired registrable securities from the holder. If any
transferee of any holder shall acquire registrable securities, in any manner,
whether by operation of law or otherwise, the registrable securities shall be
held subject to all of the terms of this agreement and by taking and holding the
registrable securities that person shall be conclusively seemed to have agreed
to be bound by and to perform all of the terms and provisions of this agreement
and shall be entitled to receive its benefits.
(f) Counterparts. This agreement may be signed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so signed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
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(g) Headings. The headings of this agreement are for convenience of
--------
reference only and shall not limit or otherwise affect its meaning.
(h) Governing law. This agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, without regard to conflict
of law rules. Any proceeding related to this agreement shall be initiated and
concluded in San Mateo County.
(i) Severability. If any one or more of these provisions, or their
------------
application, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained in this agreement shall not be affected or
impaired.
(j) Entire Agreement. This agreement is intended to be a final
----------------
expression of the parties' agreement and to be a complete and exclusive
statement of their understanding of the subject matter. There are no
restrictions, promises, warranties or undertakings, other than referred to in
this agreement, with respect to the registration rights granted by Primecore
Mortgage with respect to registrable securities. This agreement supersedes all
prior agreements and understandings between the parties with respect to the
subject matter.
The parties have signed this agreement as of the date first above
written.
Company: Primecore Mortgage Trust , Inc.
By /s/ Susan Fox
------------------------------
Susan Fox, President
Investors in the
Preferred Stock: By: /s/ Michael Heren
------------------------------
Michael Heren, As Agent
Representing the Investors
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EXHIBIT 4.2
Primecore Mortgage Trust, Inc.
Founder's Registration Rights Agreement
This Founder's Registration Rights Agreement is made and entered into as of
March 30, 1999, by and among Primecore Mortgage Trust, Inc., a Maryland
corporation, and Michael Heren, Susan Fox and Michael Rider, holders of shares
of the Company's Common stock.
In consideration of the mutual agreements contained herein and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
Section 1. Definitions
-----------
In this agreement, the following terms shall have the following meanings:
"affiliate" of a specified person shall mean any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control,"
when used with respect to any person means the power to direct the management
and policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"common stock" shall mean the Company's common stock, par value $0.01 per
share.
"Company" shall mean Primecore Mortgage Trust, Inc., a Maryland
corporation, and any successor.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"holders" shall be as defined in section 2(b) hereof.
"NASD" means National Association of Securities Dealers, Inc.
"NASDAQ/NMS shall mean Nasdaq National Market.
"person" shall mean an individual, trustee, corporation, partnership,
limited liability company, joint stock company, trust, unincorporated
association, union, business association, firm or other entity.
"preferred stock" shall mean Primecore Mortgage's Class A Convertible
Preferred Stock, par value $0.01 per share.
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"proceeding" shall mean an action, claim, suit or proceeding, including,
without limitation, an investigation or partial proceeding, such as a
deposition, where commenced or threatened.
"prospectus" shall mean the prospectus included in any registration
statement, including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act, as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the registrable
securities covered by such registration statement, and all other amendments and
supplements to that prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
that prospectus.
"registrable securities" shall mean the shares of common stock held by such
holder on the date of this agreement until such time as such shares of common
stock shall have been effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering such shares,
or are otherwise freely transferable by the holder without requirement of
registration under the Securities Act.
"registration statement" shall mean any registration statement of the
Company that covers any of the registrable securities pursuant to the provisions
of this agreement, including the prospectus, amendments and supplements of such
registration statement and all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"Rule 144" shall mean Rule 144 under the Securities Act, as such rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
"SEC" shall mean the United States Securities and Exchange Commission.
"shelf registration statement" shall mean the registration statement
covering sales of securities of the Company by purchasers of the preferred stock
in the Company's private placement first closing in April 1999.
"underwriter" shall mean any underwriter, placement agent, selling broker,
dealer manager, qualified independent underwriter or similar securities industry
professional.
"underwritten registration or underwritten offering" shall mean a
registration in which securities of the Company are sold to an underwriter for
re-offering to the public.
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Section 2. Securities Subject to this Agreement
(a) Registrable securities. The securities entitled to the benefits of
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this agreement are the registrable securities.
(b) Holders of Registrable securities. A person is deemed to be a holder
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of registrable securities whenever such person owns registrable securities.
Section 3. Piggyback Registration
(a) Right to Piggyback. Following the effective date of the shelf
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registration statement, if the Company proposes to file a registration statement
under the Securities Act with respect to a firm commitment underwritten public
offering of common stock, other than a registration statement (1) on Form S-4,
Form S-8 or any successor forms or (2) filed solely in connection with an
exchange offer or any employee benefit or dividend reinvestment plan, whether or
not for its own account, then the Company shall give written notice of such
proposed filing to the holders of registrable securities at least fifteen days
before the anticipated filing date, the "piggyback notice". The piggyback notice
shall offer such holder the opportunity to include in such underwritten offering
such amount of registrable securities as such holder may request, a "piggyback
underwritten offering." Subject to section 3(b) hereof, the Company shall
include in each such piggyback underwritten offering all registrable securities
with respect to which the Company has received written requests for inclusion
therein within ten days after notice has been given to the applicable holder,
which request shall specify the intended method of distribution. The holders of
registrable securities shall be permitted to withdraw all or part of the
registrable securities from a piggyback underwritten offering at any time prior
to the effective date of such piggyback underwritten offering.
(b) Priority on Piggyback Underwritten offerings. The Company shall cause
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the managing underwriter or underwriters of a proposed underwritten offering to
permit Holders of registrable securities to include all such registrable
securities requested to be included in the piggyback underwritten offering on
the same terms and conditions as any other shares of common stock, if any, of
the Company included therein. Notwithstanding the foregoing, if the managing
underwriter or underwriters of such piggyback underwritten offering have
informed the Company in writing that it is their opinion that the total amount
of securities that such holders, the Company and any other persons having rights
to participate in such offering, intended to include in such offering is such as
to materially and adversely affect the success of such offering, then the common
stock to be offered in the piggyback underwritten offering shall be the amount
recommended by such managing underwriter or underwriters and the common stock to
be included in such piggyback underwritten offering shall be included in the
following order of priority: (1) for the account of the Company, as many shares
as the Company may desire or be permitted to sell at such time, the "company
allotment"; (2) for the account of all such other persons, other than the
Company, as many shares as such persons may desire to sell at such time, the
"other holders allotment"; and (3) the remaining capacity, if any, for the
account of the holders, the "holders allotment", to be divided among such
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holders pro rata in proportion to the respective dollar amounts of such
securities requested to be registered
Section 4. Hold-Back Agreements
(a) Restrictions on Public Sale by Holders of Registrable securities. Each
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holder of registrable securities agrees, in connection with any underwritten
offering of securities by the Company and in connection with any other
underwritten offering, until such time as there are no remaining registrable
securities, if requested pursuant to a timely written notice by the Company or
the managing underwriter or underwriters in an underwritten offering, not to
effect any public sale or distribution of any of its registrable securities,
including a sale pursuant to Rule 144, except as part of such underwritten
offering, during the period beginning ten days before, and ending ninety days
after, the closing date of such underwritten offering, unless a shorter time
period is agreed to by the managing underwriter or underwriters.
(b) Restrictions on Public Sale by the Company. The Company agrees that
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without the written consent of the managing underwriter or underwriters in an
underwritten offering of registrable securities as described in section 3
hereof, it will not effect any public or private sale or distribution of its
equity securities, including a sale pursuant to Regulation D under the
Securities Act, during the ten day period before, and the ninety day period
beginning on, the closing date of each such underwritten offering, unless a
shorter time period is agreed to by the managing underwriter or underwriters,
except:
. as part of such Underwritten Offering;
. pursuant to registrations on Form S-4 or Form S-8 or any successor
form to such forms or pursuant to any unregistered offering to the Company's
employees or directors, or to employees of its subsidiaries, pursuant to any
employee benefit plan as defined in Rule 405 under the Securities Act or
dividend reinvestment plan;
. pursuant to the conversion of preferred stock or exercise of warrants;
. in connection with an exchange offer; or
. in connection with the acquisition of assets by the Company or its
subsidiaries).
Section 5. Registration Procedures
In connection with the Company's registration obligations pursuant to
section 3 hereof, the Company shall effect such registration(s) to permit the
sale of such registrable securities in accordance with the intended method or
methods of disposition thereof, as follows:
(a) Prepare and file with the SEC a registration statement or registration
statements on such form which shall be available for the sale of registrable
securities in accordance with the intended method or methods of distribution
thereof, and use its best efforts to cause such
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registration statement to become effective and to remain effective as provided
herein; provided, however, that before filing a registration statement or
prospectus or any amendments or supplements thereof, including documents that
would be incorporated or deemed to be incorporated therein by reference, the
Company shall notify the holders of the registrable securities covered by such
registration statement, their counsel and managing underwriters, if any, of its
intention to file such documents, and upon request shall furnish to such parties
so requesting copies of all such documents proposed to be filed, which documents
will be subject to the review by such holders, their counsel and such
underwriters, if any, provided, however, that the Company shall not be required
to deliver to such holders a copy of any such document that has not been
materially changed from a copy of such document that was previously delivered to
such holders.
(b) Prepare and file with the SEC such amendments to each registration
statement as may be necessary to cause such registration statement to become
effective with respect to the disposition of all securities covered by such
registration statement; and cause the related prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424, or any similar provisions then in force, under the Securities Act.
(c) Notify the selling holders of registrable securities, their counsel
and the managing underwriters, if any, promptly, and if requested by any such
person, confirm such notice in writing:
(1) when a registration statement or any amendment thereto has been
filed, and, with respect to a registration statement, when the same has
become effective;
(2) of any request by the SEC or any other Federal or state
governmental authority for amendments or supplements to a registration
statement or related prospectus or for additional information, provided,
that the Company shall not be required to notify the holders or their
counsel of all "comment" letters received by the Company from the SEC or to
deliver copies of the Company's responses to the holders or their counsel
unless such letters request information from or about the holders;
(3) of the issuance by the SEC of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for that purpose;
(4) if at any time the representations and warranties of the Company
contained in any agreement, including any underwriting agreement,
contemplated by section 5(n) below ceases to be true and correct;
(5) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any
of the registrable securities for sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose; and
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(6) of the happening of any event that makes any statement made in
such registration statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in
any material respect or that requires the making of any changes in such
registration statement, prospectus or documents so that, in the case of the
registration statement, it will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to obtain the withdrawal of any order suspending
the effectiveness of a registration statement, or the lifting of any suspension
of the qualification, or exemption from qualification, of any of the registrable
securities for sale in any jurisdiction.
(e) If requested by managing underwriters, if any, or the holders of a
majority of the then outstanding registrable securities being sold in connection
with an underwritten offering, promptly include in a prospectus supplement or
post-effective amendment such information as the managing underwriters, if any,
and such holders may reasonably request in order to permit the intended method
of distribution of such securities and make all required filings of such
prospectus supplement or such post-effective amendment as soon as practicable
after the Company has received such request; provided however, that the Company
shall not be required to take any actions under this section 5(e) that are not,
in the opinion of counsel for the Company, in compliance with applicable law.
(f) Furnish to a selling holder of registrable securities, their counsel
and each managing underwriter, if any, without charge, at least one conformed
copy of the registration statement and each post-effective amendment thereto,
including financial statements, but excluding schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all
exhibits, unless requested in writing by such holder, counsel or underwriter.
(g) Deliver to each selling holder of registrable securities, their
counsel, and the underwriters, if any, without charge, as many copies of the
prospectus or prospectuses, including each form of prospectus, and each
amendment or supplement thereto as such persons may reasonably request in
connection with the distribution of the registrable securities; and the Company
hereby consents to the use of such prospectus and each amendment or supplement
thereto by each of the selling holders of registrable securities and the
underwriters, if any, in connection with the offering and sale of the
registrable securities covered by such prospectus and any such amendment or
supplement thereto.
(h) Use its best efforts to register or qualify, or obtain an exemption
therefrom, or cooperate with the selling holders of registrable securities, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification, or exemption from such registration or
qualification, of such registrable securities for offer and sale under the
securities or "Blue Sky" laws of such jurisdictions within the United States as
any seller, or underwriter, reasonably requests in writing and to keep such
registration or qualification, or exemption therefrom, effective during the
period such registration statement is required to be
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kept effective; provided, however, that the Company will not be required to (A)
qualify generally to do business in any jurisdiction where it is not then so
qualified or (B) take any action that would subject it to general service of
process or to taxation in any such jurisdiction where it is not then so subject.
(i) Cooperate with the selling holders of registrable securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing registrable securities to be sold, which
certificates shall be in a form eligible for deposit with The Depository Trust
Company; and enable such registrable securities to be in such denominations and
registered in such names as the managing underwriters, if any, or holders may
request at least two business days before any sale of registrable securities in
a firm commitment public offering, or in any other such sale within ten business
days.
(j) Use its best efforts to cause the registrable securities covered by
the registration statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of such selling holder's
business, in which case the Company will cooperate in all best respects with the
filing of such registration statement and the granting of such approvals as may
be necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such registrable securities.
(k) Upon the occurrence of any event contemplated by section 5(c)(6)
above, prepare a supplement or post-effective amendment to the registration
statement or a supplement to the related prospectus or any document incorporated
or deemed to be incorporated therein by reference, or file any other required
document so that, as thereafter delivered to the purchasers of the registrable
securities being sold thereunder, such prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(l) Prior to the effective date of the registration statement relating to
the registrable securities, provide a CUSIP number for the registrable
securities.
(m) Use its best efforts to cause all registrable securities covered by
such registration statement to be authorized to be quoted on the NASDAQ/NMS or
listed on a national securities exchange upon effectiveness of the registration
statement.
(n) Enter into such agreements, including an underwriting agreement in
form, scope and substance as is customary in underwritten offerings and take all
such other actions reasonably requested by the holders of a majority of the
registrable securities being sold in connection therewith, including those
reasonably requested by the managing underwriters, if any, in order to expedite
or facilitate the disposition of such registrable securities, and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration:
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(1) make such representations and warranties to the holders of such
registrable securities and the underwriters, if any, with respect to the
business of the Company and its subsidiaries, and the registration
statement, prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in form, substance and
scope as are customarily made by users to underwriters in underwritten
offerings, and if true, confirm the same if and when requested;
(2) use its reasonable efforts to obtain opinions of counsel to the
Company and updates thereof, which counsel and opinions in form, scope and
substance, shall be reasonably satisfactory to the managing underwriters,
if any, and counsel to the holders of the registrable securities being
sold, addressed to each selling holder of registrable securities and each
of the underwriters, if any, covering the matters customarily covered in
opinions requested in underwritten offerings and such other matters as may
be reasonably requested by such counsel and underwriters;
(3) use its reasonable efforts to obtain "cold comfort" letters and
updates thereof from the independent certified public accountants of the
Company and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by
the Company for which financial statements and financial data are, or are
required to be, included in the registration statement, addressed to each
selling holder of registrable securities, unless such accountants shall be
prohibited from so addressing such letters by applicable standards of the
accounting profession, and each of the underwriters, if any, such letters
to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten
offerings;
(4) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures substantially to the
effect set forth in section 7 hereof with respect to all parties to be
indemnified pursuant to said section; and
(5) deliver such documents and certificates as may be reasonably
requested by the holders of a majority of the registrable securities being
sold, their counsel and the managing underwriters, if any, to evidence the
continued validity of the representations and warranties made pursuant to
section 5(n)(1) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement
entered into by the Company. The above shall be done at each closing under
such underwriting or similar agreement, or as and to the extent required
thereunder.
(o) Make available for inspection by a representative of the holders of
registrable securities being sold, any underwriter participating in any such
disposition of registrable securities, if any, and any attorney or accountant
retained by such selling holders or underwriter, at the offices where normally
kept, during reasonable business hours, all financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors and employees of the Company and
its
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subsidiaries to supply all information in each case reasonably requested by
any such representative, underwriter, attorney or accountant in connection with
such registration statement; provided, however, that any information that is
designated by the Company in writing as confidential at the time of delivery of
such information shall be kept confidential by such persons unless:
(1) disclosure of such information is required by court or
administrative order;
(2) disclosure of such information, in the opinion of counsel to such
person, is required by law; or
(3) such information becomes generally available to the public other
than as a result of a disclosure or failure to safeguard by such person.
Without limiting the foregoing, no such information shall be used by such
person as the basis for any market transactions in securities by the
Company or its subsidiaries in violation of law.
(p) Comply with all applicable rules and regulations of the SEC and make
generally available to its securities holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, or
any similar rule promulgated under the Securities Act, no later than forty-five
days after the end of any twelve month period, or ninety days after the end of
any twelve month period if such period is a fiscal year:
(1) commencing at the end of any fiscal quarter in which registrable
securities are sold to underwriters in a firm commitment or best efforts
underwritten offering; and
(2) if not sold to underwriters in such an offering, commencing on
the first day of the first fiscal quarter of the Company after the
effective date of the registration statement, which statements shall cover
said twelve month periods.
(q) Make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible moment.
(r) Cooperate and assist in any filings required to be made with the NASD
and in the performance of any due diligence investigation by any underwriter,
including any "qualified independent underwriter" that is required to be
retained in accordance with the rules and regulations of the NASD.
The Company may require each seller of registrable securities as to which
any registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such registrable securities as the
Company may, from time to time, reasonably request in writing and the Company
may exclude from such registration the registrable securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
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Each holder of registrable securities agrees by acquisition of such
registrable securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(c)(2), (3), (5) or (6)
hereof, such holder will forthwith discontinue disposition of such registrable
securities covered by such registration statement or prospectus until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by section 5(k) hereof, or until it is advised in writing by the
Company that the use of applicable prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such prospectus.
Section 6. Registration Expenses
(a) All expenses incident to the Company's performance of or compliance
with this agreement will be borne by the Company, regardless whether a
registration statement filed pursuant to section 3 herein becomes effective,
including without limitation:
(1) all registration and filing fees and expenses associated with any
SEC filing;
(2) fees and expenses of compliance with federal securities or state
blue sky laws, including fees and disbursements of counsel for the
underwriters or selling holders in connection with the Blue Sky
qualifications of the registrable securities pursuant to 5(h) herein;
(3) expenses of printing, including, without limitation, expenses of
printing or engraving certificates for the registrable securities in a form
eligible for deposit with The Depository Trust Company and of printing
prospectuses, messenger and delivery services and telephone;
(4) reasonable fees and disbursements of counsel for the Company and
for the holders of the registrable securities, subject to the provisions of
section 4(b) hereof;
(5) fees and disbursements of all independent certified public
accountants of the Company, including the expenses of any special audit and
"cold comfort" letters required by or incident to such performance;
(6) fees and expenses associated with any NASD filing required to be
made in connection with a registration statement, including, if applicable,
the fees and expenses of any "qualified independent underwriter" (and its
counsel) that is required to be retained in accordance with the rules and
regulations of the NASD; and
(7) fees and expenses of listing the registrable securities on any
securities exchange or quotation system in accordance with section 5(m)
hereof. All such expenses being herein called "registration expenses."
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The Company will, in any event, bear its internal expenses, including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties, the expense of any annual audit, rating
agency fees and the fees and expenses of any person, including special experts,
retained by the Company. The holders of the registrable securities shall bear
the expense of any broker's commission or underwriters' discount or commission.
(b) In connection with an underwritten offering pursuant to the
registration statement, the Company will reimburse the holders of registrable
securities being registered pursuant to such registration statement for the fees
and disbursements of not more than one counsel chosen by a majority of the
holders of the for the fees and disbursements of not more than one counsel
chosen by a majority of the holders of the registrable securities to be included
in the registration statement; provided, however, that in the case of an
underwritten offering which includes shares of common stock, such counsel shall
be chosen by the holders of a majority of the shares of common stock to be
included in such underwritten offering. Notwithstanding the provisions of this
section 6, each holder of registrable securities shall pay all registration
expenses to the extent required by applicable law.
Section 7. Indemnification
(a) The Company agrees to indemnify and hold harmless each holder,
referred to as an "indemnified holder", and each underwriter participating in an
underwritten offering, referred to as an "indemnified underwriter", and each
person that controls each indemnified holder or indemnified underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and agents, employees, officers and directors or any such controlling
person of any indemnified holder or indemnified underwriter from and against any
and all losses, claims, damages, judgments, liabilities and expenses, including
the reasonable fees and expenses of counsel and other expenses in connection
with investigating, defending or setting any such action or claim, as they are
incurred arising out of or based upon an untrue statement or alleged untrue
statement of a material fact contained in any registration statement or the
prospectus, as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto, or any preliminary prospectus or arising out
of or based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except (1) the Company shall not be liable to any indemnified
holder or indemnified underwriter in any such case insofar as such losses,
claims, damages, judgments, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to such indemnified holder or
indemnified underwriter furnished in writing by such indemnified holder or
indemnified underwriter to the Company expressly for use therein, and (2) the
Company shall not be liable to any indemnified holder or indemnified underwriter
under the indemnity agreement in this section 7(a) with respect to any
preliminary prospectus to the extent that any such loss, claim, damage,
judgment, liability or expense results solely from the fact that any indemnified
holder or indemnified underwriter sold registrable securities to a person to
whom there was not sent or give, at or prior to the written confirmation of such
sale, a copy of the prospectus as then amended or supplemented,
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if the Company has previously furnished sufficient copies thereof to the
indemnified holder or indemnified underwriter.
(b) If any action or proceeding, including any governmental or regularly
investigation or proceeding, shall be brought or asserted against any
indemnified holder or indemnified underwriter with respect to which indemnity
may be sought against the Company pursuant to section 7(a) such indemnified
holder or indemnified underwriter shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof, including
the employment of counsel reasonable satisfactory of such indemnified holder or
indemnified underwriter and payment of all fees and expenses; provided, however,
that the omission so to notify the Company shall not relieve the Company from
any liability that they may have to any indemnified holder or indemnified
underwriter, except to the extent that the Company is materially prejudiced or
otherwise forfeits substantive rights or defenses by reason of such failure. An
indemnified holder or indemnified underwriter shall have the right to employ
separate counsel in any such action or proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified holder or indemnified underwriter unless:
(1) the Company agrees in writing to pay such fees and expenses;
(2) the Company has failed to assume the defense and employ counsel
satisfactory to the indemnified holder or indemnified underwriter; or
(3) the named parties to any such action or proceeding, including any
impleaded parties, include both the indemnified holder or indemnified
underwriter and the Company and such indemnified holder or indemnified
underwriter shall have been advised in writing by its counsel that
representation of them and the Company by the same counsel would be
inappropriate under applicable standards of professional conduct, whether
or not such representation has been proposed, due to actual or potential
differing interests between them, in which case the Company shall not have
the right to assume the defense of such action on behalf of such
indemnified holder or indemnified underwriter.
It is understood that the Company shall not, in connection with any one
such action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys, in
addition to any local counsel, at any time for such indemnified holders or
indemnified underwriters, which firm shall be designated in writing by the
majority of holders of the registrable securities on behalf of the holders of
all of the registrable securities, and that all such fees and expenses shall be
reimbursed as they are incurred. The Company shall not be liable for any
settlement of any such action effected without the written consent of the
Company, but if settled with the written consent of the Company, or if there is
a final judgment with respect thereto, the Company agrees to indemnify and hold
harmless each indemnified holder or indemnified underwriter from and against any
loss or liability by reason of such settlement or judgment. The Company shall
not,
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without the prior written consent of each indemnified holder or indemnified
underwriter affected thereby, effect any settlement of any pending or threatened
proceeding in which such indemnified holder or indemnified underwriter has
sought indemnity hereunder, unless such settlement includes an unconditional
release of such indemnified holder or indemnified underwriter from all liability
arising out of such action, claim, litigation or proceeding.
(c) Each holder and underwriter agrees to indemnify and hold harmless the
Company, its directors, its officers who sign the registration statement and any
person controlling the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, collectively referred to as
the "company indemnified parties", to the extent as the foregoing indemnity from
the Company to any indemnified holder or indemnified underwriter, but only with
respect to information relating to each holder or underwriter furnished to the
Company in writing by each holder or underwriter, respectively, expressly for
use in the registration statement, prospectus, or any amendment of supplement
thereto, or any preliminary prospectus. In case any action shall be brought
against any Company indemnified party based on the registration statement,
prospectus, or any amendment or supplement thereto, or any preliminary
prospectus and in respect of which indemnification may be sought against each
holder and underwriter pursuant to this section 7(c), each holder and
underwriter shall have the rights and duties given to the Company by section
7(a), except that if the Company shall have assumed the defense thereof, each
holder and underwriter may, but shall not be required to, employ separate
counsel therein and participate in the defense thereof and the fees and expenses
of such counsel shall be at the expense of the holder or underwriter, and the
Company indemnified parties shall have the rights and duties given to the
indemnified holders or indemnified underwriters by section 7(b).
(c) If the indemnification provided for in this section 7 is unavailable
to any party entitled to indemnification pursuant to section 7(a) or (c), then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, judgments, liabilities and expenses:
(1) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand, and each indemnified
holder or indemnified underwriter on the other, from the offering of the
registrable securities; or
(2) if the allocation provided by clause (1) above is not permitted
by applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (1) above but also the relative
fault of the Company on the one hand and each indemnified holder or
indemnified underwriter on the other in connection with the statement or
omissions which resulted in such losses, claims, damages, judgments,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and each indemnified holder or indemnified underwriter on the other
shall be deemed to be in the same proportions as the total net proceeds
from the offering, before deducting expenses, received by the Company bear
to the total net discounts and commissions
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received by each indemnified holder or indemnified underwriter, in each
case as set forth in the table on the cover page of the prospectus. The
relative fault of the Company on the one hand each indemnified holder or
indemnified underwriter on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or by each
indemnified holder or indemnified underwriter on the other and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The Company and each indemnified holder or indemnified underwriter
agree that it would not be just and equitable if contribution pursuant to
section 7(d) were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in section 7(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person found guilty of fraudulent misrepresentation, within
the meaning of Section 11(f) of the Securities Act, shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in this section
7 are in addition to any liability that any indemnifying party may otherwise
have to any indemnified party.
Section 8. Participation in Underwritten Registrations
No holder may participate in any underwritten offering hereunder unless
such holder (a) agrees to sell such holder's registrable securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements, (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements, hold-
back agreements and other documents required under the terms of such
underwriting arrangements, and (c) furnishes the Company in writing information
in accordance with the second to the last paragraph of section 5 and agrees to
indemnify and hold harmless the Company, its directors, its officers who sign
the registration statement and any person controlling the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act as
contemplated by section 7(c).
Section 9. Miscellaneous
(a) Remedies. Each holder of registrable securities, in addition to being
--------
entitled to exercise all rights provided herein and granted by law, including
recovery of damages, will be entitled to specific performance of such holder's
rights under this agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by
14
<PAGE>
reason of a breach by it of the provisions of this agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the date
--------------------------
of this agreement enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the holders of registrable securities
in this agreement or otherwise conflicts with the provisions hereof. The rights
granted to the holders of registrable securities hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's securities under any other agreements.
(c) Amendments and Waivers. The provisions of this agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures with the provisions hereof may not be
given unless the Company has obtained the written consent of a majority of the
holders of the registrable securities affected by such amendment, modification,
supplement, waiver or departure. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of holders of registrable securities whose securities are being sold
pursuant to a registration statement and that does not directly or indirectly
affect the rights of other holders of registrable securities shall be valid only
with the written consent of holders of at least 66-2/3% of the registrable
securities being sold.
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
registered or certified, return receipt requested, telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a holder of registrable securities, at the most current
address given by such holder to the Company; and
(ii) if to the Company, to
Primecore Mortgage Trust, Inc.
99 El Camino Real
Menlo Park, CA 94025
Attn: Susan Fox, President
Telephone: (650) 328-3060
Facsimile: (650) 328-3066
with a copy to:
Tobin & Tobin
500 Sansome Street, /8/th Floor
San Francisco, CA 94111
Attn: Keith A. Kandarian
Telephone: (415) 433-1400
Facsimile: (415) 433-3883
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All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
(e) Successors and Assigns. This agreement shall inure to the benefit of
----------------------
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, and
subsequent holders of registrable securities; provided, however, that this
agreement shall not inure to the benefit of or be binding upon a successor or
assign of a holder of registrable securities unless and to the extent such
successor or assign acquired registrable securities from such holder. If any
transferee of any holder shall acquire registrable securities, in any manner,
whether by operation of law or otherwise, such registrable securities shall be
held subject to all of the terms of this agreement and by taking and holding
such registrable securities such person shall be conclusively seemed to have
agreed to be bound by and to perform all of the terms and provisions of this
agreement and such person shall be entitled to receive the benefits hereof.
(f) Counterparts. This agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings of this agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, without regard to the
conflict of law rules thereof.
(i) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This agreement is intended by the parties as a final
----------------
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than referred to herein with respect to the
registration rights granted by the Company with respect to registrable
securities. This agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
16
<PAGE>
The parties have executed this agreement as of the date first above
written.
Company: Primecore Mortgage Trust, Inc.
By /s/ Susan Fox
---------------------------------
Susan Fox, President
/s/ Michael Heren
Holders: ------------------------------------
Michael Heren
/s/ Susan Fox
------------------------------------
Susan Fox
/s/ Michael Rider
------------------------------------
Michael Rider
17
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EXHIBIT 10
Management Agreement
This Agreement is dated as of March 30, 1999, by and among Primecore
Mortgage Trust, Inc., a Maryland corporation (the "Company"), and Primecore
Funding Group, Inc., a California corporation (the "Manager"), with respect to
the following:
The Company intends to invest in construction and mixed use mortgage loans,
as well as land acquisition and development loans secured by undeveloped real
property and expects to qualify for the tax benefits accorded to a Real Estate
Investment Trust by Sections 856 through 860 of the Internal Revenue Code of
1986, as amended, and comparable provisions of state tax laws; and
The Company desires to retain the Manager to manage the investments of the
Company and to perform certain administrative services for the Company in the
manner and on the terms set forth herein;
In consideration of the following mutual agreements, the parties agree as
follows:
Section 1. Definitions:
------------
(a) "affiliate" means, with respect to any person, another person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with such person.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "governing instruments" means the articles or certificate of
incorporation or other charter, as the case may be, and bylaws of the Company
and its subsidiaries.
(d) "mortgage loans" means construction, mixed use, land acquisition and
development loans primarily secured by mortgages or deeds of trust on real
estate properties.
(e) "REIT" means Real Estate Investment Trust as defined under Section 856
of the Code.
(f) "REIT Provisions of the Code" means Sections 856 through 860 of the
Code.
(g) "unaffiliated directors" shall mean those members of the Board of
Directors of the Company, if any, who are not officers or employees of the
Company nor officers, directors or affiliates of the Manager.
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Section 2. General Duties of the Manager.
-----------------------------
(a) Administrative Services Provided by the Manager. The Manager will be
-----------------------------------------------
responsible for the day-to-day operations of the Company and shall perform such
services and activities relating to the assets and operations of the Company as
may be appropriate, including:
(1) representing the Company in connection with the purchase of
construction and other mortgage loans;
(2) in accordance with the directions of the Company's Board of
Directors, investing or reinvesting any money of the Company;
(3) furnishing reports and statistical and economic research to the
Company regarding the Company's real estate investment activities and the
performance of its portfolio of mortgage loans;
(4) administering the day-to-day operations of the Company and
performing administrative functions necessary in the management of the
Company, including the collection of revenues, the payment of the Company's
expenses, debts and obligations and the maintenance of appropriate computer
services to perform such administrative functions;
(5) counseling the Company in connection with policy decisions to be
made by the Board of Directors;
(6) assisting the Company in obtaining and using leverage to finance
construction and other mortgage loan acquisitions;
(7) overseeing the servicing of the Company's construction and other
mortgage loans;
(8) establishing underwriting, appraisal and quality control
procedures for the construction and other mortgage loans acquired by the
Company;
(9) conducting a legal document review of each mortgage loan acquired
to verify the accuracy and completeness of the information contained in the
security instruments and other pertinent documents in the mortgage loan
file;
(10) providing the Company with data processing, legal and
administrative services to the extent required to implement the business
strategy of the Company;
(11) providing all actions necessary for compliance by the Company
with all federal, state and local regulatory requirements applicable to the
Company in respect of its business activities, including maintaining books
and records and preparing or causing to be prepared all financial
statements required under applicable regulations and contractual
undertakings;
2
<PAGE>
(12) providing all actions necessary to enable the Company to make
required federal, state and local tax filings and reports and generally
enable the Company to maintain its status as a REIT, including, but not
limited to, soliciting stockholders for required information to the extent
required by the REIT provisions of the Code;
(13) communicating on behalf of the Company with the stockholders of
the Company as required to satisfy any reporting requirements and to
maintain effective relations with such stockholders; and
(14) performing such other services as may be required from time to
time for management and other activities relating to the assets of the
Company as the Board of Directors shall reasonably request or the Manager
shall deem appropriate under the particular circumstances.
(b) Administrative Services Provided by Subcontractors. The Manager may
--------------------------------------------------
enter into subcontracts with other parties to provide any such services to the
Company, so long as it exercises reasonable care in the selection of such
subcontractors.
(c) Cooperation of the Company. The Company agrees to take all actions
--------------------------
reasonably required to permit the Manager to carry out its duties and
obligations. The Company further agrees to make available all materials
reasonably required to enable the Manager to satisfy its obligations to deliver
financial statements and any other information or reports with respect to the
Company.
Section 3. Additional Activities of Manager. Nothing in this agreement
--------------------------------
shall prevent the Manager or any of its officers, directors, employees or
affiliates from engaging in other businesses or from rendering services of any
kind to any other person or entity, including the purchase of, or advisory
service to others investing in, any type of real estate investment, including
investments which meet the principal investment objectives of the Company,
except that the Manager and its officers, directors and employees shall not
provide any such services to any mortgage REIT other than the Company or another
REIT sponsored by the Manager or its affiliates which has operating policies and
strategies different in one or more material respects from those of the Company.
Directors, officers, employees and agents of the Manager or affiliates of the
Manager may serve as trustees, directors, officers, employees, agents, nominees
or signatories for the Company or any subsidiary of the Company, to the extent
permitted by their governing instruments, as from time to time amended, or by
any resolutions duly adopted by the Board of Directors pursuant to the Company's
governing instruments.
Section 4. Bank Accounts. At the direction of the Board of Directors, the
-------------
Manager may establish and maintain one or more bank accounts in the name of the
Company or any subsidiary of the Company, and may collect and deposit into any
such account or accounts, and disburse funds from any such account or accounts,
under such terms and conditions as the Board of Directors may approve; and the
Manager shall from time to time render appropriate accountings of such
collections and payments to the Board of Directors and, upon request, to the
auditors of the Company or any subsidiary of the Company.
3
<PAGE>
Section 5. Records. The Manager shall maintain appropriate books of
-------
account and records relating to services performed, and such books of account
and records shall be accessible for inspection by representatives of the Company
or any subsidiary of the Company at any time during normal business hours.
Section 6. Compensation of the Manager.
---------------------------
(a) Management Fee. The Manager shall receive a monthly management fee
--------------
equal to the sum of (1) .22% per month, or 2.64% per annum, of the total amount
of the Company's interest in the face amount of the notes which evidence the
outstanding mortgage loan portfolio balance, payable monthly and (2) any
extension fees, prepayment penalties and late payment charges paid by borrowers,
payable monthly.
(b) Payment. The Manager shall calculate the Manager's fees within 15 days
-------
after the end of each month, and such calculation shall be promptly delivered.
The Company is obligated to pay the fees within 30 days after the end of each
month.
Section 7. Expenses of the Company.
-----------------------
(a) Expenses Borne by the Manager. Without regard to the compensation
-----------------------------
received by the Manager, the Manager shall bear the following expenses:
(1) Employment expenses of the personnel employed by the Manager,
including, but not limited to, salaries, wages, payroll taxes, and the cost
of employee benefit plans;
(2) Rent, telephone, utilities, office furniture, equipment and
machinery (including computers, to the extent utilized) and other office
expenses (such as asset/liability software, modeling software and other
software and hardware) of the Manager needed in order to perform its duties
as set forth herein;
(3) Bookkeeping fees and expenses including any costs of computer
services, other than in connection with communications to security holders
of the Company;
(4) Miscellaneous administrative expenses incurred in supervising and
monitoring the Company's investments or any subsidiary's investments or
relating to performance by the Manager of its functions;
(5) Fees and expenses paid to advisors and independent contractors,
consultants, managers, and other agents engaged by the Manager for the
account of the Company or any subsidiary of the Company;
(6) Expenses connected with the acquisition of the Company's assets
and mortgage loans;
4
<PAGE>
(7) Expenses related to the servicing and subservicing of the
Company's mortgage loans; and
(8) Travel and related expenses of personnel of the Manager when
attending meetings or performing other business activities which relate to
the Company or any subsidiary of the Company.
(b) Expenses Borne by the Company. The Company or any subsidiary of the
-----------------------------
Company shall pay all of its expenses except those which are the specific
responsibility of the Manager pursuant to this agreement; and, without limiting
the generality of the foregoing, it is specifically agreed that the following
expenses of the Company or any subsidiary of the Company shall not be paid by
the Manager:
(1) The cost of borrowed money;
(2) All taxes applicable to the Company or any subsidiary of the
Company including interest and penalties;
(3) Legal, accounting and auditing fees and expenses relating to the
Company's or any subsidiary's operations;
(4) Expenses relating to any office or office facilities maintained
by the Company or any subsidiary of the Company exclusive of the office of
the Manager;
(5) Expenses connected with the ownership and disposition of the
Company's or any subsidiary's assets, including, but not limited to, costs
of completion, foreclosure, maintenance, repair and improvement of property
and premiums for insurance on property owned by the Company or any
subsidiary of the Company;
(6) Legal, audit, accounting, underwriting, brokerage, listing,
rating agency, registration and other fees, printing, engraving and other
expenses and taxes incurred in connection with the issuance, distribution,
transfer, registration and stock exchange listing of the Company's or any
subsidiary's equity securities or debt securities;
(7) The expenses of organizing, modifying or dissolving the Company
or any subsidiary of the Company;
(8) All insurance costs incurred in connection with the Company or
any subsidiary of the Company;
(9) Expenses connected with payments of dividends or interest or
distributions in any other form made or caused to be made by the Board of
Directors to holders of the securities of the Company or any subsidiary of
the Company;
5
<PAGE>
(10) Expenses connected with the structuring and issuance of mortgage
securities by the Company or any subsidiary of the Company, including but
not limited to trustee's fees, insurance premiums, and costs of required
credit enhancements;
(11) Travel and related expenses of the directors of the Company when
attending meetings or performing other business activities which relate to
the Company;
(12) All expenses of third parties connected with communications to
holders of equity securities or debt securities of the Company or any
subsidiary of the Company and the other bookkeeping and clerical work
necessary in maintaining relations with holders of such securities and in
complying with the continuous reporting and other requirements of
governmental bodies or agencies, including any costs of computer services
in connection with this function, the cost of printing and mailing
certificates for such securities and proxy solicitation materials and
reports to holders of the Company's or any subsidiary's securities and
reports to third parties required under any indenture to which the Company
or any subsidiary of the Company is a party;
(13) Transfer agent's and registrar's fees and charges;
(14) Fees and expenses paid to trustees or directors of the Company or
any subsidiary of the Company, the cost of director and officer liability
insurance and premiums for fidelity and errors and omissions insurance;
(15) Any judgment rendered against the Company or any subsidiary of
the Company, or against any trustee or director of the Company or any
subsidiary of the Company in his capacity as such for which the Company or
any subsidiary of the Company is required to indemnify such trustee or
director, or any court or governmental agency; and
(16) Other miscellaneous expenses of the Company or any subsidiary of
the Company which are not specified expenses of the Manager under this
agreement.
Section 8. Limits of Manager Responsibility; Indemnification.
-------------------------------------------------
The Manager assumes no responsibility under this agreement other than to
render the services called for in good faith and shall not be responsible for
any action of the Board of Directors in following or declining to follow any
advice or recommendations of the Manager. The Manager, its directors, officers,
stockholders and employees will not be liable to the Company, any subsidiary of
the Company, its subsidiary's stockholders or the unaffiliated directors for any
acts or omissions by the Manager, its directors, officers, stockholders or
employees under or in connection with this agreement, except by reason of acts
or omissions constituting bad faith, willful misconduct, gross negligence or
reckless disregard of their duties under this agreement. The Company and its
subsidiaries shall reimburse, indemnify and hold harmless the Manager, its
directors, officers, stockholders and employees of and from any and all
expenses, losses, damages, liabilities, demands, charges and claims of any
nature whatsoever, including, without limitation, attorneys' fees, in respect of
or arising from any acts or omissions
6
<PAGE>
of the Manager, its stockholders, directors, officers and employees made in good
faith in the performance of the Manager's duties under this agreement and not
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of its duties.
Section 9. Term; Termination Fee.
---------------------
(a) This agreement shall commence on the date of the first closing of the
Company's private placement and shall continue in force until the third
anniversary of such date, and thereafter it shall be renewed automatically for
successive one-year periods unless a notice of non-renewal is timely delivered
as described below.
(b) In addition to such further liability or obligation of either party to
the other due upon termination of this agreement, if this agreement is
terminated without cause (as "cause" is defined below), the Company shall pay
the Manager a termination fee in an amount equal to the greater of (1) the fair
market value of this agreement determined by an independent appraisal or (2)
four percent (4%) of the total face amount of the notes evidencing the mortgage
loan portfolio of the Company, each determined as of the date of notice of non-
renewal. Such appraisal shall be conducted by a nationally-recognized appraisal
firm mutually agreed upon by the parties and the costs of such appraisal shall
be borne equally by the parties. If the parties are unable to agree upon such
appraisal firm within 30 days following delivery of the notice of non-renewal,
then each party shall, as soon as reasonably practicable, but in no event more
than 45 days following delivery of the notice of non-renewal, choose a
nationally-recognized independent appraisal firm to conduct an appraisal. In
such event, (1) the fair market value amount shall be deemed to be the average
of the appraisals as conducted by each party's chosen appraiser and (2) each
party shall pay the costs of its appraiser so chosen. Any appraisal shall be
performed no later than 45 days following selection of the appraiser or
appraisers. The termination fee payable by the Company shall be paid within 30
days following receipt of the final appraisal to be obtained.
Section 10. Termination by Company for Cause. At the option of the
--------------------------------
Company, this agreement shall be and become terminated upon written notice of
termination to the Manager if any of the following events shall occur.
Termination for any of these events shall constitute termination for "cause":
(a) if a majority of the unaffiliated directors, if any, determines that
the Manager has violated this agreement in any material respect and, after
notice of such violation, the Manager has failed to cure such violation within
60 days; or
(b) there is entered an order for relief or similar decree or order with
respect to the Manager by a court having competent jurisdiction in an
involuntary case under the federal bankruptcy laws as now or hereafter
constituted or under any applicable federal or state bankruptcy, insolvency or
other similar laws; or the Manager:
(1) ceases, or admits in writing its inability, to pay its debts as
they become due and payable, or makes a general assignment for the benefit
of, or enters into any composition or arrangement with, creditors;
7
<PAGE>
(2) applies for, or consents, by admission of material allegations of
a petition or otherwise, to the appointment of a receiver, trustee,
assignee, custodian, liquidator or sequestrator, or other similar official,
of the Manager or of any substantial part of its properties or assets, or
authorizes such an application or consent, or proceedings seeking such
appointment are commenced without such authorization, consent or
application against the Manager and continue undismissed for 60 days;
(3) authorizes or files a voluntary petition in bankruptcy, or
applies for or consents, by admission of material allegations of a petition
or otherwise, to the application of any bankruptcy, reorganization,
arrangement, readjustment of debt, insolvency, dissolution, liquidation or
other similar law of any jurisdiction, or authorizes such application or
consent, or proceedings to such end are instituted against the Manager
without such authorization, application or consent and are approved as
properly instituted and remain undismissed for 60 days or result in
adjudication of bankruptcy or insolvency; or
(4) permits or suffers all or any substantial part of its properties
or assets to be sequestered or attached by court order and the order
remains undismissed for 60 days. If any of the events specified above shall
occur, the Manager shall give prompt written notice thereof to the Board of
Directors upon the happening of such event.
Section 11. Action Upon Termination. From and after the effective date of
-----------------------
termination of this agreement, except as otherwise specified, the Manager shall
not be entitled to compensation for further services, but shall be paid all
compensation accruing to the date of termination. Upon such termination, the
Manager shall:
(a) after deducting any accrued compensation and reimbursement for its
expenses to which it is then entitled, pay over to the Company or any subsidiary
of the Company all money collected and held for the account of the Company or
any subsidiary of the Company pursuant to this agreement;
(b) deliver to the Board of Directors a full accounting, including a
statement showing all payments collected by it and a statement of all money held
by it, covering the period following the date of the last accounting furnished
to the Board of Directors with respect to the Company or any subsidiary of the
Company; and
(c) deliver to the Board of Directors all property and documents of the
Company or any subsidiary of the Company then in the custody of the Manager.
Section 12. Release of Money or Other Property Upon Written Request. The
-------------------------------------------------------
Manager agrees that any money or other property of the Company or any subsidiary
of the Company held by the Manager under this agreement shall be held by the
Manager as custodian for the Company or such subsidiary, and the Manager's
records shall be appropriately marked clearly to reflect the ownership of such
money or other property by the Company or such subsidiary. Upon the receipt by
the Manager of a written request signed by a duly authorized
8
<PAGE>
officer of the Company requesting the Manager to release to the Company or any
subsidiary of the Company any money or other property then held by the Manager
for the account of the Company or any subsidiary of the Company under this
Agreement, the Manager shall release such money or other property to the Company
or such subsidiary of the Company within a reasonable period of time, but in no
event later than the later to occur of (1) 30 days following such request and
(2) the earliest time following such request that remittance will not cause the
Manager to violate any law or breach any agreement to which it or the Company is
a party. The Manager shall not be liable to the Company, any subsidiaries of the
Company, the unaffiliated directors, or the Company's or its subsidiaries'
stockholders for any acts performed or omissions to act by the Company or any
subsidiary of the Company in connection with the money or other property
released to the Company or any subsidiary of the Company and not constituting
bad faith, willful misconduct, gross negligence or reckless disregard of its
duties. The Company and any subsidiary of the Company shall indemnify the
Manager, its directors, officers, stockholders and employees against any and all
expenses, losses, damages, liabilities, demands, charges and claims of any
nature whatsoever, which arise in connection with the Manager's release of such
money or other property to the Company or any subsidiary of the Company unless
such expenses, losses, damages, liabilities, demands, charges and claims arise
in connection with acts or omissions which constitute bad faith, willful
misconduct, gross negligence or reckless disregard of its duties.
Indemnification pursuant to this provision shall be in addition to any right of
the Manager to indemnification under this agreement.
Section 13. Representations and Warranties.
------------------------------
(a) The Company represents and warrants to the Manager as follows:
(1) The Company is duly organized, validly existing and in good
standing under the laws of Maryland, has the power to own its assets and to
transact the business in which it is now engaged and is duly qualified and
in good standing under the laws of each jurisdiction where its ownership or
lease of property or the conduct of its business requires such
qualification, except for failures to be so qualified, authorized or
licensed that could not in the aggregate have a material adverse effect on
the business operations, assets or financial condition of the Company and
its subsidiaries, taken as a whole. The Company does not do business under
any fictitious business name.
(2) The Company has the power and authority to execute, deliver and
perform this agreement and all obligations required and has taken all
necessary action to authorize this agreement and the execution, delivery
and performance of this agreement and all obligations required. Except as
shall have been obtained, no consent of any other person including, without
limitation, stockholders and creditors of the Company, and no license,
permit, approval or authorization of, exemption by, notice or report to, or
registration, filing or declaration with, any governmental authority is
required by the Company in connection with this agreement or the execution,
delivery, performance, validity or enforceability of this agreement and all
obligations required. This agreement has been, and each instrument or
document required will be, executed and delivered by a duly authorized
officer of the Company, and this agreement constitutes, and each instrument
9
<PAGE>
or document required when executed and delivered hereunder will constitute,
the legally valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.
(3) The execution, delivery and performance of this agreement and the
documents or instruments required will not violate any provision of any
existing law or regulation binding on the Company, or any order, judgment,
award or decree of any court, arbitrator or governmental authority binding
on the Company, or the governing instruments of, or any securities issued
by, the Company or of any mortgage, indenture, lease, contract or other
agreement, instrument or undertaking to which the Company is a party or by
which the Company or any of its assets may be bound, the violation of which
would have a material adverse effect on the business operations, assets or
financial condition of the Company and its subsidiaries, taken as a whole,
and will not result in, or require, the creation or imposition of any lien
on any of its property, assets or revenues pursuant to the provisions of
any such mortgage, indenture, lease, contract or other agreement,
instrument or undertaking (other than the pledge of amounts payable to the
Manager to secure the Manager's obligations to its lenders).
(c) The Manager represents and warrants to the Company that:
(1) The Manager is duly organized, validly existing and in good
standing under the laws of California, has the corporate power to own its
assets and to transact the business in which it is now engaged and is duly
qualified to do business and is in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification, except for failures to be so
qualified, authorized or licensed that could not in the aggregate have a
material adverse effect on the business operations, assets or financial
condition of the Manager and its subsidiaries, taken as a whole. The
Manager does not do business under any fictitious business name
(2) The Manager has the corporate power and authority to execute,
deliver and perform this agreement and all obligations required and has
taken all necessary corporate action to authorize this agreement and the
execution, delivery and performance of this agreement and all obligations
required. Except as shall have been obtained, no consent of any other
person including, without limitation, stockholders and creditors of the
Manager, and no license, permit, approval or authorization of, exemption
by, notice or report to, or registration, filing or declaration with, any
governmental authority is required by the Manager in connection with this
agreement or the execution, delivery, performance, validity or
enforceability of this Agreement and all obligations required. This
agreement has been and each instrument or document required will be
executed and delivered by a duly authorized officer of the Manager, and
this agreement constitutes, and each instrument or document required when
executed and delivered will constitute, the legally valid and binding
obligation of the Manager enforceable against the Manager in accordance
with its terms.
10
<PAGE>
(3) The execution, delivery and performance of this agreement and the
documents or instruments required, will not violate any provision of any
existing law or regulation binding on the Manager, or any order, judgment,
award or decree of any court, arbitrator or governmental authority binding
on the Manager, or the governing instruments of, or any securities issued
by, the Manager or of any mortgage, indenture, lease, contract or other
agreement, instrument or undertaking to which the Manager is a party or by
which the Manager or any of its assets may be bound, the violation of which
would have a material adverse effect on the business operations, assets, or
financial condition of the Manager and its subsidiaries, taken as a whole,
and will not result in, or require, the creation or imposition of any lien
on any of its property, assets or revenues pursuant to the provisions of
any such mortgage indenture, lease, contract or other agreement, instrument
or undertaking.
Section 14. Notices. Unless expressly provided otherwise, all notices,
-------
requests, demands and other communications required or permitted under this
agreement shall be in writing and shall be deemed to have been duly given, made
and received when (1) delivered by hand or (2) upon actual receipt of
registered or certified mail, postage prepaid. The parties may deliver to each
other notice by electronically transmitted facsimile copies provided that such
facsimile notice is followed within twenty-four hours by any type of notice
otherwise provided for in this paragraph. Any notice shall be duly addressed to
the parties as follows:
(a) If to the Company:
99 El Camino Real
Menlo Park, CA 94025
Attn: Board of Directors
Fax: (650) 328-3066
(b) If to the Manager:
99 El Camino Real
Menlo Park, CA 94025
Attn: Susan Fox, President
Fax: (650) 328-3066
Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address.
Section 15. Assignments. Except as set forth in this section, this
-----------
agreement shall terminate automatically in the event of its assignment, in whole
or in part, by the Manager, other than the pledge of amounts payable to the
Manager to secure the Manager's obligations to its lenders, unless such
assignment is consented to in writing by the Company. Any such consented
assignment shall bind the assignee in the same manner as the Manager is bound.
In addition, the assignee shall execute and deliver to the Company a counterpart
of this agreement naming such assignee as Manager. This agreement shall not be
assigned by the Company without the prior
11
<PAGE>
written consent of the Manager, except in the case of assignment by the Company
to a REIT or other organization which is a successor, by merger, consolidation
or purchase of assets, to the Company, in which case such successor organization
shall be bound by this agreement and by the terms of such assignment in the same
manner as the Company is bound.
Section 16. Entire Agreement. This agreement contains the entire
----------------
agreement and understanding among the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or written,
of any nature whatsoever with respect to the subject matter. The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms. This agreement may not be modified or
amended other than by an agreement in writing.
Section 17. Controlling Law. This agreement and all questions relating to
---------------
its validity, interpretation, performance and enforcement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the State
of California.
Section 18. Waivers. Neither the failure nor any delay on the part of a
-------
party to exercise any right, remedy, power or privilege under this agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, power or privilege preclude any other or further exercise of
the same or of any right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver.
Section 19. Execution in Counterparts. This agreement may be executed in
-------------------------
any number of counterparts.
12
<PAGE>
Section 20. Provisions Separable. The provisions of this agreement are
--------------------
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
The parties hereto have executed this agreement as of the date first
written above.
Primecore Mortgage Trust, Inc.,
a Maryland corporation
By /s/ Michael Heren
-----------------------------
Michael Heren, Vice President
Primecore Funding Group, Inc.
a California corporation
By /s/ Susan Fox
-----------------------------
Susan Fox, President
13
<PAGE>
EXHIBIT 11
Statement re: Computation of Earnings Per Share
- --------------------------------------------------------------------------------
The numerators and denominators of basic and fully diluted earnings per share
are as follows:
<TABLE>
<CAPTION>
Three Months Period from inception
Ended March 31, (March 18, 1999) to
2000 December 31, 1999
---------------- ----------------------
<S> <C> <C>
Net loss allocable to common (numerator) (4,647,518) (16,084,535)
=========== ============
Shares used in the calculation (denominator)
Weighted average shares outstanding 100 100
Effect of diluted stock options -- --
Fully diluted shares 100 100
=========== ============
Basic earnings per share (46,475) (160,845)
=========== ============
Fully diluted earnings per share (46,475) (160,845)
----------- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 99.1
Articles Supplementary
Primecore Mortgage Trust, Inc.
Class A Convertible Preferred Stock
(Par Value $.01 Per Share)
Primecore Mortgage Trust, Inc., a Maryland corporation, having its
principal office in Baltimore, Maryland, certifies to the Department of
Assessments and Taxation of the State of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the corporation by Article VI of the charter of the corporation,
the Board of Directors has duly divided and classified 20,000,000 shares of the
capital stock of the corporation into a series designated Class A Convertible
Preferred Stock and has provided for the issuance of such series.
SECOND: The terms of the Class A Convertible Preferred Stock as set by
the Board of Directors are as follows:
Section 1. Designation and Amount; Fractional Shares; Par Value. There
shall be a class of preferred stock of the corporation designated as "Class A
Convertible Preferred Stock" and the number of shares constituting such series
shall be 20,000,000. The Class A Convertible Preferred Stock is issuable solely
in whole shares that shall entitle the holder thereof to exercise the voting
rights, to participate in the distributions and to have the benefit of all other
rights of holders of Class A Convertible Preferred Stock as set forth herein and
in the charter. The par value of each share of Class A Convertible Preferred
Stock shall be $0.01. The shares of Class A Convertible Preferred Stock are
being offered for sale in a private placement.
Section 2. Dividends. The holders of Class A Convertible Preferred
Stock shall be entitled to receive, when and as declared by the Board of
Directors out of funds legally available for such purpose, cash dividends in
such amounts as the Board of Directors may from time to time determine in order
to satisfy the dividend distribution requirements applicable to "real estate
investment trusts" under the provisions of the Internal Revenue Code of 1986, as
it may be amended, or for such other purpose as the Board of Directors may deem
appropriate.
In no event, so long as any Class A Convertible Preferred Stock shall
remain outstanding, shall any dividend whatsoever be declared or paid upon, nor
shall any distribution be made upon, any common stock or any other class or
series of capital stock that ranks junior to the Class A Convertible Preferred
Stock as to dividends, nor, without the written consent of the holders of 66
2/3% of the outstanding Class A Convertible Preferred Stock, shall any shares of
common stock or such other class or series of capital stock be purchased or
redeemed by the corporation, nor shall any moneys be paid to or made available
for a sinking fund for the purchase or redemption of any shares of common stock,
unless in each instance the price paid for such purchase or redemption does not
exceed $0.01 per share, adjusted for any subsequent dividends or distributions
payable in common stock or such other class or series of capital stock or any
subdivision or combination or reclassification of common stock or such other
class or series of capital stock.
Section 3. Liquidation Preference. Subject to the prior payment in
full of the preferential amounts to which shares of any other series or class of
stock of the corporation ranking, as to distributions upon any liquidation,
dissolution or winding up of the corporation, whether voluntary or involuntary,
any such event referred to as a "liquidation", senior to the Class A Convertible
Preferred Stock, are entitled in the event of any liquidation, each holder of a
Class A Convertible Preferred Stock shall be entitled to receive, and be paid
out of the assets of the corporation available for distribution to its
stockholders, a liquidation preference in the amount of $10.00 per share, plus
all declared and unpaid dividends on such share, referred
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<PAGE>
to as the "liquidation preference". If upon any liquidation the amounts payable
with respect to the liquidation preference of the Class A Convertible Preferred
Stock and any shares of a class or series of the corporation's stock ranking on
a parity with the Class A Convertible Preferred Stock as to distributions upon
liquidation, referred to as "parity stock", are not paid in full, the holders of
Class A Convertible Preferred Stock and of such shares of parity stock will
share pro rata in the amounts payable and other property distributable with
respect to the liquidation so that the per share amounts to which the holders of
Class A Convertible Preferred Stock and the holders of such shares of parity
stock are entitled will in all cases bear to each other the same ratio that the
liquidation preferences of the Class A Convertible Preferred Stock and such
shares of parity stock bear to each other. Following the payment of all of the
liquidation preference, to the extent of any remaining assets, the holders of
the Class A Convertible Preferred Stock and the holders of the common stock of
the corporation will share the remaining amounts payable and other property
distributable with respect to the liquidation equally per share, with each share
of Class A Convertible Preferred Stock being treated for such purposes as if it
had been converted on the day immediately prior to the commencement of the
liquidation into the number of shares of common stock that would be issuable at
such time pursuant to Section 4(a)(i). Neither a consolidation or merger of the
corporation with or into another corporation, nor a merger of any other
corporation with or into the corporation, nor the sale of all or substantially
all of the corporation's property or business, other than in connection with a
winding up of its business, will be considered a liquidation for purposes of
this section.
Section 4. Conversion Provisions.
(a) Conversion Events.
(1) Automatic Conversion. Notwithstanding anything to the
contrary contained in this section, each share of Class A
Convertible Preferred Stock shall automatically be converted
into that number of fully paid and nonassessable shares of
common stock, or such other securities and property as
hereinafter provided, calculated as to each conversion to
the nearest 1/100th of a share with .5/100 rounded upwards,
equal to one times the ratio, referred to as the "conversion
ratio", of (A) $10.00, the issue price per share of Class A
Convertible Preferred Stock, divided by (B) the conversion
price.
The conversion shall occur upon the earlier to occur of the following:
(a) the date of the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and
sale of common stock for the account of the corporation to the
public resulting in gross proceeds to the corporation of at least
$50 million and at a price per share of at least $10.00 or such
lesser amount of proceeds or lower price per share as may be
approved by two-thirds of the voting power of the Preferred
Stock, a "qualified initial public offering", or
(b) the date falling five years from the last closing of the
offering.
For purposes of the Class A Convertible Preferred Stock, "conversion
price" shall initially mean $10.00 until such conversion price is adjusted in
accordance with the provisions of section 4(d) hereof and thereafter shall mean
the conversion price in effect from time to time as adjusted. Except as
specifically provided in section 4(d), there shall be no adjustment of the
conversion price in case of the issuance of any securities of the corporation.
All adjustments in the conversion price shall be rounded to the nearest whole
cent, with one-half cent rounded upwards.
2
<PAGE>
(2) Optional Conversion. Each holder of shares of Class A
Convertible Preferred Stock shall have the right, at such holder's option, to
convert all or a portion of the shares held, at any time or from time to time
following the date occurring three years after the last closing under the
placement into that number of fully paid and nonassessable shares of common
stock, or such other securities and property as hereinafter provided, calculated
as to each conversion to the nearest 1/100th of a share, with .5/100 rounded
upwards, determined by multiplying the aggregate number of shares of Class A
Convertible Preferred Stock being converted at such time by such holder, by the
conversion ratio.
(b) Conversion Procedures. Any holder of shares of Class A
Convertible Preferred Stock desiring to convert shares shall surrender the
certificate or certificates evidencing such shares to the corporation at its
principal office, or such other office or agency of the corporation as the
corporation may designate by notice in writing to the holder or holders of the
Class A Convertible Preferred Stock, at any time during its usual business hours
which certificate or certificates, if the corporation shall so require, shall be
duly endorsed to the corporation or in blank, or accompanied by proper
instruments of transfer to the corporation or in blank, accompanied by (1) an
irrevocable written notice to the corporation that the holder elects to convert
such shares and specifying the name or names, with address or addresses, in
which a certificate or certificates evidencing shares of common stock are to be
issued and (2) if required pursuant to section 4(f), an amount sufficient to pay
any transfer or similar tax, or evidence reasonably satisfactory to the
corporation demonstrating that such taxes have been paid.
The corporation shall, as soon as practicable after effectiveness of
conversion of shares of Class A Convertible Preferred Stock and compliance with
the other conditions herein contained, deliver to the holder whose shares of
Class A Convertible Preferred Stock are so converted, or to the nominee or
nominees of such person, certificates evidencing the number of full shares of
common stock to which such person shall be entitled, together with a cash
payment in respect of any fraction of a share of common stock as hereinafter
provided. The conversion pursuant to section 4(a)(1) shall be deemed to have
been effected at the time and on the date therein specified. Subject to the
following provisions of this paragraph, each conversion pursuant to section
4(a)(2) shall be deemed to have been effected immediately prior to the close of
business on the date on which the certificates for shares of Class A Convertible
Preferred Stock to be converted shall have been surrendered together with the
irrevocable written notice and the payment of taxes, if applicable, all as
provided in this section, and the person or persons entitled to receive the
common stock deliverable upon conversion of such Class A Convertible Preferred
Stock shall be treated for all purposes as the record holder or holders of such
common stock at such time on such date, unless the stock transfer books of the
corporation shall be closed on such date, in which event such person or persons
shall be deemed to have become such holder or holders of record at the close of
business on the next succeeding day on which such stock transfer books are open,
but such conversion shall be at the conversion ratio in effect on the date on
which such shares shall have been surrendered and the other conditions specified
above have been satisfied. Notwithstanding the preceding sentence, in the event
that at the time of surrender of shares of Class A Convertible Preferred Stock
for conversion pursuant to section 4(a)(2) the corporation has an effective
registration statement covering such conversion to common stock, the holder so
surrendering shares for conversion shall have the right to rescind such election
to convert, by delivering a written notice to that effect to the corporation at
the office at which such shares were surrendered, for a period ending at the
close of business on the fifth business day after the corporation shall have
mailed, for overnight delivery if possible, to such holder at its last address
as it shall appear upon the stock transfer books of the corporation a copy of
the prospectus covering such conversion. No holder of Class A Convertible
Preferred Stock shall have any rights as a holder of common stock, or any other
securities into which the Class A Convertible Preferred Stock may become
convertible, unless and until such conversion has been effected.
The holder of a share of Class A Convertible Preferred Stock at the
close of business on a record date shall be entitled to receive the dividend
payable thereon on the corresponding dividend payment date notwithstanding the
conversion thereof during the period between the record date with respect to
such
3
<PAGE>
dividend and the corresponding dividend payment date or the corporation's
default in the payment of the dividend due on such dividend payment date. Except
as provided in the preceding sentence, no payments or adjustments in respect of
dividends on shares of Class A Convertible Preferred Stock converted or on
account of any dividend on the common stock issued upon conversion shall be made
upon the conversion of any shares of Class A Convertible Preferred Stock.
(c) No Fractional Shares. No fractional shares or scrip representing
fractional shares of common stock shall be issued upon conversion of Class A
Convertible Preferred Stock. If a certificate or certificates representing more
than one share of Class A Convertible Preferred Stock shall be surrendered for
conversion at one time by the same record holder, the number of full shares of
common stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares of Class A Convertible Preferred Stock so
surrendered by such record holder as provided in section 4(b). In lieu of any
fractional share of common stock that would otherwise be issuable upon
conversion of any shares of Class A Convertible Preferred Stock, the corporation
shall pay a cash adjustment in respect of such fractional share in an amount
equal to the same fraction of the current fair market value of the common stock
on the day immediately preceding the date of conversion, as determined by the
Board of Directors.
(d) Adjustments to Conversion Price; Fundamental Change.
(1) Changes in Capital Stock. If, after the issuance of any
shares of Class A Convertible Preferred Stock, the corporation:
(A) subdivides its outstanding shares of common stock into
a greater number of shares; or
(B) combines its outstanding shares of common stock into a
smaller number of shares; or
(C) issues, by any dividend or distribution to the holders
of common stock, shares of common stock; or
(D) issues, by reclassification of its common stock, any
shares of its capital stock;
then the conversion rights and the conversion price in effect immediately prior
to such action shall be adjusted so that the holder of shares of Class A
Convertible Preferred Stock thereafter converted may receive the number of
shares of capital stock of the corporation which such holder would have owned
immediately following such action if such holder had converted the shares of
Class A Convertible Preferred Stock immediately prior to such action. The
adjustment shall become effective immediately after the effective date of the
subdivision, combination, issuance or reclassification.
If after an adjustment a holder of shares of Class A Convertible
Preferred Stock upon conversion of such shares may receive shares of two or more
classes of capital stock of the corporation, the conversion price shall
thereafter be subject to adjustment upon the occurrence of an action taken with
respect to any such class of capital stock as is contemplated by this section
4(d) with respect to common stock, on terms comparable to those applicable to
common stock in this section 4(d).
(2) Anti-dilution Provision. If the corporation shall issue any
class or series of capital stock of the corporation that ranks junior to the
Class A Convertible Preferred Stock at a price per share less than the greater
of (a) $10.00 and (b) the fair market value per share of such capital stock,
such greater amount being hereinafter referred to as the "base price", then the
conversion price in effect at the
4
<PAGE>
opening of business on the day next following such issuance shall be adjusted to
equal the price determined by multiplying (1) the conversion price in effect
immediately prior to the opening of business on the day next following such
issuance by (2) a fraction, the numerator of which shall be the sum of (x) the
number of shares of all classes and series of capital stock outstanding on the
close of business on the day next preceding the day of such issuance and (y) the
number of shares that could be purchased at the base price from the aggregate
proceeds to the corporation from the issuance of such new shares of capital
stock, and the denominator of which shall be the sum of (xx) the number of
shares of all classes and series of capital stock outstanding on the close of
business on the day next preceding the day of such issuance and (yy) the number
of additional shares of capital stock being issued; provided, however, that no
-------- -------
adjustment to the conversion price shall be made as a result of a qualified
initial public offering. For purposes of this subsection, "fair market value"
shall mean, as to any class or series of capital stock that is not publicly
traded, the fair value of the shares of such class or series as determined
reasonably and in good faith by a majority of the Board of Directors of the
corporation including a majority of the independent directors, if any, as
defined in the corporation's bylaws, and, as to publicly traded securities,
shall mean the average of the daily current market prices of a share of such
capital stock during five consecutive trading days selected by the corporation
commencing not more than twenty trading days before, and ending not later than
the effective day of the conversion price adjustment pursuant to this
subsection. "Current market price" of publicly traded securities for any day
shall mean the closing price, regular way on such day, or, if no sale takes
place on such day, the average of the reported closing bid and asked prices
regular way on such day, in either case as reported on the Nasdaq National
Market or the principal national securities exchange on which such securities
are listed or admitted for trading, or if not so quoted, listed or admitted, the
average of the closing bid and asked prices on such day in the over-the-counter
market as reported by Nasdaq.
(3) De Minimis Adjustments. If the amount of any adjustment of
the conversion price required pursuant to section 4(d) would be less than one
percent of the conversion price in effect at the time such adjustment is
otherwise so required to be made, no adjustment to the conversion price shall be
made and such amount shall be carried forward and an adjustment with respect
thereto made at the time of and together with any subsequent adjustment which,
together with such amount and any other amounts so carried forward, shall
aggregate at least one percent of such conversion price.
(4) Reorganization. If a change of control shall occur with
respect to the corporation or if the corporation is a party to a consolidation
or a merger or other combination, or transfers all or substantially all of its
assets as an entirety, any such change of control, consolidation, merger,
combination or transfer being hereinafter referred to as a "fundamental change",
each holder of Class A Convertible Preferred Stock shall be given the option to
elect to receive either (1) the kind and amount of securities, cash or other
assets which such holder would have received immediately after the fundamental
change if such holder had converted such shares of Class A Convertible Preferred
Stock immediately before the effective date of the fundamental change or (2) the
liquidation preference of such shares of Class A Convertible Preferred Stock. No
later than the twentieth day after the day the corporation mails notice of a
proposed fundamental change or the occurrence of a fundamental change, as
required under section 4(g), each holder of Class A Convertible Preferred Stock
shall mail to the corporation its election to receive the amounts specified
under either (1) or (2) above. If no election is timely mailed by a holder, the
corporation shall determine in its sole discretion whether such holder receives
the amounts under (1) or (2). For purposes of this subsection (d)(4), a "change
of control" shall be deemed to occur if, and only if, during any period of two
consecutive years, not including any period prior to the initial closing of the
placement, individuals who at the beginning of such period constitute the Board
of Directors and any new director, (1) whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved or (2) whose election is to replace a person
who ceases to be a director due to heath, disability or age, cease for any
reason to constitute a majority of the Board of Directors.
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<PAGE>
(e) Adjustment Reports. Whenever any adjustment is required in
the shares into which any share of Class A Convertible Preferred Stock is
convertible, the corporation shall cause a notice of such adjustment, setting
forth the adjusted conversion price and the calculation thereof to be mailed to
the holders of record of shares of Class A Convertible Preferred Stock at their
address as shown on the stock transfer books of the corporation.
(f) Reservation of Shares; Transfer Taxes; Etc. The corporation
shall at all times reserve and keep available, out of its authorized and
unissued stock, solely for the purpose of effecting the conversion of the Class
A Convertible Preferred Stock, such number of shares of its common stock free of
preemptive rights as shall from time to time be sufficient to effect the
conversion of all shares of Class A Convertible Preferred Stock from time to
time outstanding. The corporation shall from time to time, in accordance with
the laws of the State of Maryland, increase the authorized number of shares of
common stock if at any time the number of shares of authorized and unissued
common stock shall not be sufficient to permit the conversion of all the then
outstanding shares of Class A Convertible Preferred Stock.
The corporation shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of common stock upon
conversion of the Class A Convertible Preferred Stock. The corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of common stock, or other securities
or assets, in a name other than that in which the shares of Class A Convertible
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
corporation the amount of such tax or has established, to the satisfaction of
the corporation, that such tax has been paid.
(g) Prior Notice of Certain Events. In case:
(1) the corporation proposes to take any action that would
require an adjustment pursuant to section 4(d); or
(2) the corporation proposes to take any action that would
require any person to make provisions in a certificate or articles of
incorporation or other constituent document as contemplated by Section
4(d); or
(3) of a proposed liquidation or a fundamental change;
then the corporation shall cause to be mailed to the holders of record of the
Class A Convertible Preferred Stock at their last addresses as they appear upon
the stock transfer books of the corporation, at least twenty days prior to the
proposed effective date of the event being reported, or, if such event takes
place without prior notice to or knowledge of the corporation, within five days
after the actual effective date, a notice summarizing the material terms of such
event and stating the proposed or actual effective date, but no failure to mail
such notice or any defect therein or in the mailing thereof shall effect the
validity of the corporate action required to be specified in such notice.
Section 5. Voting Rights. The holders of Class A Convertible Preferred
Stock and common stock shall vote together as a class for the election of all
the directors of the corporation and, except as otherwise provided by law, the
charter or the terms of the Class A Convertible Preferred Stock, on all other
matters to be voted on by the stockholders of the corporation on the following
basis: (1) each holder of Class A Convertible Preferred Stock shall be entitled
to one vote for each share of common stock which would be issuable to such
holder upon the conversion of all the shares of Class A Convertible Preferred
Stock so held on the record date for the determination of stockholders entitled
to vote, and (2) each holder of common stock shall be entitled to one vote per
share; provided, however, that:
6
<PAGE>
(1) the holders of Class A Convertible Preferred Stock and the
holders of common stock will be entitled to vote as separate classes
for any proposed merger, consolidation or sale of the assets of the
Company as an entirety, but only if at the time of such proposal, one
person or group of persons is the "beneficial owner", as determined
under the rules of Regulation 13D-G under the Securities Exchange Act
of 1934, as amended, of more than 66 2/3% of the preferred stock;
(2) the holders of Class A Convertible Preferred Stock and the
holders of common stock will be entitled to vote as separate classes
for any stock splits, reverse stock splits, or other amendments to the
charter which in any way adversely affects the respective preferences,
qualifications, special or relative rights or privileges of the common
stock.
Section 6. Restrictions. At any time when shares of Class A
Convertible Preferred Stock are outstanding, except where the vote or written
consent of the holders of a greater number of shares of the corporation is
required by law or by the charter or the terms of the Class A Convertible
Preferred Stock, and in addition to any other vote required by law, without the
prior consent of the holders of sixty-six and two-thirds percent of the
outstanding Class A Convertible Preferred Stock, given in person or by proxy,
either in writing or at a special meeting called for that propose, at which
meeting the holders of the shares of such Class A Convertible Preferred Stock
shall vote together as a class:
(a) The corporation will not create or issue any additional class or
series of capital stock or any securities convertible into any additional class
or series of capital stock unless such additional class or series of capital
stock ranks junior to the Class A Convertible Preferred Stock both as to
dividends and as to the distribution of the assets on liquidation or increase
the authorized amount of the Class A Convertible Preferred Stock or increase the
authorized amount of any additional class or series of capital stock unless the
same ranks junior to the Class A Convertible Preferred Stock both as to
dividends and as to the distribution of assets on liquidation, whether any such
creation or authorization or increase shall be by means of amendment of the
charter or the terms of the Class A Convertible Preferred Stock, merger,
consolidation or otherwise.
(b) The corporation will not amend, alter or repeal the terms of the
Class A Convertible Preferred Stock in any way or amend the charter in any way
which adversely affects the respective preferences, qualifications, special or
relative rights or privileges of the Class A Convertible Preferred Stock.
Section 7. Ranking Upon Liquidation. Any class or series of capital
stock of the corporation shall be deemed to rank:
(1) senior to the Class A Convertible Preferred Stock, 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 upon Liquidation, as the case may be, in preference or
priority to the holders of Class A Convertible Preferred Stock;
(2) on a parity with the Class A Convertible Preferred Stock, as
to dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per share
thereof are different from those of the Class A Convertible Preferred
Stock, if the holders of such class or series of stock and the Class A
Convertible Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, as the case
may be, in proportion to their respective amounts of accumulated and
7
<PAGE>
unpaid dividends per share or liquidation prices, as the case may be,
without preferences or priority one over the other; and
(3) junior to the Class A Convertible Preferred Stock, as
to dividends or upon liquidation, if such stock shall be common stock
or any other class or series of capital stock of the corporation if
the holders of Class A Convertible Preferred Stock shall be entitled
to receipt of dividends or of amounts distributable upon liquidation,
as the case may be, in preference or priority to the holders of shares
of such other stock.
Section 8. Outstanding Shares. For purposes of the Class A Convertible
Preferred Stock, all shares of Class A Convertible Preferred Stock issued by the
corporation shall be deemed outstanding except (1) shares of Class A Convertible
Preferred Stock converted into common stock and (2) shares of Class A
Convertible Preferred Stock acquired or held by the corporation or any direct or
indirect majority-owned subsidiary of the corporation.
Section 9. Status of Acquired Shares. Shares of Class A Convertible
Preferred Stock received by the corporation upon conversion pursuant to section
4 or otherwise acquired by the corporation will be restored to the status of
authorized but unissued shares of capital stock, without designation as to
class, and may thereafter be issued, but not as shares of Class A Convertible
Preferred Stock except as otherwise permitted herein.
Section 10. No Redemption. The shares of Class A Convertible Preferred
Stock shall not be subject to redemption, either mandatorily or at the option of
the corporation or the holder thereof, except as provided in section 4(d)(4) or
the charter.
Section 11. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof.
Section 12. Time and Business Days. Wherever there are references
herein to "at the close of business" such references shall mean 5:00 p.m.
Pacific Standard or Daylight Time, as the case may be, on a business day.
References to "business day" shall mean days other than (1) Saturday or Sunday,
(2) a legal holiday in the State of California, or (3) a day on which banking
institutions in the City of Menlo Park, California are authorized or obligated
by law or executive order to be closed.
IN WITNESS WHEREOF, the corporation has caused these presents to be
signed in its name and on its behalf by its president and witnessed by its
secretary on April 23, 1999.
Primecore Mortgage Trust, Inc. WITNESS:
/s/ Susan Fox /s/ Michael Rider
- ------------------------------- ------------------------------------
Susan Fox Michael Rider
President Secretary
8
<PAGE>
THE UNDERSIGNED, President of Primecore Mortgage Trust, Inc., who
executed on behalf of the corporation Articles Supplementary of which this
Certificate is made a part, hereby acknowledges in the name and on behalf of
said corporation the foregoing Articles Supplementary to be the corporate act of
said corporation and hereby certifies that the matters and facts set forth
herein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
/s/ Susan Fox
------------------------------------
Susan Fox
President
9
<PAGE>
EXHIBIT 99.2
PREFERRED STOCK PREFERRED STOCK
- ------------------ -------------------
NUMBER SHARES
PMT 0000
- ------------------ -------------------
Primecore Mortgage Trust, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 74158Q 40 4
This Certifies that
Is the Registered Holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A CONVERTIBLE PREFERRED
STOCK, PAR VALUE $.01 PER SHARE, OF
-------------------- ----------------------
- ----------------------- Primecore Mortgage Trust, Inc.--------------------------
-------------------- ----------------------
transferable on the books of the Corporation by the holder hereof in person
or by a duly authorized attorney upon surrender of this Certificate
properly endorsed.
WITNESS the facsimile seal of the Corporation and the signatures of its
duly authorized officers.
Dated:
[SEAL]
SECRETARY PRESIDENT
<PAGE>
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or any state securities laws and,
unless so registered, may not be sold, assigned, transferred, pledged or
otherwise disposed of except pursuant to an exemption from, or in a transaction
subject to, the registration requirements of the Securities Act and applicable
state securities laws.
The holder of this security by its acceptance hereof agrees to offer, sell
or otherwise, transfer, such security, prior to the date, the "resale
restriction termination date," which is two years after the later of the
original issue date hereof and the last date on which the company or any
affiliated person of the company was the owner of this security, or any
predecessor of such security only (a) to the company, (b) pursuant to a
registration statement which has been declared effective under the Securities
Act, (c) for so long as the securities are eligible for resale pursuant to Rule
144a, to a person it reasonably believes is a "qualified institutional buyer" as
defined in Rule 144a under the Securities Act that purchases for its own account
or for the investor account of a qualified institutional buyer to whom notice is
given that the transfer is being made in reliance on Rule 144a, (d) to an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities Act that is acquiring
the security for its own account or for the investor account of such an
institutional "accredited investor" for investment purposes and not with a view
to, or for offer or sale in connection with, any distribution in violation of
the Securities Act, (e) to an individual "accredited investor" as defined in
subparagraph (a)(4), (a)(5) or (a)(6) of Rule 501 under the Securities Act that
is residing in one of the jurisdictions authorized by the company and who is
acquiring the security for its own account for investment purposes and not with
a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act or (f) pursuant to another available exemption
from the registration requirements of the Securities Act, subject to the
company's or other transfer agent's right, as the case may be, prior to any such
offer, sale or transfer pursuant to clauses (d), (e) or (f) to require the
delivery of an opinion of counsel certification and/or other information
reasonably satisfactory to it, and in each of the foregoing cases, a certificate
of transfer in the form appearing on this security completed and delivered by
the transferor to the company's other transfer agent, as the case may be. In
addition, prior to the time the class of stock evidenced by this security is
listed on a national securities exchange or the NASDAQ national market security
may not be transferred to any "benefit plan investor" as such term is defined in
29 C.F.R. (S)2510.3-101 unless the proposed transferee provides a disclosure and
acknowledgement form and the aggregate percentage of the class of stock
evidenced hereby and proposed to be transferred, taken together with all other
shares of such class owned by benefit plan investors, would not equal or exceed
25% of such class outstanding. This legend will be removed upon the request of
the holder after the resale restriction termination date.
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 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 Benefically 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.
In addition, the Corporation will furnish to any stockholder on request and
without charge a full statement or summary of the designations and any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the stock of each class which the Corporation is authorized to
issue and the differences in the relative rights and preferences between the
shares of each series, if any, to the extent they have been set, and of the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. Such request may be made to the Secretary of the
Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______________ Custodian________________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right ________________________________________
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list.
For Value Received, _________________________________________________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------shares
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
- ----------------------------------------------------------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated: _____________________________________
_____________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-18-1999
<PERIOD-END> DEC-31-1999
<CASH> 676
<SECURITIES> 0
<RECEIVABLES> 185,548
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 186,224
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 186,224
<CURRENT-LIABILITIES> 12,458
<BONDS> 0
189,851
0
<COMMON> 0
<OTHER-SE> (16,085)
<TOTAL-LIABILITY-AND-EQUITY> 186,224
<SALES> 0
<TOTAL-REVENUES> 2,583
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 241
<INCOME-PRETAX> (16,085)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,085)
<EPS-BASIC> (161)
<EPS-DILUTED> (161)
</TABLE>
